In some states on the East Coast, it is common to write a letter of intent to purchase and, in many ways, it seems the more civilized way to buy a home. However, many other states contain provisions in standard purchase contracts that let a buyer cancel the contract and get back their entire earnest money deposit.
Do You Hesitate to Make a Purchase Offer?
If the home you are thinking about buying is likely to quickly sell, and if you have a way to later cancel the contract, you should immediately make a purchase offer. Don't sleep on it or try to get every single question answered beforehand or you may very well lose the home. Somebody else could beat you to the draw and steal it out from under your nose while you're busy weighing the pros and cons.
If you like the home, odds are several other active home buyers will, too. You're not the only smart cookie in the market place who can spot an excellent buy.
And no, losing the home doesn't mean it was "supposed to be that way." Consider instead that you were supposed to buy it, and you messed up.
Reality of Purchase Offers
When a home seller accepts a purchase offer, the seller is hoping the buyer will complete the transaction at the price agreed upon and believes there is nothing wrong with the condition of the home. The home buyer, on the other hand, is hoping the transaction will close because the home is in A-1 condition and perfect.
It's rare that either of those expectations are in line with reality. No home is perfect and many conditions can change once a contract is accepted.
- Buyers often submit repair requests.
- Low appraisals can threaten to blow the deal.
- Mortgages can be denied in underwriting.
Types of Homes That Quickly Sell
In seller's markets, almost every home sells within 30 days. In buyer's markets, the DOM will be longer. There are many inherent characteristics and qualities that determine whether homes are likely to sell fast, but these are the top two combinations:
- Turnkey homes in high-demand neighborhoods, excellent condition and priced right.
- Cosmetic fixers in good locations and priced below comparable sales.
If the home you want to buy falls within those two categories, you should quickly make a home offer, providing you retain cancellation rights.
Some real estate agents do not like to waste time writing an offer that a buyer might later cancel and will try to dissuade you from making an offer to purchase. Some might not even disclose to you that you have a certain number of days to change your mind. Don't hire an agent who doesn't have your best interest at heart.
Pros to Making Immediate Offers to Purchase
- The obvious reason to make a purchase offer right after finding a home you love is you will prevent anybody else from buying it. When the seller accepts an offer from you, the seller cannot accept another, except a back-up offer, good only if your contract is canceled by you.
- If your offer is first and sole, you can negotiate on price and terms. You can make a lowball offer. Your negotiation power is minimized if there are multiple offers.
- Even if other buyers are interested, they will generally slink away once the seller accepts an offer, opening the door for your renegotiations, if any, after the home inspection.
Cons to Making Immediate Offers to Purchase
- If you're undecided between two homes and go into contract on property A, property B might not be available if you should change your mind and cancel the first transaction.
- Return of an earnest money deposit is not automatic. Both parties are required to sign cancellation instructions. In California, for example, a seller can delay signing for 30 days, without penalty, an authorization to return the good faith deposit.
- Buyers can incur appraisal, credit report and home inspection fees that are non-refundable. Generally, title policy / escrow and other closing costs are waived upon cancellation.
Given the alternative of losing the home you want, however, it is advantageous to learn from the mistakes of others who have lost opportunities -- because they were hesitant to act with urgency -- instead of learning this painful lesson yourself.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.