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How to Make an Offer on a House

You’ve finally found the perfect property and you’re ready to make an offer, but you’re not quite sure where to begin. Putting an offer on a house is not a straightforward process, but, hopefully, this blog post will help prepare you—from the initial earnest money deposit, to signing the offer to purchase, to everything in between.

Earnest Money Deposit

First things first: a buyer must give a check, called an earnest money, to the seller stating that they are seriously considering purchasing the home. It is a check of about 1%-3% of the asking price of the house, made out and held in one of the realtors’ bank accounts up until closing; when that time comes, it is credited back to the buyer. It is given because if the buyer were to change their mind at the last second,, then typically, that earnest money is given to the seller to compensate them for being off the market for a week or several weeks. Since the seller was under contract for quite some time and the house was off the market, the seller needs to be compensated for lost time and finances.

All Buyers Present

If a buyer is purchasing with someone else, they have to be there as well. All signatures must be on the offer and it is not valid if it isn’t in writing; it cannot be completed over the phone.

Seller Disclosure

Seller disclosure is a form that asks the seller if they know of any issues or hazardous conditions with the house, such as the plumbing, electrical system, air conditioning, major appliances, roof, or foundation. It will also ask if there is anything to disclose about the neighborhood, such as any fees one must pay yearly. It essentially wants the seller to be honest about the state of the property and protects the buyer if something goes wrong.

Comparable Sales

The seller should ask their agent to look at the houses currently under contract, or which have recently been sold in the area. The goal is to try finding similar homes and know exactly what they’ve sold for. It will give the buyer an idea if the seller is asking a fair price, if the value is good, and if they should expect others to be making offers. This is important to know because it will give the buyer a better idea of what price range to  offer.

Offer to Purchase

The Offer to Purchase is a legal document which stipulates that the buyer agrees to buy the seller’s home and is usually contingent on other conditions that must be agreed upon. A seller may opt for a firm offer to purchase, which basically states that if a certain monetary amount is met, the house is sold, but most go with a conditional offer to purchase. The latter places certain conditions on the following items that must be met.

  • Home Inspection: An inspector comes in and gives the seller a report on the home. If everything is up to par, great. If there are concerns about things that need to be fixed or upgraded, then the buyer can go back to the seller and remedy that situation by adjusting the price. If they refuse to, the contract states that the buyer is allowed their earnest money back.
  • Home Appraisal: The buyer’s lender is going to make sure that an appraiser comes out and values the home. They make sure that the house is worth the asking price, and if it doesn’t appraise, the seller has the choice to lower the price. If they refuse, the buyer can get their earnest money back.
  • Fire Protection: If the house burns down during the closing process, the buyer has the right to take the land and the insurance money or to back out of the deal and receive their earnest money back.
  • Clear Title: The seller needs to provide clear title to the property, which means that they are responsible for any leans or taxes against property.
  • Ability to Obtain Financing: If for some reason the seller is unable to get financing, they are allowed their earnest money back.

In the offer to purchase, there are many items that can be negotiated and this is where they are ironed out. Of course, the price can be negotiated, but so can the amount of the initial earnest check. The closing date may be of concern for the seller because they don’t want to be stuck with an additional month of mortgage payments if the sale takes longer than expected. Some buyers negotiate for a home warranty, especially when buying an older home, because it gives them comfort in the beginning stages of their homeownership. The closing costs can also be negotiated. The last thing is personal property, which you can bargain for everything that isn’t attached to the house.

Signed, Sealed, Delivered

Once written up, the buyer’s agent will send it to the seller’s agent. Over 90% of the time, the seller will counter the offer with a higher asking price. Offers can go back and forth for several hours or multiple days. It is important that until the final documents have been signed, a sale is not closed and the seller may entertain and accept other offers.

The Next Step

Everything in between signing the agreement and getting the keys to your house is a whole other ball game and will include making a full application with your lender, picking a closing attorney, and setting up your home inspection. For more information on this, get in touch with Rose Blankenagel at Mortgage West – The Mortgage Centre, and she will gladly guide you through the steps and answer any questions you have.