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- For more information about affordable loan programs and new home loans including Home Equity and Refinance call
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| Steps for Buying a Home |
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Step 4: Make an Offer
After weeks, or even months, of searching for the right house, you are now ready to make an offer to purchase a home. This purchase offer will be presented in writing, signed by you (and your agent if applicable) and will contain all terms and conditions of the offer. Local real estate associations or multiple listing services typically provide a standardized purchase offer document for use within a given market area. These standardized documents are usually thoroughly reviewed and approved by the association’s legal counsel. Your agent merely fills in the blanks. For any term or condition that is not contained within the standardized purchase offer, your agent can prepare a separate contingency addendum to submit along with the purchase offer. Contingencies and elements that are commonly included in a purchase offer include:
- Purchase price — your agent will prepare a comparative market analysis (often called a “CMA”) showing the sale prices for other similar properties in that area. This will help you determine a fair offering price.
- Earnest money deposit — you will write a personal check to submit along with your offer to show the seller that you are "in earnest" about buying the property. Generally, the higher the deposit, the more serious and favorable your offer appears to the seller. Your real estate agent should counsel you on strategies for determining the amount of earnest money deposit to offer. Care should be taken not to submit a larger deposit than necessary. This deposit is refundable to you if the seller does not accept your offer, or if the seller accepts your offer, but certain specific buyer-oriented contingencies are not met. These contingencies typically consist of an appraisal contingency, title contingency, financing contingency and home inspection contingency. Each of these contingencies is further explained below.
- Personal property that conveys — a complete list of personal property that the seller must leave to you and which is considered part of the contract offer (for example, a dishwasher, stove, refrigerator, washer/dryer, chandelier, fireplace equipment, BBQ, patio set, etc.). Other items that are permanently attached to a home are called fixtures and by law are considered part of the real property and may not be taken by the seller upon a sale. For example, ceiling fans, carpet, existing landscaping, heating and lighting fixtures should all remain. Rather than argue later about what is or is not a fixture, it is best to list everything that you expect the seller to leave behind in the property.
- Appraisal contingency — the property must appraise at the same value as your offering price in order for you to obtain the type of home loan you are counting on. If the appraisal comes in lower than the purchase price, you may cancel your purchase offer, or you may try to negotiate with the seller to lower the price. You can also see if your lender has a different loan product that may be approved given the current appraised value of the property. When the appraised value is less than the offer price, this may be a warning that you are overpaying for the property. But be aware: if you should choose to cancel your offer you are at risk of losing money you have already paid for the appraisal, credit report and application fee.
- Clear title contingency — the seller must be able to give you the title to the property free and clear and with no “clouds” on the title. A cloud is any condition revealed by a title search that adversely affects the title to the property. If the seller is unable to resolve a title problem you will be allowed to cancel the contract.
- Financing contingency — the contract should be contingent on your ability to obtain the type of financing described in the contract. The amount of the loan and down payment are stated, and in most occasions, so is the maximum interest rate you are willing to accept from a lender and still be obligated to purchase the property. This is why pre-approval is so important to a seller. Otherwise, there is a risk that you might be turned down for your loan (or not be able obtain financing at the interest rate and terms specified in the purchase offer) just days before the transaction is to conclude. If you are unable to obtain the financing as specified in the contract, you may cancel the contract.
- Wood-boring insect inspection — in parts of the country where termites and/or other wood-boring insects are prevalent, the basic contract usually contains an inspection requirement. Generally, the seller is required to pay for any removal of insects or insect damage prior to the closing.
- Closing date — as the buyer, it is generally your choice to select the settlement agent, or attorney. In the case of a brand new home, an estate sale or divorcing sellers, it may be more advantageous to go with the settlement agent selected by the seller since there will be other legal documentation involved. Allow between 30 and 60 days for closing and check your calendar first. Don’t plan to settle on a holiday or a weekend.
- Final inspection — arrangements should be made for you to make a “walk-through” final inspection a day or two before closing to see that the property is in the same condition that it was at the time you made the purchase offer. You should also see that any repairs and/or replacements that were agreed upon as a result of the inspection(s) have been satisfactorily corrected. You should also ensure that no fixtures were removed and that all personal property items you identified in the contract were left behind as agreed.
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