As a buyer, when you find the home you want to purchase, the next step is to make an offer. At this time, your real estate agent will present you with the offer paperwork, known as the Purchase & Sale Agreement. This document includes the preprinted legal terms of the contract with blanks in which to fill in the pertinent information unique to your offer. Here are some of the terms that will be negotiated in the offer process.
Price: The initial offer price is often a negotiating tool, setting the stage for a give-and-take that will eventually lead to final sales price. The price the buyer offers will depend on many factors including the market conditions, what comparable properties in the neighborhood have sold for, the condition of the home and the buyer's budget.
Earnest Money: Earnest money is the buyers "good faith" deposit, put up at the time of the offer to secure the contract. The amount of earnest money is negotiable but generally runs around 1% of the purchase price. If the contract is not carried through to completion, the earnest money will either be returned to the buyer or deposited with the seller based on the terms of the agreement. If the sale does go through, the earnest money will be applied to the purchase price at closing.
Financing: A buyer may be paying cash for the property or securing a loan. If they are securing a loan, there are several different types of loans they could be pursuing. Each type of loan has different costs and terms associated with it. Since financing is imperative to a buyers ultimate ability to consummate the sale, it is important to receive documentation that the money is available. For cash buyers, this could come in the form of a "proof of funds" document such as a bank statement showing the amount of cash available. For a buyer who is obtaining a mortgage, this usually comes in the form of a lender preapproval letter.
Concessions: The buyer will also list any concessions he or she wants the seller to include. For instance, a buyer may ask the seller to cover all or part of their closing costs and prepaid items. Another common request is the inclusion of certain household items like appliances, furnishings, or decor.
Contingencies: Most offers include stipulations on the sale that protect or benefit the buyer. For example, the offer could be contingent on an inspection of the property, the mortgage approval of the buyer, the ability for the seller to transfer clear title, the successful appraisal of a property at or above the offer price, or the sale of a buyer's other home.
Closing Costs: The offer will include a breakdown of how the closing costs will be split between the parties. As a general rule of thumb, closing costs for a buyer obtaining financing typically run between 2 and 4% of the purchase price. For cash buyers and for sellers, the closing costs are usually much less.
Title Company: The offer will denote which Title company is to provide the Title commitment and Title insurance policy to the new buyer.
Closing Date: The closing date may vary, but typically it is set approximately 30 days from the acceptance of an offer.
Response Time: Finally, the offer will give a time by which the seller has to respond. The offer is no longer binding on the buyer after that period of time ends.
All of these terms can greatly affect the outcome of the transaction,. As with any legal document, make sure you clearly understand the terms and how they will impact you before you sign. Your real estate agent will be an invaluable guide during this process. You are also encouraged to seek the advice of other professionals such as an attorney or CPA when needed.
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