Buyers can get so excited about finding the perfect home that they sometimes don't really think too much about what comes next—writing that purchase offer.
The quality and content of your offer is almost as important as how much you're willing to pay for the property. Poorly written offers lessen the chance that buyers will get their offers accepted, and certain laws and rules can apply, so it's critical to do your research and get it done right.
Use the Correct Form
Making sure that you're using the right form might seem elementary, but these documents aren't one-size-fits-all. A lot of different kinds of purchase contracts are available, and each state has its own laws regarding them.
You might need a manufactured home purchase agreement or one designed for a new construction residential purchase, depending on what you hope to purchase. Then there are more generic residential purchase agreements and residential income property purchase agreements. Your state might have a separate agreement form for vacant land or for properties that are in probate.
The good news is that local realtor associations typically publish a variety of purchase contracts that are available to the public.
Determine the Price
There are legal issues that may potentially arise from offers that include escalation clauses, so you might want to stay away from including something like, "I will pay $1,000 more than your best offer." That—along with any other suggestion intended to top other bidders—is considered to be an escalation clause.
You have a price in mind, and you must put it in writing. Barring extreme buyers' markets or sizzling sellers' markets, you'll probably want to offer a bit less than you expect to pay. You can ask for guidance, but don't expect your real estate agent to name a price for you if you're working with one. That's up to you.
To calculate a mortgage for the home in mind, you need a few details about the loan. You can then complete the calculations by hand or use the mortgage calculator below to crunch the numbers.
Make an Initial Deposit
Most states require that you make an earnest money or good faith deposit to create a binding purchase offer. It might be a personal check or a certified check. It might even be cash, personal property or an unsecured promissory note. The bottom line is that it has to be something of set, determined value.
Spell out who will hold the deposit—almost anyone but the seller!
Anywhere in the neighborhood of 1% of the purchase price is customary, but putting down more will likely signal to the seller that you're a serious buyer. Just keep in mind that the seller might be entitled to retain your deposit if you decide that you don't want the property after all and you default under the terms of the contract.
Disclose your Down Payment
You'll also have to tell the seller how you're planning to make your down payment on the property, whether it will be in cash, with a promissory note, stocks, real estate, or other assets. Buyers generally make their down payments in readily available cash.
Some states require verification of your down payment within a certain time period. It could be considered a contingency of the transaction if you're selling an asset to raise the cash, such as by liquidating a mutual fund to raise the cash. If so, you should disclose this. Your offer becomes void and non-binding if you can't make the sale in time.
Name Your Financing Terms
Your deposit, your down payment, and your financing should equal the total consideration you're paying for the property. Some contracts allow you to specify a maximum interest rate as well, another contingency that provides you with a way to cancel the deal if your interest rate comes in higher when you qualify for a mortgage.
Disclose the type of financing you hope to obtain: conventional, FHA, VA, contract of sale, or assumption. Include mortgage points, especially if you're asking the seller to pay them.
Purchase contracts in most states give buyers a certain number of days to have the property inspected. Federal law gives all buyers 10 days to inspect for lead paint unless this right is specifically waived in writing. Many contracts additionally carry provisions for other contingencies, such as a satisfactory appraisal and loan funding.
Depending on your state, these contingencies can still be in effect all the way through to closing if you don't remove them in writing. It's important that you include any and all of them in your purchase contract.
Address Possession—in Detail
More battles are fought over possession of properties than you might imagine. Some deals fall apart because sellers and buyers have unreasonable expectations about when the buyer will take the home.
It's important to specify when exactly you can expect to move in, so spell out the possession date in the purchase contract. It might be the day of closing or a day after closing, but make sure it's in there.
You might want to execute a rental agreement to protect all parties if you want to take possession prior to closing, or even if possession is going to be more than two or three days after closing. You'll want some compensation or adjustment if the seller will be living there after you own the home, even if only for a short period of time.
Spell Out Who Pays the Fees
Fees are negotiable in most contracts, but some are customarily paid by one party or the other. It can depend on your locale. You might unintentionally invite a counteroffer if you don't know local custom.
Call the listing agent before you write the offer and ask about the norm in your area. Sometimes fees for title, escrow, and county or city transfer taxes can equal 2 to 5% of the sales price.
Let the seller choose if the seller is paying for the title and this is customary.
Request Special Reports
Request a report if you're concerned about a specific inspection. Few disputes irritate sellers more than to find out halfway through a transaction that the buyer had a concern that wasn't addressed upfront. Sellers feel duped and buyers feel misled.
Address all the issues you want to be investigated, such as for mold or solid roofing. Some buyers conduct all inspections before writing an offer just to alleviate this type of miscommunication. If it's customary for a seller to provide certain reports, ask for them.
Clearly State the Expiration of Your Offer
Deals sometimes fall through because buyers don't allot enough time for sellers to respond to their offers, so call the listing agent and ask how much time is realistically required. There might be issues you're unaware of, such as that the sellers are out of town or dealing with an emergency.
You can set a reasonable deadline in a consideration clause, but it's also a good idea to read over your state's contract laws regarding offer expiration. You can consider the offer void and move on to another property if the seller doesn't respond by this date.
Clarify to whom an accepted offer should be delivered. You could lose the transaction if another offer pops up out of nowhere and you're the designated recipient if you're not available to accept delivery.
Check It and Check It Again
It's human nature to be turned off by sloppiness, and you want your offer to be accepted. Go over it for typos, spelling, and grammar mistakes. Better yet, ask someone else to do it, too. A fresh pair of eyes never hurts.
And review the provisions you've included while you're at it. Ask yourself if you're really OK with all of them. This will turn into a binding contract if the seller accepts it, so be sure you can live with all the provisions your offer contains.
Some offers can and do include additional clauses that are required by state law. For example, some states might require that you include a legal description of the property as it's cited on the original title. You might also want to include descriptions of any "extras," such as fixtures or appliances you'd like to be included in the sale. Have a real estate attorney review your offer before submission if you feel like you might be a little bit in over your head.
Frequently Asked Questions (FAQs)
Do I write a purchase offer, or does my realtor write it?
If you're working with a real estate agent or realtor, they will likely write up the purchase offer and review it with you. They will be able to advise you about what to include, but you will have to be the one making the decisions about your offer, down payment, any contingencies, and all of the other details included in the letter.
Should I write a personal letter to a seller when I'm buying a house?
Writing a personal letter to your seller won't always make a difference, but in some cases it can tip the scales in your favor. If the seller is emotionally invested in their property, they may want to know more about the people who are buying it. For example, a seller may want to know that a young couple is moving in, rather than a developer who will tear their house down and build something new on the property.