The most powerful document
Without question the offer to purchase is the most powerful document you will be asked to sign in a real estate transaction. In many respects, the physical closing at the title company is simply a confirmation of what happened days, weeks or months earlier. This point in time can be stressful and scary, or it can be exciting and satisfying. The difference is what you know about how you got here and making wise choices; choice based on facts and emotional restraint. There will be another home that comes along if your best efforts are in vain. “Fear of loss” is one of the primary reasons a buyer chooses a home.
Get to know it – before you need it
To become familiar and comfortable with the form before you get involved with the details of actually signing an offer is a good example of “what you know.” Do not wait until an agent is asking you to sign this document to read it for the first time. Ask one of the agents you interview to provide a copy of the “offer to purchase” form so you can be well prepared when it is time to negotiate. Reserve a time to become familiar with it. Have a notepad at your side to write questions down about the purpose of certain clauses if the meaning is not clear.
Communicate with email
Ask the questions you have by using email or texting. There are a number of reasons to use email for this task:
- You and the agent can dialogue when it is convenient for both of you.
- You gain time to learn and consider implications of the document’s language before you sign it.
- Writing questions down and answering them in writing commits each party to communicate clearly.
- More memorable than conversation.
- It is easy to store the questions and answers for future reference.
There is an old eastern proverb that will help you apply this practice and make it an active part of your process “ The strongest memory is no match for the weakest ink.”
Let us promote an understanding
Many states print approved real estate forms. When states forgo printing real estate forms, it is typical for the local or regional real estate organizations to step forward with their forms. Here are the issues most crucial to understand when you are making an offer to buy a home. Remember that your offer becomes a contract of sale when accepted as written. You do not want to leave any question unanswered unless you have protection with a well-written contingency. Understanding the language and reviewing the offer beforehand should help reduce last-minute concerns and surprises. Here are the main subjects:
- Identity of the buyer(s)
- Identity of the property the offer covers
- Agency disclosure – confirms who the agent represents
- The price you are proposing to pay
- Amount of Earnest Money, and what happens to it after submission
- Important dates and whether or not time is of the essence
- Descriptions of issues the agreement is dependent upon – contingencies
- What personal property or fixtures is included, or not, in the sale
- How will title be transferred
- Deadlines for acceptance or countering the offer
- Date of legal transfer – the closing date
- When the seller will move out, and when you will move in
- Penalty if occupancy requirements not met
- Representations by the seller of known defects
- How financial obligations of ownership are pro-rated
- Who pays for outstanding assessments and new assessments after contract of sale is in place, how seller clears title, proves ownership and who pays for it
- What happens to earnest money if either party fails to close
- After removing the contingencies, can the buyer force the closing when the seller reneges? Can the seller sue for specific performance if the buyer fails to close?
- What if there is a fire?
- Acknowledgement the contract is a legal document
- Signature area for buyer(s)
- Reinforcement of the binding nature of the agreement
- Signature area for the seller to accept, reject, or counter the offer
Counter offers, addendum, notices and amendments
It is common to include addendum and contingencies with the offer. Subjects like financing, sale of other property, acceptance of transfer, inheritance or many other circumstances become a part of offers to purchase. These additional forms provide time to order reports that are not practical to invest in without a definitive agreement. When a seller rejects the offer, either by written notice, not responding or by responding with counter-offer, it must be in writing. It is hazardous to take the shortcut of verbal communication for a variety of reasons. The main reason is oral contracts are not enforceable in real estate. It is important to understand how to maintain provisions from the original offer with a counter-offer. You will want to be able to see in the document or documents the words that confirm your expectations. It is not uncommon in the heat of the back-and-forth negotiations between buyer and seller for some relevant provision to slip through the cracks. Real estate law principles vary somewhat from state to state that is another good reason to become familiar with the forms in the state in which you will be conducting business.
Can we change the agreement?
Contingencies are satisfied with a new document as you move through the process. These new documents are called “amendments” or “notices” where the parties communicate resolution of contract contingencies. The amendment documents can also be utilized by both parties to modify the terms of the original agreement when both parties agree to it. For example, your move-in date could change, but you need to make certain the seller can be out earlier. If you get agreement from the seller for that to happen, it must be written into the agreement. Ask your agent for copies of the various forms particular to your circumstances prior to making or receiving an offer. You will be much more confident at this point if you review the documents and understand all the provisions beforehand. You are almost home.