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In the United States, oral contracts are not enforceable – real estate contracts must be in writing.
Elements present in a valid offer to purchase:
- Address and accurate legal description of the property
- Complete Seller’s and Buyer’s Names
- Sale price
- Terms: for example, cash or subject to the buyer obtaining a mortgage for a given amount and with whom they will apply
- Seller’s promise to provide clear title (ownership)
- Target date for closing
- Amount of earnest money deposit accompanying the offer and where and with whom it will be deposited (Customarily Escrow or Title Company)
- Any Contingencies
- Any proration of real estate taxes, rents, fuel, water bills and utilities, hoa fees
- Division of payments such as title insurance, any surveys, termite inspections and/or treatments, additional details
- Type of deed to be given
- Type of Buyer’s ownership
- Disclosure of specific environmental hazards, seismic hazards, proximity to an airport or other locally-specific clauses
- A provision that the buyer may make a final walk-through inspection of the property just before closing
Self-explanatory, but still the most important term.Earnest money
Along with your Purchase Agreement, you will submit earnest money to demonstrate your sincerity about the purchase. A good guideline for earnest money amount is 1-2% of the sales price. If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal against the terms of the contract, you may have to forfeit the entire amount.NOTE: one note about earnest money – It is always best to submit earnest money in the form of a traceable check. Do not use cash as this may become a sticking point with your lender… cash is not traceable.Title
“Title” refers to legal ownership. The seller should provide title, free and clear of claims by others. Title insurance assures that the home is free of “unacceptable liens” or “encumbrances.”Mortgage Clause
A clause which specifies that obtaining of a mortgage loan on the property, with terms and conditions acceptable to you, is a condition of the sale, and provides for the refund of your deposit if you fail to get the mortgage loan.Pest Inspection
This clause provides for a pest inspection and report by a licensed pest control operator. Sometimes sellers will provide this report prior to the purchase agreement. If not, it provides for a method of allocating who will pay for the repairs disclosed by the report. Your lender may require a certificate from a qualified inspector stating that the property is free from termites, pests and dry rot.Home Inspection
I strongly recommend an inspection and written report by a home inspector who is licensed, to determine the condition of plumbing, heating, cooling and electrical systems, the structure of the home, the grading, roof, siding, windows and doors. I also strongly recommend that you request any such additional inspections as may be recommended by your home inspector, such as a separate roof inspection, foundation or soils inspection, pool inspection, etc. These additional inspections may reveal conditions or defects beyond the ability of a general home inspector to ascertain.Contingencies
You can specify, in your Purchase Agreement, that certain conditions must be met before the sale is complete. Contingencies may be crucial, so be sure to speak up and tell me what’s important to you, so that all of your concerns are reflected in your offer. They may include:
- The sale of your current home
- Your ability to obtain specific financing from a lending institution. This contingency will ensure that if you can’t find a loan you will not be bound by the contract.
- That the home inspector you hire provides a satisfactory report within 10 days (for example) after the seller accepts your offer. With the proper contingency, if the report does not satisfy you, the contract becomes void.
Obviously, in a slower home sale market, sellers are more willing to accept contingencies. Too many contingencies in a strong real estate market may prevent your offer from being accepted. Make sure your contingencies are clear!
This is a deposit that you provide at the time that you make an offer. The seller would be understandably suspicious of a written offer that is not accompanied by a deposit to show “good faith.” The title company usually holds the deposit. This amount will become part of the down payment.
In most instances, the buyer will select the escrow company which is also the title company providing the title insurance policy to follow close of escrow.
You can negotiate which closing costs you will pay and which will be paid by the seller. However, be aware that longstanding practice regarding the handling or allocation of these costs, makes many of them hard to negotiate on terms different from local custom. If a seller was obligated to pay a certain closing cost when he or she bought the property, they will expect you, the buyer, to pay the same cost on your purchase. See the section on “Who Pays What?” which details these cost allocations in the area we serve.
Withdrawing an offer
In most cases the buyer may withdraw an offer right up until the moment the offer is accepted. If your contract has already been accepted, there are clauses that protect you if financing becomes a problem or you are unhappy with inspection results. Consult your Realtor as to the best and safest way to withdraw your offer.
The seller’s response to the offer
You will have a binding contract if the seller, upon receiving the written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as the signed offer is delivered to you or me, your agent. If the offer is rejected, then the offer is no longer valid. You may receive a written counter offer, with changes in terms that the seller prefers. You are then free to accept or reject the counter offer, or even to make a counter offer of your own.
Each time either party changes terms, the other side is free to accept or reject, or counter again. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side’s proposal and that final, unchanged document is delivered to the other party or their agent.
How the seller may counter offer
The buyer and seller can negotiate and agree about any of the terms, conditions, costs and who pays for them. Some terms and conditions that are commonly negotiated include:
- Termite inspection fee and costs to repair any damage
- Closing costs
- Points to the buyer’s lender
- Repairs required by the lender
- Repairs of conditions or defects disclosed by the seller, uncovered by inspectors, or required by governmental agencies
- Date for the close of escrow
- Date and time for possession by buyer
- A holding over, or lease-back, by seller after close of escrow