Once you have found at least one house that you like, you are ready to make an offer to the sellers. (If you like more than one house, you may make an offer on the best one, and be ready to move on to choice number two or three if the first offer doesn’t work out.)
In order to write an offer to the sellers, you need:
1. Two checks that will be cashed immediately. The first check may be for approximately 1% of the sales price (Earnest money) and the second check may be for approximately .1% of the sales price (Option money). For example, if the sales price is $200,000, you will need an earnest money check of $2000 and an option check for $200. This scenario is only a guide. The market conditions and the type of house you buy may dictate higher earnest and option money. I will help you make sure you are offering the least amount possible without detracting from the offer or jeopardizing your position with the sellers.
2. A good idea of whether or not the list price on the house is a fair one. If you have looked at many comparable houses on the market, you may already know whether or not the house you want is priced correctly. If you have any doubts, please ask me to provide you with a list of the recent comparable sales, so that you can determine what price to offer the sellers. Of course, each house is unique, and pricing is not an exact science. Use the recent sales data and the current market conditions as a guide for your offer.
A good goal to keep in mind when considering what price and terms to offer is to ultimately achieve a Win-Win outcome for both you and the seller!
In your offer, you may include:
An option period: You will most likely want to purchase a 5-10 day option in order to have the house inspected. The time of year, how busy inspectors are and where the weekend falls during the option period all influence how long you may need to set up and complete an inspection. If a septic inspection is required, this period of time may need to be longer. You pay a fee to purchase this option period. Essentially, you are paying the sellers a sum of money to prevent them from selling the house to someone else while you make sure that what the seller has disclosed about the property’s condition is accurate. You should expect to pay a check to the sellers for at least $100, which they should cash immediately. You may ask that the seller to apply this amount toward the purchase price, but if you choose to opt out of the contract, the sellers keep the option money. (There is normally no option period with a newly-built home, but you can still have the property inspected and ask the builder to fix any items not built to code.) Watch video here: The Option Period.
Earnest Money: The earnest money goes to the title company. If you withdraw from the contract during the option period, most sellers have no problem signing the release you will need to get this money back. If you withdraw from the contract after the option has expired, you may only be entitled to the earnest money if you no longer qualify financially for the house. You may need your lender to verify your new financial status in order to convince the sellers that you are withdrawing from the contract legitimately. Obvious examples would be if you lost your job, got divorced or otherwise had a dramatic change in income. Regardless of the scenario, in order for you to receive back your earnest money, both you and the seller(s) must sign a release. If either party refuses to sign, the money stays at the title company. If the seller tries to sell the house to another buyer, most title companies will require the seller to sign your release before they will close the sale with the new buyers.
Certain Items To Convey: Please read the first page of the contract carefully and notice which items are expected to convey with the house. In general, it is all items permanently affixed to the house or property. This includes drapes, blinds, garage door openers, etc. Any of these attached items that the sellers intend to take with them should be listed on the seller’s disclosure so that you know up front what goes and what stays. Then, those exclusions are listed again on the first page of the contract.
Other Items: Typically, the buyer pays for the appraisal and survey, because these are required by your lender. Very seldom does the buyer pay for the title insurance. It is commonly expected that the seller will provide a title commitment that guarantees clear title to the property.
Special Provisions: The Texas Real Estate Commission (TREC), which regulates the use of contract forms, strongly discourages real estate agents from using the blank special provisions section of the contract to write in items. This space in the contract should be used only for items not covered in the contract or addenda. You may want a lawyer to assist you with anything you decide to write in this section. Anything you write here overrides everything else in the contract, so use caution. One common addition you may choose to use is: “The buyer requests that the seller respond to this offer no later than 5 pm, May 23, 2011, or buyer may choose to withdraw this offer.” This phrase can be helpful in getting sellers to respond to your offer in a timely manner.
Residential Service Contracts: Almost all sellers are willing to provide a one-year residential service contract. The cost is approximately $355 per year. This warranty typically covers all the mechanical and electrical systems in the house as well as the built-in appliances. It benefits the seller to provide this warranty to you, because if something breaks after you move in, you are less likely to hold the seller responsible. Instead, you can pay a small service call to the warranty provider to have whatever has broken fully repaired or replaced.
