Since every house is different, every offer will vary to some degree. Depending on the property, there may be different forms included in certain offers that will not be in others. For instance, an offer on a condo will look different than an offer on a single-family home. An offer on a property with a septic system may include a septic addendum when a home that is connected to sewer will just include the option on the inspection contingency to conduct a sewer inspection. With all that said, almost every contract will have these important parts.
- Purchase Price
- Offer Expiration
- Closing Date
- Possession Date
- Earnest Money Amount
- Included & Excluded Items
- Financing Method
- Financing Conditions
- Title Review Deadline
- Inspection Deadline
- Appraisal Conditions
- Seller Disclosures
Purchase and Sale Agreement
The purchase and sale agreement is the portion of the offer that specifies the price, dates, earnest money amount, title & escrow company, who the buyer and seller are, the listing and buyer’s agent, as well as other various information.
Price
The list price gives you insight into the seller’s expectations. When you’re ready to make an offer I will do some research to determine what the home may sell for by comparing it to other homes that have recently sold nearby. Location, market, age, condition, and improvements also play a large role in the market value of a home. I will give you advice and be upfront if I think a property is priced accurately and will sell quickly. Communicating with the listing agent will also help us gauge the activity on a certain property as well as find out if there are other offers in. The final offer amount is something that you will have to decide on.
Dates
The offer will include an expiration date as well as a closing and possession date. How long your offer is good for will depend on how hot the market is and whether or not the seller has decided to set an offer review date. Setting the closing date is also incredibly important. This is one of those little things that can help your offer win in a bidding war. A seller may need a longer or shorter timeframe and if you can make that happen, it can put you ahead of the game in a multiple offer situation.
Earnest Money
You’ll be asked to write an earnest money check or money order. If the seller accepts your offer, you will deliver the check to the escrow company. Your earnest money will be applied to your down payment, closing costs, or returned to you if you follow through with purchasing the home. Earnest money is a deposit that shows the seller you are serious. The amount put down can range anywhere from $1000 to 10% and more for luxury price points. It’s the money you are putting at risk if you back out for reasons not outlined in the offer.
Financing Contingency
The financing addendum tells the seller what your loan is going to look like. It explains the type of financing you will be using to purchase the home as well as how much you’ll be putting toward your down payment. You’ll also have the option of asking the seller to pay some or all of your closing costs. Typically, when a property is priced correctly or has multiple offers, I recommend increasing your offer if you’ll need closing costs to be covered by the seller. You’ll be in a better position if you are able to pay your own, as it will help you stand out against other buyers who may be asking for more concessions. There are contingencies written into the financing addendum that allow your earnest money to be returned to you if your financing fails or the home appraises for lower than your offer.
Title
The title contingency allows a certain number of days for you to review the preliminary commitment for title insurance, along with any easements, covenants, conditions, and restrictions on record and give notice of disapproval if issues are found. The title company makes sure that the property title is legitimate so that you can be confident that once you buy the property, you are the rightful owner.
Inspection Contingency
The inspection contingency tells the seller exactly how long you have to conduct your inspection and have your response to the listing agent. This form also allows you to get your earnest money back if you decide that you are not comfortable moving forward due to major repairs or safety concerns that the seller may or may not be willing to fix. Sometimes buyers will waive their inspection contingency in order to make their offer more competitive. I don’t recommend this tactic. The inspection period is hugely important and can uncover a wide range of problems that you may not have known about otherwise. Removing the inspection contingency does not mean that you’re not allowed to have an inspection, it just means that your earnest money can be lost if you back out due to inspection findings.
Seller Disclosures
In most instances the seller will be required to fill out a form detailing everything they know to be true about the home and property. The seller disclosure goes over the title, water connected to the property, the sewer or septic system, structural details, the systems and fixtures, as well as other information that you need to know as the soon-to-be-owner. After reviewing the form, you’ll have the opportunity to cancel the agreement if you don’t like what you see. There are times where a seller disclosure will not be available (example: estate sales) or will not provide many details depending on whether or not the seller actually lived in the home. I often see this on flips since the seller only purchases the property to renovate and sell again. They don’t know all the in’s and out’s. This is where an inspection comes in and is one of the reasons they are so important.
