Offer to Purchase Explained
Upon receiving the offer to purchase, it is only natural to focus on the price. But there are other aspects to consider – contingencies, concessions, requests, etc. Your agent will help break down the offer but it’s a good idea to have a working knowledge of the contract beforehand. Here’s a look at the offer components that could affect your bottom line.
Earnest money deposit
The deposit establishes the intent of a buyer to purchase the property. A buyer may include a large deposit to show their commitment if their offer is weak. And usually dictates where the deposit is to be held - a third party, such as escrow, an attorney or the broker’s trust account. If either party is unable to meet the agreed upon contingencies and the deal falls apart, the buyer receives their deposit back.
The deposit is not the same thing as the down payment. When an agreement is reached and the transaction is completed, the deposit will be credited in full towards the purchase price.
Purchase price
It is the most important aspect of the offer. But the net price may vary depending on the concessions requested by the buyer.
Mortgage contingency
The Mortgage contingency is the most significant contingency of the offer. Here, their offer is based on acquiring a mortgage for a certain term and rate. Make sure the rate and term are realistic. If a practical time limit is not set, the buyer can take as long as they want looking for terms that they may not get. To protect yourself, ensure that the buyer has been pre-approved for a mortgage big enough to purchase your home.
Seller concessions
The seller concessions may include sharing closing costs, fees, or paying discount points to lower the mortgage rate. You may need to offer more concessions in a buyers market than in a sellers market.
Inspection contingency
It is one of most common contingency, and is usually paid for by the buyer. To avoid disputes, clarify if the offer requires you to pay for additional specialized home inspections and the cost of repairs.
Fixtures and Chattels
Anything that is physically attached to the property is considered part of the transaction. This would include light fixtures, appliances, etc. Make sure to state it in your listing or counter offer the items that you do not wish to include when selling your home.
Appraisal contingency
The buyer may include the appraisal contingency to confirm that the house is worth the sale price.
Buyer selling property contingency
An offer contingent on sale of the buyer’s home is risky. If the buyer’s property does not sell, the sale is off and the buyers’ deposit is usually returned. The key to this contingency is to make sure there is a time limit. It is a good idea to include a release clause in the contract, which allows you to continue marketing your home.
Possession Date
Possession date is the agreed upon date the buyer takes over the possession of the house. If possession is prior to or after closing, execute a rental agreement to protect all parties.
Fees
Spell out in detail who pays the fees. Sometimes fees for title, escrow, county or city transfer taxes can equal one to two percent of the sale price.
Completion Date
Often referred to as the Closing Date, it is the day when the parties expect to complete the transaction. Closing dates are often scheduled for 30-60 days from the date of the agreement. Your realtor can help to negotiate a mutually acceptable closing date.
Offer Expiry date
It is the date until which you have the offer open for consideration. If you do not notify the buyer before the precise time and date specified that their offer had been accepted, the offer becomes “null and void”.