Buyer Financing: The majority of buyers will obtain some kind of financing in order to purchase a home. A small minority will pay all cash. Either way, the seller will most likely require proof that you will have the money to purchase the home. I recommend that you include your lender pre-approval letter or your proof of cash with your offer. The seller will be more impressed with whatever offer you make on the home if it comes with proof that the deal will close.
Appraisals & Surveys: Both should be paid for by the buyer, unless the seller can provide recent copies. If no changes have been made to the property, an appraisal can be good for 6 months, and a survey can be good for 2 years or longer. In the contract, you can ask the seller to provide copies of existing surveys and appraisals. If your lender approves them, you may use these existing copies and save yourself the cost of having new ones done.
Closing Date: The date on the contract for closing is normally the actual date that the title company and lender will plan on. Make sure this date works with your calendar. In reality, the contract need not close on the date in the blank. Buyer and seller may agree to close anytime BEFORE that date as long as the paper work can be completed. There is no longer a grace period to allow for a lender to delay closing beyond the date on the contract. If the paperwork is delayed beyond the contract closing date, both you and the seller will have to agree, change the closing date on the contract and sign it. Otherwise, the contract for purchase will have expired.
Transfer of Possession: The “possession” date on the contract is the date when you will actually receive the keys from the seller. Possession cannot occur before the deal has funded without special addenda to the contract. Most of the time, funding will occur on the actual date of closing. Don’t be surprised if your lender funding does not arrive at the closing table. Sometimes the logistics of approving and wiring funds cannot occur until several hours later or even the following business day. If this happens, you should be prepared to delay your move into the house until funding occurs. The seller is not likely to hand you the house keys until funds are received. I will help you coordinate funding with your lender so that any delay is minimized.
Multiple Offers: If the house you choose is well-priced and well-liked. You may find yourself competing with other buyers for the house. The listing real estate agent should notify me if other offers have been received. If you really want the house, you will need to put in your best offer in order to have a chance to be selected by the seller. I will guide you if this situation arises.
Addenda to the Contract: If you are going to write a binding, legal contract, it’s best to be a lawyer! TREC prohibits real estate agents from writing contracts on property transactions. That’s why they have FORMS already written by lawyers. Real estate agents are allowed to fill in the blanks with factual information only. Now, you, as the buyer, may attempt to “practice law” by adding to the contract, but you must do so in your own handwriting! My advice is that if you want anything in the contract that’s not already there, have your attorney draw it up. Think of the old “fool for a client” saying! Fortunately, TREC and all their expert lawyers have thought of nearly every possibility necessary to a contract, and anything that’s not in the main contract can often be found in an addendum. All you and I have to do is fill in the blanks!
Addenda you may need to add: 1. Third party financing addendum: If you are getting a loan for the house, you must add this addendum. This addendum explains the terms of that loan and tells the seller the date when all funds will be finally approved. 2. A home owner’s association addendum (notifying you that the home is located in a neighborhood which requires mandatory membership in the owner’s association). This addendum will also specify the your requirements for information regarding the association and the amount of the transfer fee that you are willing to pay. The home you choose may or may not be a part of a mandatory owner’s association. 2. Sale of other property addendum (notifying the seller that you must sell your current home before you can qualify for your financing and purchase their home). If your home does not sell, the contract will be void.
Addenda the seller may want to add: 1. A seller’s temporary leaseback (asking you to allow them to stay in the home after closing for a period of time ranging from 1—30 days). Most sellers do not need to stay in the house beyond closing unless for some reason their next residence is not ready for them.
Addendum the seller must add: The sellers should have a SELLER’S DISCLOSURE NOTICE. On this notice, sellers are required to disclose all known material facts about the property.
Contact me or call 512-266-2606 if you have questions about how to write an offer to buy a home in the Austin area. I’ve written hundreds of offers, and I would be happy to help you.