Ready To Buy?
Making an Offer to Purchase
You have found a dream house and you want it badly. Your first urge is to rush in and BUY your new home. If you are a first time purchaser, however, writing a purchase contract can be a scary step. Your real estate agent will help you through the purchase process, of course. It will help yourself confidence, however, to know beforehand what will happen when you sit down to write the purchase contract. There are several decisions to make before signing and sending the purchase contract to the home's seller.
Offer Price. One way to decide what to offer is to study recent home sales in your market area. If he/she has not already done so, ask your real estate agent to gather a list of similar homes sold (same or similar total rooms, bedrooms, bathrooms, garage). These are called comps, or comparisons. Often your real estate agent will also know the contract price on homes that are under contract but have not yet closed. Study these sales and drive by the properties. Compare their condition and size to your (hopefully) future home. Also note if the market has heated up or cooled considerably since the comps have sold. In a quickly changing market this can also affect your offer price and how quickly you must present an offer. In a red hot market, desirable homes will sell within HOURS of listing. Taking everything into consideration, determine the maximum you would pay for the house and keep it to yourself.
There are various strategies to use when making an offer, but many negotiating professionals recommend making a fair offer, with some room to come up if necessary. When deciding offer price, listen to the advice from the real estate agent. Remember that the higher the home sells for, the more he/she receives in commissions. Also remember that if another buyer simultaneously puts in a higher offer you could lose the house. If you are ambivalent, you could ask a real estate agent with no connection to the transaction his/her opinion.
Earnest Money. Earnest money is given by the potential purchaser with a purchase contract. It is meant to show you are sincere about purchasing the property. If your offer is accepted and you purchase the home, the money will show up as a credit on your sales contract at closing. If your offer is not accepted, you are entitled to get your earnest money back. In many cases, if you come to agreement then break the contract you will forfeit your earnest money. The amount you put up for earnest money will depend upon many factors: local conditions, your cash flow and the agent's advice among others. Remember, though, that this money is at risk if things turn bad.
Finance Terms. You will only want to purchase the home if you can secure proper financing. Be specific about the mortgage, including type, amount, and interest rate. If you have pre-approval, most, if not all, of these questions will already have been addressed.
Time Terms. Identify when you want to close on the home purchase.
Contingencies. There will be some activities that must happen before you are willing or able to purchase this home. This will vary with the individual situation. A home inspection contingency should always be included. This will give you the right to have an inspector look the house over carefully in order to identify any hidden faults. If you are not a first time buyer and are selling another home, you will want to make this purchase contingent upon the sell of your current home. Another common contingency is a pre-closing inspection, or walk-through. This means you look through the house just before closing to make sure no damage has occurred and nothing has been inappropriately removed from the home.
Once all of the above have been established, you identify when the sellers must respond to your offer and sign the offer contract. The real estate agent will then present your offer to the seller or the seller's agent. At this point, your offer has been made. There are many steps to purchasing a home, the purchase offer being only the first. Counteroffers, inspections, and the closing are some of the adventures yet to come. Remember that the Offer to Purchase or Agreement of Purchase and Sale is a legal document and should be carefully prepared. Any offer or agreement will typically include:
- Your legal name, the name of the vendor and the legal civic address of the property.
- The purchase price offered.
- The chattels that will be included in the purchase price (for example, window coverings, appliances). Whatever items in or around the home that you think are included in the sale should be specifically stated in your offer.
- The amount of deposit.
- The closing day (date you take possession of the home)
- Usually 30 to 60 days from the date of agreement. It can also be 90 days or longer. Generally, an Offer to Purchase obliges the purchaser to take possession of the house and property on a certain date. As of the closing date, the purchaser is responsible for taxes, utilities, repairs and maintenance.
- Request for a current land survey of the property.
- Date when the offer becomes null and void: that is, it is invalid.
- Any other conditions that go with the offer, including property inspection and approval of mortgage financing.
- The process of making an offer, receiving a counter-offer and then revising it again is not uncommon. The whole process can seem like a roller coaster ride - exciting, but stressful. It's all part of making the deal work best for you and the vendor.
ONCE THE OFFER IS ACCEPTED
Once all the conditions of the offer are fulfilled or dropped, it is time to start thinking ahead and making arrangements:
- Give notice to your landlord if you are renting.
- Start looking at moving options; hiring a professional or doing it yourself.
- Make necessary address changes (utilities, services, post office).
- Arrange for property insurance.
An offer will usually include a clause that allows the buyer to revisit the property a couple of times before closing (after all the conditions are fulfilled) so that he/she can:
- Measure for window treatments.
- Measure for special-sized furnishings.
- Bring in a tradesperson for a renovation or remodelling estimate.
Arrange for these visits in advance to make sure your real estate agent is available.