The Basics of Making an Offer
A written Purchase and Sale Agreement is the foundation of a real estate transaction. Oral promises are not legally enforceable when it comes to the sale of real estate. Therefore, you need to enter into a written contract, which starts with your written Purchase and Sale Agreement. This Purchase and Sale Agreement not only specifies price, but also all the terms and conditions of the purchase. For example, if the seller offered to help with $2,000 toward your closing costs, make sure that's included in your written offer and in the final completed contract, or you won't have grounds for collecting it later. REALTORS® have standard Purchase and Sale Agreements and will help you put together a written, legally binding offer that reflects the price as well as terms and conditions that are right for you. Your REALTOR® will guide you through the offer, counteroffer, negotiating and closing processes. In many States, certain disclosure laws must be complied with by the seller, and the REALTOR® will ensure that this takes place.
If you are not working with a real estate agent, keep in mind that you must draw up a Purchase and Sale Agreement or contract that conforms to state and local laws and that incorporates all of the key items. State laws vary, and certain provisions may be required in your area.
After the offer is drawn up and signed, it is usually presented to the seller by your real estate agent, by the seller's real estate agent, if that's a different agent, or often by the two together. In a few areas, sales contracts are drawn up by the parties' lawyers.
What is in an Offer?
The Purchase and Sale Agreement (or purchase offer) you submit, if accepted as it stands, will become a binding sales contract (known in some areas as a purchase agreement, earnest money agreement or deposit receipt). So it's important that the purchase offer contains all the items that will serve as a "blueprint for the final sale." The purchase offer includes items such as:
- address and the legal description of the property
- sale price
- terms: for example, all cash or subject to you obtaining a mortgage for a given amount
- seller's promise to provide clear title (ownership)
- target date for closing (the actual sale)
- amount of earnest money deposit accompanying the offer, whether it's a check, cash or promissory note, and how it's to be returned to you if the offer is rejected - or kept as damages if you later back out for no good reason
- method by which real estate taxes, rents, fuel, water bills and utilities payments are to be adjusted (prorated) between buyer and seller
- provisions about who will pay for title insurance, survey, termite inspections, etc.
- type of deed to be given
- other requirements specific to your state, which might include a chance for an attorney to review the contract, disclosure of specific environmental hazards or other state-specific clauses
- a provision that the buyer may make a last-minute walkthrough inspection of the property just before the closing
- a time limit (preferably short) after which the offer will expire
- contingencies, which are an extremely important matter and that are discussed in detail below
Contingencies - “Subject to” Clauses
If your offer says "this offer is contingent upon (or subject to) a certain event," you're saying that you will only go through with the purchase if that event occurs. Here are two common contingencies contained in a purchase offer:
- The buyer obtaining specific financing from a lending institution: If the loan can't be found, the buyer won't be bound by the contract.
- A satisfactory report by a home inspector: for example, "within 10 days after acceptance of the offer." The seller must wait 10 days to see if the inspector submits a report that satisfies the buyer. If not, the contract would become void. Again, make sure that all the details are explicitly stated in the written contract.
Buyers: the Seller's Response to Your Offer
You will have a binding contract if the seller, upon receiving your written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as you are notified of acceptance. If the offer is rejected, that's that - the sellers could not later change their minds and hold you to it.
If the seller likes everything except the sale price, or the proposed closing date, or the basement pool table you want left with the property, you may receive a writtencounteroffer including the changes the seller prefers. You are then free to accept it, reject it or even make your own counteroffer. For example, "We accept the counteroffer with the higher price, except that we still insist on having the pool table."
Each time either party makes any change in the terms, the other side is free to accept, 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.