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Anatomy of a Buyer's Offer

Purchase offers are known by different names in different parts of the country, including:

  • Purchase agreement
  • Offer to purchase and contract
  • Deposit receipt
  • Earnest money agreement

The documents themselves vary according to the provisions and requirements of state and local jurisdictions. These days they usually are quite long.

In some states, only attorneys are allowed to prepare real estate contracts. In others, real estate agents may prepare such contracts using state-approved, pre-printed real estate forms. If this is the case where you are, your agent will have the printed forms that are standard in your area.

Do not skip this step

Most buyers are working with a real estate agent who supplies forms for entering into a real estate purchase agreement with a seller. The terms of the contract involve many significant points in addition to the purchase price, including financing, contingencies, title work and closing date. Due to the detail and liabilities associated with this transaction, it is important to consider enlisting the services of your own attorney to review the contract. The so-called “standard” contract may contain clauses that are not in your best interest. Real estate attorneys will often review or consult on a purchase agreement for a nominal fee, which is well worth paying.

As with any business transaction, each party has certain responsibilities. In real estate, the script goes something like this:

  • You and your real estate agent fill out the purchase offer form, and you and your attorney may review it before you sign. If your attorney drafts the purchase contract instead, you will need your agent’s help in gathering all the necessary information.
  • The document specifies the amount of your offer, and a date and time after which the offer expires. Depending on the custom in your area (and how hot the housing market is), this may be anywhere from a few hours to a few days. A typical expiration time frame is one or two days.
  • The document will also spell out the terms of your offer — how you propose to finance the purchase, when you wish to close, how you wish to handle the findings of the professional home inspection, and any other conditions that must be satisfied for your offer to hold.
  • Usually, your agent presents your offer to the seller’s agent, who then presents it to the seller along with a check or money order that is your good faith “earnest money” deposit. Although in some states you don’t legally need to make a deposit with your offer, most sellers won’t take the offer seriously without it.
  • If the seller accepts the offer as written, signs it and gets the document back to you within the specified time limit, you are now legally bound by its terms.
  • If the seller does not accept the offer as written, he may reject it entirely or modify a number of clauses, sign it and send it back as a counteroffer.
  • You then have three options: accept and sign the counteroffer as written; reject the counteroffer and walk away; or modify it and send it back as a counter-counteroffer.
  • Each counter is technically (and legally) a rejection of the prior offer and constitutes a new offer in itself, with its own time frame for acceptance.
  • You and the seller may go back and forth several times until you reach agreement or one of you calls it quits.
  • Once you and the seller have come to an agreement — having both initialed all the changes, signed and dated the document — you each will have tasks to carry out in order to bring the transaction to closing.
  • The seller, for example, now has a certain number of days within which to make a full disclosure of anything he knows to be defective on the property. Upon receipt of this disclosure form, you will have a certain number of days to review it and to modify or rescind your offer if you wish. As with everything else, this rescission must be in writing and presented to the seller or the seller’s agent. If this happens in a timely manner, you will get your earnest money deposit back.
  • Your responsibilities include instructing your mortgage lender to begin processing your loan, which in turn involves having the property appraised.
  • You are also responsible for getting the home inspected within the allotted time period and arranging to have the home insured to satisfy your mortgage lender.
  • A few days before the scheduled closing, you will do a final walk-through of the house, to check that any requested repairs were made and that everything is in the condition agreed to in the purchase contract.

How to decide what price you will offer

To prevent worry on your part about your offer price, ask your real estate agent to prepare a CMA, or comparative market analysis. A CMA report will compile information from the comps you should already have seen — individual descriptions of similar properties that are or have recently been on the market.

The report will include the list and sales prices for properties that have recently sold as well as list prices for pending sales, meaning the seller has agreed to sell the house to a buyer, but the transaction hasn’t closed yet. (A property in this situation is sometimes described as “in escrow.”) The CMA can also include active listings and expired listings — houses that didn’t sell and were taken off the market.

Typically, the CMA report is designed to let you quickly compare elements such as square footage, age of the home, number of bedrooms and baths, size of major rooms and amenities such as fireplaces and swimming pools. It may also list property taxes and school districts, and it should also tell you how long each property has been or was on the market.

Using all this information, you and your agent can add or subtract dollars for the plusses and minuses of the other homes to come up with a probable market value for the home you’re interested in. (And be sure to check Zillow.com for the latest market values for your target house and others in its neighborhood.)

Factors to consider

  • How the house and the asking price stack up compared to other recent sales (remember the CMA).

  • Is your home in a strong buyers’ or sellers’ market, or is more or less neutral? In a buyers’ market or a neutral market, you may have more leeway on some of the elements of your offer (price being just one). In a sellers’ market, where houses can become the objects of bidding wars and end up selling well above their asking price, your options may be rather more limited.

  • Seller’s motivation. If you know something about the seller’s circumstances, you may be able to improve your chances by making an offer that accommodates his or her needs. The seller’s agent is not likely to volunteer information that would put his or her client at a bargaining disadvantage, but you or your agent may be able to glean some bits of useful intelligence.

  • Length of time on the market. If the home has just been listed, and the market is modestly in the seller’s favor, he may refuse your below-asking price offer in hopes of getting the full price from the next person. If a prior deal has fallen through, however, and your financial situation looks strong, the seller may well find your low offer quite attractive.

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