Once a Buyer falls in love with your home (who wouldn’t with all the prep work you did getting it ready?) a formal, written offer will be presented for you to review.
Besides addressing legal requirements, this written offer should specify price and all other terms and conditions of the purchase.
The offer to purchase, if accepted as it stands, will become a binding sales contract—also known as a Sales Agreement. It's important, therefore, the offer contain every element needed to serve as a blueprint for the final sale.
This offer should include the following:
- Address and sometimes a legal description of the property
- Sale price
- Terms—for example, this is an all-cash transaction, or the deal is subject to you obtaining a mortgage for a given amount.
- The promise to provide clear title (ownership)
- Target date for closing (the actual sale)
- Amount of earnest (hand) money deposit accompanying the offer
- Method by which real estate taxes, rents, fuel, water bills, and utilities are to be adjusted (prorated) between buyer and seller
- Type of deed that will be granted
- Other requirements specific to your state, which might include a chance for attorney review of the contract, disclosure of specific environmental hazards or other state-specific clauses
- A provision the buyer may make two walk-through inspections of the property before the closing
- A time limit after which the offer will expire
- Contingencies (these are extremely important and matter as much as, or more than, price)
If your proposal says, "This offer is contingent upon (or subject to) a certain event", you're saying you will go through with the purchase only if that event occurs. The following are two common contingencies contained in a purchase offer:
- Financing The Buyer must be able to get specific financing from a lending institution. If you can't secure the loan, you will not be bound by the contract.
- Home inspection The property must get a satisfactory report by a home inspector "within __ days after acceptance of the offer" (for example). All inspection conditions are detailed in the written contract.
- Appraisal The property must appraise for the agreed-upon price in the sales contract. If it does not, a new negotiation occurs and usually the seller agrees to a lower purchase price.
Negotiating the price
Based on the bargaining position you are currently in, you may have more than one Buyer interested in your property. Buyers that look exceptionally good to a Seller may have an all cash offer, or may offer over asking price and need a mortgage to perform. Regardless of the price, the Buyer must show proof of funds or that they have been pre-approved for a mortgage. Also, check to see that they don't have a house that must be sold before they can afford to buy.
Calculating net proceeds
When an offer comes in, a seller can accept it exactly as it stands, refuse it (seldom a useful response), or make a counteroffer with the changes they want, as discussed above.
In evaluating a purchase offer, sellers estimate the amount of cash they'll walk away with when the transaction is complete. For example, when they're presented with two offers at once, they may discover they are better off accepting the one with the lower sale price if the other asks them to pay points to the buyer's lending institution.
Once a seller has a specific proposal, calculating net proceeds becomes simple. From the proposed purchase price, they subtract the following:
- Payoff amount on present mortgage
- Any other liens (equity loan, judgments)
- Broker's commission
- Legal costs of selling (Title/escrow agent)
- Transfer taxes
- Unpaid property taxes and water bills
- If required by the contract: cost of survey, termite inspection, buyer's closing costs, repairs, etc.
When is the Sales Agreement Executory?
Each time either party makes any change in the terms, the other side is free to accept or reject the offer or counter again. The document becomes an Executory contract once both parties agree and finally sign the acceptance of the other side's proposal.