The Offer
When you decide to make an offer on a house, you will do so on a standard form that will include specific terms and conditions regarding your offer to the seller. If the seller accepts the offer, by signing it, this becomes a legally binding contract that defines the terms of the house purchase. Some of the terms and conditions that get incorporated into an offer include:
- Proposed purchase price
- A deposit by you, the buyer, to secure the offer
- A list of items you want included in the purchase (such as appliances)
- Inspection Contingency
- Financing Contingency
- Title Contingency
Your deposit is usually a relatively small amount of money (small when compared to the house purchase price, but still a significant amount of money) that is paid simply to secure the offer. It is intended to show that you have good intent to proceed if the offer is accepted. If you do not follow through on the offer in good faith, you will forfeit the deposit. Note that the money forfeited is often kept by the buyer's realtor, not the seller.
Don't be afraid to negotiate with your offer. Unless the market for housing is quite hot in your area, it may not be necessary to pay the seller's asking price. It is common practice to make an offer less than the seller's asking price. Of course, the seller may well make a counter proposal higher than your offered price as well. Market conditions vary, so get advice from your real estate agent. They can tell you about sales prices for comparable houses in the same area to give you a better idea as to what the house you want may sell for. Chances are good that your seller is looking at the same data.
The offer will also provide you with the right to have a professional home inspector come and perform a detailed inspection of your house. This inspection helps protect you in case there are hidden problems with your house that you did not discover during your visits to the house. The home inspector will look over the house in detail and find all the little things that may be wrong with it.
Once the inspection is done, it is common for the buyer to ask the seller to fix problems found in the inspection. Most of the time these are small and easily rectified by the buyer. It does happen that serious problems are found that the seller will not be able to repair. If that happens you will have the option of terminating the agreement or changing the financial terms of your offer to account for the need to repair these problems after you take ownership of the house. Bear in mind that the offer provides the seller with the opportunity to repair any issues found in the inspection - so make sure you give them that opportunity or you could lose your deposit.
The offer also specifies that the offer is contingent on your obtaining financing. This is to insure that you are not obligated to buy the house if you do not end up having enough money to do it. The sales contract, or purchase agreement, which is put together following the offer will require you to apply for financing within a certain timeframe, and how long you have to obtain financing.
In addition, the offer will also be contingent on a title search. This is a review to insure that the seller has clear title to your house. Problems that can come up in a title search include finding out that the seller did not pay some taxes in the past and some government agency has attached a lien to the house, or finding out that the seller never received clear title when the obtained the house. This latter problem is quite rare, but it does happen to some very unfortunate people.
Usually the whole process goes very smoothly from your acceptance of the offer to the closing of the sale. Its important that you understand the basic contingencies that you will find in the offer, but the main terms at this stage of the game to worry about are the proposed purchase price and the list of items you want included.
If you have not yet applied for a loan, make sure you consider offers from multiple lenders. Online services exist that offer a simple form to get quotes from up to 4 lenders. Getting multiple loan rate quotes improves your chances of getting the best possible rate.
