1. Use the Correct Form
While this may seem elementary to you, there are a lot of purchase contracts available. Each state has its own laws. Realtor associations publish purchase contracts. In California, for example, we have at our disposal:
- Manufactured Home Purchase Agreement
- New Construction Residential Purchase Agreement
- Probate Purchase Agreement
- Residential Purchase Agreement
- Residential Income Property Purchase Agreement
- Vacant Land Purchase Agreement
And that's not every conceivable form, either.
2. Determine Price for the Purchase Offer
Some courts have ruled that offers containing acceleration clauses such as "I will pay $1,000 more than your best offer," do not constitute a bonafide offer. You have a price in mind. Put it in writing.
Barring extreme buyers' markets or sizzling sellers' markets, in a normal real estate market, you will probably want to offer a bit less than you expect to pay. You can ask for guidance, but don't expect your real estate agent to name a price for you. Picking prices for a buyer, believe it or not, is not an agent's job.
3. Make an Initial Deposit on that Offer
In most states, to have a binding purchase offer, you may need to make a good faith deposit. It could be cash, personal check, cashier's check or other modes such as personal property, real property, mortgages or unsecured promissory notes.
Spell out who will hold the deposit -- almost anybody but the seller!
If your state has "liquidated damages," the seller could be entitled to retain your deposit if you default under the contract.
4. Disclose your Down Payment
Your down payment could be cash, promissory notes, stocks, real estate or other assets. Generally, it is readily available cash. Some states require verification of your down payment within a certain time period. If you are selling an asset such as liquidation of a mutual fund to receive cash, that action could be considered a contingency of the transaction and, if so, you should disclose it.
5. Name Financing Terms
Please remember that your deposit, when added to your down payment and financing should equal the total consideration paid.
- Some contracts allow you to specify a maximum interest rate, giving you a way to cancel the deal if your interest rate comes in higher.
- Disclose the type of financing you hope to obtain: conventional, FHA, VA, contract of sale, assumption or other.
- Include maximum points, especially if you are asking the seller to pay them.
6. Include Contingencies
California Association of Realtors (CAR) purchase contracts in California give the buyer by default 17 days to do inspections. Other states are similar. Federal law gives all buyers 10 days to inspect for lead paint, unless waived in writing. Many contracts carry provisions for such contingencies as:
- Loan Funding
- Physical Inspections.
- Depending on your state law, if you do not remove your contingencies in writing, they may still be in effect, all the way to closing!
7. Address Possession Succinctly
My experience shows more battles are fought over possession than are ever necessary. Some deals fall out because sellers and buyers have unreasonable expectations about possession.
- Spell out the possession date. It is on closing? A day after closing?
- If possession is prior to closing, to protect all parties, execute a rental agreement.
- If possession is more than two or three days after closing, execute a rental agreement to protect the buyer.
8. Spell Out Who Pays the Fees
Although most contracts call for fees to be negotiable, some fees, depending on your locale, are customarily paid by one party. If you don't know custom, you may be unintentionally inviting a counter offer. Call the listing agent before you write the offer and ask. Sometimes fees for title, escrow, county or city transfer taxes can equal one to two percent of the sales price. For example, if the seller is paying for title and it's customary for the seller to choose, let her choose.
9. Request Special Reports
If you are concerned about a specific inspection, request a report. Few disputes irritate a seller more than to find out halfway through a transaction that the buyer had a concern that was not addressed upfront. Sellers feel duped. Buyers feel mislead. Address the issues you want discovered. Some states allow the buyer to conduct all inspections before writing the offer just to alleviate this type of miscommunication. If it's customary for a seller to provide certain reports, ask for them.
10. Clearly State Expiration of Offer
- Deals sometimes fall through because buyers did not allot enough time for a seller to respond to the offer. If you are unsure, call the listing agent and ask how much time is required. Sellers can be out of town or have emergencies.
- Clarify to whom the accepted offer should be delivered. If it's the buyer, and the buyer is unavailable to accept delivery, the buyer could lose the transaction if another buyer popped up out of nowhere.
- Read your state contract laws regarding offer expiration.
At the time of writing, Elizabeth Weintraub, BRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.