Making a purchase offer and actually buying a home are generally two different transactions. Homebuyers sometimes confuse the two, though, especially in states such as California where the purchase offer is not the final negotiation due to contingencies in contracts.
In some states on the East Coast, it's common to write a letter of intent to purchase a home, and, in many ways, it seems like a more civilized way to buy. However, many other states require using a purchase contract. This is because purchase contracts may include provisions that let a buyer cancel the contract and get back their entire earnest money deposit.
Don't Hesitate to Make a Purchase Offer
If the home you're thinking about buying is likely to sell quickly, and if you have a way to cancel the contract later, you should immediately make a purchase offer. Don't sleep on it or try to get every single question answered beforehand, or you may very well lose the home. Somebody else could beat you to the draw and steal it out from under your nose while you're busy weighing the pros and cons.
If you like the home, the odds are several other active homebuyers will too. You're not the only smart cookie in the marketplace who can spot an excellent buy.
The Reality of Purchase Offers
When a home seller accepts a purchase offer, the seller is hoping the buyer will complete the transaction at the agreed-on price and believes there is nothing wrong with the condition of the home. The homebuyer, on the other hand, is hoping the transaction will close because the home is in A-1 condition and perfect. It's rare that either of those expectations is in line with reality. No home is perfect, and many conditions can change once a contract is accepted:
- Buyers often submit repair requests.
- Low appraisals can threaten to blow the deal.
- Mortgages can be denied in underwriting.
The Types of Homes That Sell Quickly
In seller's markets, almost every home sells within 30 days. In buyer's markets, the days on market (DOM) will be longer. Many qualities determine whether a home is likely to sell fast, but these are the top two combinations:
- Turnkey homes in high-demand neighborhoods, excellent condition, and priced right.
- Cosmetic fixers in good locations and priced below comparable sales.
If the home you want to buy falls within those two categories, you should quickly make a home offer if you retain cancellation rights.
Choosing an Agent
Some real estate agents don't like to "waste time" writing an offer that a buyer might later cancel and will try to dissuade you from making an offer to purchase. Don't hire an agent who doesn't have your best interests in mind.
The Pros of Making an Immediate Purchase Offer
The obvious reason to make a purchase offer right after finding a home you love is that you may prevent anybody else from buying it. When the seller accepts an offer from you, the seller can't accept another unless it's a backup offer, which is only good if you cancel your contract.
If your offer is first and sole, you can negotiate on price and terms. You can make a lowball offer. Your negotiation power is minimized if there are multiple offers. Even if other buyers are interested, they will generally slink away once the seller accepts an offer, opening the door for your renegotiations, if any, after the home inspection.
The Cons of Making an Immediate Purchase Offer
If you're undecided between two homes and go into contract on property A, property B might not be available if you change your mind and cancel the first transaction.
Another con is that the return of an earnest money deposit is not automatic. Both parties are required to sign cancellation instructions. Buyers can incur appraisal, credit report, and home inspection fees that are non-refundable. Generally, title policy/escrow and other closing costs are waived upon cancellation.
Given the alternative of losing the home you want, however, it is advantageous to learn from the mistakes of others. If you're buying a home in a seller's market, hesitation could cost you a home you love.