What Goes Into A Real Estate Offer
An offer includes an accurate description of the property, the buyers' correct names, and the exact price and terms, the ‘good faith’ deposit, and more. Also called 'earnest money,' the deposit should be large enough to convince the seller(s) that you are serious but small enough to place little risk on your funds. Depending on your agent, he or she may suggest anywhere from 2% to 10% as a reasonable amount for a deposit. However, you can offer any amount that feels comfortable. To avoid tying up your cash until you're sure the deal is serious, you might initially offer only $1,000 then increase the deposit after the contingencies have been removed.
Although the deposit is technically the seller's money, it's usually a good idea to have it deposited into a neutral party's account (such as an agent’s or the escrow company's account).
Here are six other essentials to consider:
Home Inspection Contingency: This authorizes you to have a professional home inspector examine the property, often within a two-week time frame. Most contracts stipulate that you must approve the report for the purchase to go though. If you don't approve it, the sale is off and you get your deposit back. Other inspections may be necessary such as those for termites (normally required for financing), soil, radon, lead, asbestos, building code compliance, and so on. If a problem is discovered, you may want to renegotiate the purchase so the seller is required to pay for repairs.
Mortgage Contingency: This states that, if you are unable to get a mortgage, you are not required to complete the transaction. Even if you are pre-approved, an unexpected change in your credit status (such as a job loss) could affect your ability to get financing or the home itself might not appraise for the value necessary to get the loan. Without this contingency you could be obligated to complete the sale and be liable for damages to the seller if you didn't.
Liquidated Damages: Now found in most purchase offers, this statement contains an agreement between the buyer and seller that if you (the buyer) fail to follow through on the purchase of the home, you are limited to losing only your deposit. Some states limit the liquidated damages to a certain percentage of the purchase price, and your agent can tell you of any limitations in your area.
Contingency: This allows you to back out of the deal gracefully if you later decide not to buy, for any reason. For example, you might insert a clause stating that the purchase is contingent upon an amount of money you anticipate from a stock sale. If the cash doesn't materialize, there is no deal.
Be aware that contingencies weaken your offer. Sellers are understandably less likely to accept such a deal because they realize the clause allows the buyer to 'escape' without penalty.
Final Walk-through Clause: This lets you examine the property one last time just before closing to confirm that the home is exactly as it was when you first made your offer.
A hot real estate market will contain multiple offers, and it may be difficult to determine how high to bid. Put yourself in a good position by making a clean offer with few contingencies, and limit the various protective clauses by planning ahead. You should also get pre-approved so you’re aware of available financing, have the cash on hand, and make sure you’ve cleaned up any credit problems. Other factors that can help your bid are offering to close early and talking to the sellers to establish a rapport. A personal connection may put you over the top in a bidding war.