When you make an offer to buy a house, it’s very important that you understand what information to include and what contingencies you need. Verbal contracts do not hold any authority when it comes to real estate, so when making an offer, you need to have everything in writing. The official offer you submit to the seller will include the acceptable purchase price and any terms and conditions that will apply to the sale. Your real estate agent will already have a number of standard forms that include the appropriate information, and make the offer process easier to conform to. If you decide to draw up your own contract, make sure it conforms to the laws of your state. Many places have disclosure laws that prohibit the seller from leaving out certain types of information (such as recent deaths in the home). A realtor or agent can ensure this type of information is given to you before you sign any contract.
What Information Should I Include When I Make an Offer to Buy a House?
- The Address of the home (an appropriate description of the home may also be necessary)
- The price at which you are offering to buy the home (this may be lower than the seller’s asking price)
- Type of deed
- The Terms of the sale. Examples include:
- Seller’s promise to give full-ownership/Title
- Deposit amount (if any)
- Method of payment for deposit
- How you will be reimbursed for your deposit if sale falls through
- How utility bills, taxes, and other fees are to be adjusted between you and the seller (this usually means prorating the bills, if the home is still occupied).
- Name of party responsible for appraisals, inspections, and title report
- A time limit on the offer
- Estimated closing date if offer is accepted
- A home inspection is done within 10 days
- An inspection report shows the home meets your (the buyer’s) standards.
- An appraisal shows the value of the home to be within certain parameters (not too far below the asking price of the home, for example)
- The Title is completely clear of other co-owners and will be transferred to you directly on a specific date
- That Earnest Money will be returned to you (see note below*)
- Refundable earnest money or down payment will be paid in a particular method or within a specific time frame.
- Environmental hazards are fully disclosed **
If you will be paying all in cash
Whether or not you are pre-approved for a loan
If the seller is providing a portion of closing costs
Make an Offer to Buy a House That Includes Contingencies
Contingencies are extremely important and should be included every time you make an offer to buy a house. They may protect the buyer, seller, or both (but often the buyer). A contingency is written into the contract as a way of saying that the sale is dependent upon a certain thing happening. It’s can be thought of as the ‘Only If’ clause for the sale. As in, “ I will pay $100,000 for this home, Only IF a formal Inspection is done within 10 days and reveals no undisclosed issues”. If a particular contingency is not met, the buyer and/or seller is not obligated to fulfill the contract. An example of a contingency that protects the seller would be a clause that states the buyer Must already be approved for a loan. In this case, if the buyer has not yet applied, or applies and is turned down for a loan, the seller is allowed to walk away from the sale and approach other buyers.
Potential Contingencies You May Wish to Include
*Earnest Money is an amount you put down in good faith to assure the seller you are serious (or earnest!) about buying the property. If the sale goes through, this earnest money is applied to the promised down-payment amount. However, if the sale does not go through, the seller is not required to return this money to you unless there is a specific clause that states they must. Earnest money is often at least $1,000 (though it may be less or more), so it can be a lot of money to lose if either party does not meet the sale conditions.
** Not all Environmental Hazards must legally be disclosed, depending upon the state. For instance, if a home was used to traffic, fabricate, or ‘cook’ certain types of drugs, this information may not necessarily be made available to the potential buyer. Including a clause about certain toxins or environmental hazards in your contingency offer will protect you in the case of buying a home that you later find out is chemically contaminated. This is less of an issue when the home is sold “by owner” than it is with foreclosed properties, but is something to consider.
The negotiation process technically begins once you make an offer to buy a house. In your first formal offer you have the ability to lay out the terms, offering price, and contingencies you would like. However, the seller may want to lay out their own terms. It’s important that you understand the negotiating process in order to get the best deal.