The Offer Process
You’ve done your homework and know your local market. You or your Realtor® have the sales comparables of the house you’re interested in, and you’re ready to make a smart offer. Here’s how the process works:
- You make a written offer.
- The seller accepts, counters or declines the offer.
- If it’s accepted, you move on to the next step.
- If the seller makes a counteroffer, you either accept it or make a new offer — and go back to step 2.
- If the offer is refused, you can make a new offer or begin a new round of house hunting.
Your Realtor® will do all this work on your behalf.
The written offer is legally binding, so real estate agent will provide you with a Residential Sales Agreement that complies with applicable state and local laws. Some buyers are encouraged to write a personal letter to accompany their offer, hoping to gain an emotional edge over competing buyers or to explain why a bid based on comparable sales might be reasonable and justified. That’s fine; just don’t count on that letter having any legal bearing on the transaction.
A written offer may contain these elements, among others:
- A legal address and sometimes the legal property description
- Details regarding the purchase price and terms
- The amount and terms regarding earnest money
- A mandate that the seller will provide clear title to the property
- Details regarding any buyer’s participation in closing costs or other fees, as well as how certain taxes and expenses will be prorated between the buyer and the seller at closing
- The date and time of the offer’s expiration
- A projected loan closing date
- Other state-required provisions or disclosures
- Any contingencies that the deal is subject to
Contingencies and Disclosures
Your offer will most likely include some standard contingencies, such as one stating that the deal hinges upon you obtaining financing within a specified time. Another may require the completion of a home inspection. There could be several others. Although you have to protect your interests and gather enough information to make a wise purchase, contingencies can — especially in hot markets — act as roadblocks to getting a deal done. It’s best for both the buyer and the seller to put only enough stipulations in the contract to cover the necessary bases.
Seller disclosures, on the other hand, are usually required by law. This is information regarding the property and improvements that the owner is aware of that may affect its value. Disclosures could include natural hazards, structural issues, or other substantial defects. You’ll want to review these carefully before committing to a purchase.
When you make an offer, in most cases you’ll be required to submit a deposit — called earnest money, or hand money — that the seller will hold in escrow as good-faith money. This may be anywhere between 1% and 3% of the total purchase price. The offer agreement should detail under what circumstances you’d have to forfeit the money (for example, in the event you back out of the deal without a valid reason), or returned by the seller (such as in the event your offer is rejected).
Once the contract is negotiated, agreed to and signed by both parties, and after the brief celebration and sigh of relief, you should be ready to get down to the serious business of closing the sale. That will likely include a home inspection, and it will definitely mean starting the process of finalizing your financing through the lender. That can take an average of 30 to 60 days to complete.
Apply For a Loan
At this point, you've more than likely been pre-approved for a loan. A pre-approval from a loan company shows the seller and seller's agent that you have the ability to find a loan and finance the purchase of a home through a mortgage for the price you're offering. It's generally included in an offer on a home. Once you have a pre-approval and your offer is accepted, you need to apply for a loan that makes the most sense for you. This may mean shopping around for the best rates from local lenders or hiring a mortgage broker to find you the best loan possible.
During this in-between time, you will want to hire a home inspector to go through the property and take a look at the appliances, systems, and structure of the home. Some lenders will require a home inspection, but even if yours doesn't, you should hire a home inspector regardless. The inspector will go through the house and tell you what state the home is in and what you'll need to have repaired. These items are things that you can give to the seller and ask to have repaired or replaced. Not only will this help you determine what needs to be fixed before (and during) your time in the home, the inspector will educate you on how to turn on systems and appliances and let you ask questions about the home as it's inspected.
Part of the closing process is to appraise the property. While creating a mortgage for a home, the lender wants to know how much the property is worth. They want to make sure the amount of money the bank is lending to the buyer isn't more than what the home is worth because there's a higher chance the buyer wouldn't be able to pay back the mortgage if they sold it down the line. Thus, the lender will have an appraiser come out to the property and determine its worth. The appraiser will also look at comparable homes that have been sold in the same area to ensure that the price offered is correct.
If the home appraises for more than the price the buyer will be paying, this is great for the bank and for the buyer. In this case, the sale of the home will go through. However, if the home appraises for less than the price the buyer will be paying, there may be some problems. The bank will offer to loan the money for the amount the home appraises for, and the buyer will either have to pay more for a down payment or the seller and buyer will have to reach an agreement of a smaller purchase price.
Title Search and Home Warranty
The title company will also do a title search on the property to make sure there are no liens against the home and that it can fully be yours when the time comes. You'll be given the title company's report, and if there's nothing holding the title, you can go forward with the sale.
If your contract of sale includes a home warranty, your title company will purchase a home warranty for you, which will be billed to the seller, the agent or you during closing costs. You can also talk to your Realtor and see which home warranty company would be best for you before it is purchased.
Next, you'll need to get home insurance on your new home. This will be factored into your mortgage payment. (It's part of your taxes and fees). This money will be taken out each month and will go into an escrow account, where the taxes and fees will be paid annually.
Get Funds Ready
Next, you'll need to make sure your funds are ready for the down payment on your home. Wherever you're planning on getting the money for the down payment, you'll need to make sure they're in your bank account or wired to an escrow account so that they're available to pay the down payment on closing day.
Keep an eye out for your Closing Disclosure document.
This important document will contain details about your home loan, your monthly mortgage payments, and your closing costs. It will tell you how much you actually have to pay when you close. It also provides a line-item breakdown of individual costs and fees.
Stay in touch with Realtor® and Lender
Your Realtor® loan officer and escrow agent can answer questions you might have relating to the closing process. Be proactive. The week before, send each of them an email and ask if there's anything else they need from you.
In the last few days before closing, you'll go on your final walk-through of the home. You'll look at the repairs the seller made based on the home inspection report, and make sure that everything in the home looks to be in good repair.
Everything is made official. You'll sign all the paperwork at a title office and get the keys to your new home. You'll sign things like your loan amortization schedule, the details about your loan, and the Deed for the property, among other things. After signing for a while, you'll be given the keys to your new home. Congratulations!