So, You Want to Make an Offer?
You toured house after house. Searching for that perfect abode, eliminating the homes which do not meet your stringent criteria and you find the right one. Like a majestic castle sitting on some far away green hill not a house but a home. Now is the time to make the offer. So many things to consider and do, the prospect can seem daunting. Making an offer really is not hard if you are prepared.
An offer on a home is a contract only signed by the Buyer. In Texas we use the “One to Four Family Residential Contract” created by the Texas Real Estate Commission for either new or resale properties. This contract can be used for single family homes up to a quadruplex. Anything larger needs a different agreement. This document contains the identification of the subject property, including the legal description as well as the Seller and the Buyer. All the exclusions are also included. Exclusions are the objects in the home that may appear to stay but the Seller takes with them as they vacate the home. This is all done upfront so there is no mistake what the Buyer is buying.
The offered price for the home is written on section 3 “Sales Price”. After a thorough review of a market analysis (comp) of the subject property and consideration of how much the Buyer can afford an initial offer price is determined. This offer price is broken into two parts, if you are financing the home, the down payment and the financed portion. How you plan to finance is also shown. It is very important to have your financing planned out prior to showings. When you are ready to buy you do not want the delay before making the offer.
Earnest money is also shown. This money is held by the title company and guarantees the Seller that the Buyer will show up to close on the home. If the Buyer does not fulfill his contractual obligation the Buyer looses that money to the Seller. If the contract is closed then the earnest money is given back to the Buyer. Usually the title company applies the funds to the purchase of the home. Earnest money typically runs $1,000 for every $100,000 of sale’s cost.
Negotiations are not limited to sale’s price. Title policy and surveys must also be worked into the equation. Usually the Seller pays for the title policy however the survey is 50/50 on who pays for that. Sometimes the Seller has a good copy of the survey showing current conditions of the property. A good survey can be used in lieu of ordering a new one. However if not, a new survey is required and is negotiable on who pays for the survey. A survey can cost around $400 depending on the surveyor.
Property condition is also a major factor. Repairs and upgrades are negotiable. Remember the cost for repairs and upgrades come off of the Seller’s bottom line. If you are buying a home for $100,000 and request $20,000 in upgrades, the Seller is only making $80,000 on the sale. Upgrades and repairs must be considered as a part of the sale’s price.
The closing date must give time for both the loan institution to process the loan as well as the title company to order all the legal documents required for the sale. At the very least a month should be given between the initial offer and the closing date. If the loan is through a large bank such as Chase or Bank of America more time may be needed to secure the loan.
Closing costs are another factor to consider. Along with sale’s price and renovations and upgrades closing costs are negotiable and also diminishes the Seller’s bottom line. Closings costs can be as much as 3% of the sale’s cost and depending on the loan there are limitations on how much closing costs the Seller is allowed to pay.
The final aspect is the option fee. The option fee usually runs $150 for ten days. The option period starts at the time the offer becomes an executed contract and runs for 10 continuous days including weekends. The option period gives the Buyer the opportunity to cancel out of the contract for any reason what-so-ever and have the earnest money returned. During the period the Buyer should hire a home inspection and have the house inspected. If anything major is discovered than the Buyer has the right to re-negotiate the contract with the option of canceling if the Seller is not willing to cover the cost of the repairs. Of course you can cancel the contract for absolutely any reason during the option period and get your earnest money back. Once the period expires, not meeting lender’s requirements is the only way to cancel the contract and get your earnest money returned. As soon as the option of the option period is used the $150 check is given to the Seller. If it is not used then option money is given back to the Buyer.
A good realtor will go over all of these points with you. Other things you are required to submit, a pre-approval letter from your lender if you are financing or a proof of funds letter from your bank if you are paying cash. The reason why this is important is because you are showing the Seller you are a serious Buyer. The Seller does not want to waste time negotiating with someone who may not be able to afford the home. Why should he waste his time? The Seller will simply reject the offer. You will also have to submit a copy of the check for the earnest money and the option fee. When the offer becomes a contract then the earnest money check must be given to the title company and the option money goes to the Seller.
The process seems harder than it really is. A good Realtor can help you through all the stages of the transaction. I hope this bit of info helps you with your future purchases. See ya down the road.