Making an offer
Once you’ve found the right home, you and your real estate professional will prepare a written offer. There are several steps involved and understanding them will help you navigate the process more easily.
What is an offer?
The offer is a written document that includes some basic information, the offer price and the conditions that must be met prior to sale. It typically includes the following:
- Address and description of the property
- Proposed purchase price. You will work with your real estate professional to find your price, based on many factors, including Glossary Term: comparable home sales in the area. Many offers are countered by the seller, so this price may not be the final price after all the negotiations take place.
- Glossary Term: Down payment information and a specific Glossary Term: closing period
- What you would like to be included with the property (for example, appliances or fixtures) and anything you would like removed
- Glossary Term: Contingencies, or conditions, stipulating that the sale will only happen if certain terms are met
Earnest money deposit
When you make an offer, you will usually be asked to include what is called earnest money or a good-faith deposit—usually 1% to 3% of your offer price. These funds will be held in what’s called an Glossary Term: escrow account
and managed by a neutral third party until the sale is finalized.
If you complete the home purchase, the earnest money will be credited toward the purchase price. If the seller does not satisfy the offer conditions and you withdraw your offer, the earnest money will be refunded to you in full. If you pull out of the deal for reasons not allowed by your offer, the earnest money may be forfeited. As you can see, it’s important to ensure that you and your real estate professional clearly discuss the details of your offer, including contingencies.
As mentioned above, the offer is your opportunity to include any contingencies that must be met before the deal can close. As the buyer, you decide if and when to remove the contingencies during the offer process. Work with your real estate professional to decide which contingencies must remain in place and which ones provide you with a bit more flexibility.
Contingencies could include, but are not limited to:
- Expiration date. If you stipulate a date and time after which the offer is no longer valid and the seller does not respond to your offer by that time, the offer will expire. Inserting an expiration date legally protects you if you make an offer on a different home at a later date. Without it, your first offer could be accepted after you have already purchased a different home, legally obligating you to purchase the first home or forfeit your earnest money.
- Receiving a satisfactory appraisal. The Glossary Term: appraisal will be required by your Glossary Term: lender to make sure the price you’re offering is in line with the home’s value. To learn more, read our article on The home appraisal process.
- Receiving a satisfactory home inspection. The Glossary Term: home inspection contingency can help you identify damage or repairs needed to the home before you close and become responsible for paying the costs. A contingency like this would typically ask the seller to pay for the costs if the repairs identified are over a certain amount. Then, if the inspection is unsatisfactory and the seller decides not to address these issues, the contingency lets you walk away from the deal without losing your earnest money. To learn more, read our article on What to expect at your home inspection.
- Receiving satisfactory disclosures. Sellers are legally obligated to disclose any property issues they are aware of prior to sale. By putting a Glossary Term: disclosure contingency in your offer, you can walk away from the deal if the disclosures reveal issues with the home and the seller refuses to address those issues prior to the closing of the deal.
- Receiving a satisfactory C.L.U.E.® Report. The C.L.U.E. (Comprehensive Loss Underwriting Exchange) Home Seller’s Disclosure Report is used by insurance companies to find a history of claims made on the property. This is important because the C.L.U.E. report could show past claims that would make it hard for you to get Glossary Term: homeowners insurance. Without homeowners insurance coverage, most lenders will not approve the home loan. Your lender will order this report for you.
- Receiving your mortgage. Adding a mortgage financing contingency to your offer is a good idea. If you have a mortgage financing contingency and for some unforeseen reason you cannot obtain a Glossary Term: mortgage on the terms at or below the Glossary Term: interest rate you specified in your offer, you can walk away from the deal without losing your earnest money. Without this contingency, if you were able to get a loan but only at a higher interest rate than your Glossary Term: budget allows, the seller could legally force you to complete the sale.