Make an Offer

We, in the real estate business, say that the so-called "spring market" starts right after the Super Bowl.  Since the Super Bowl is now over, from a realtor perspective, the spring market is underway albeit in the very early stages.  If you are new to the market, or have not bought or sold real estate in Bucks County for a long time, I thought it might be helpful to disucss the process of making an offer so that you can be better prepared, once you reach that point in the buying process.

So lets presume that you have spent an appropriate amount of time getting educated about the market and the areas that you, as a buyer, are considering.  You have found the house of your dreams and wonder, what now?

It is time to write an offer 
The offer you sign contains all the terms and conditions which, if accepted by the seller, will allow you to purchase the house.  It is critically important to understand that in Pennsylvania the offer to purchase residential real estate will become a fully binding contract once signed by the seller.  You will be bound by all of the elements of that contract once it is fully executed by all parties. 

What is involved in making the offer? 
Once you have found the right house, your realtor -- assuming you are working with a realtor -- will help you answer all the necessary questions that go into the actual offer.  The first, and most obvious, is to determine what price you are offering.  Your realtor agent should discuss comparable properties as well as things like how long the property has been on the market.  Other factors that determine the price include the state of the market in general.  Is it a buyers market or a sellers market?  (The whole concept of pricing strategy could be a subject for a separate post.)  For the purpose of explaining the offer process you need to determine your offering price as the initial step in preparing the contract.

Establish a settlement date
Your settlement date is the day you go to closing and take title to your home.  The settlement date is often a very important element of the offer and can sometimes create an insurmountable obstacle.  The seller may require a long lead time if they are building a house, for example, and they are not willing to consider a temporary move. The buyer, on the other hand, may be relocating and need a very quick closing.  As an agent for the buyer, I try to find out in advance exactly what the seller is looking for so I can see whether this is going to be an issue.  When representing the seller, I try to encourage the seller to be flexible, if possible, so they don't create obstacles for buyers making offers.

How will you finance your new home?
Once you have established the price and closing dates, you need to specifiy how you will pay for the house.  It will be necessary to submit a check with your offer as an initial good faith deposit. In my contracts, the most common initial deposit paid by the buyers is $1,000.00.  Again, in general, if the property is listed with a real estate broker the deposits are held by the office representing the seller.  The deposit or deposits paid by the buyer towards the purchase price are called "escrow" deposits.  The purpose of the escrow deposit is to provide some assurance to the seller that the buyer will not walk away from the transaction for a frivulous reason.  It is important to note that the amount held in escrow is completely negotiable.  In most contracts in Bucks County, the buyer will be expected to make a second, and more significant , deposit into the escrow account aproximately 14 days following the full execution of the contract.  This must be structured into the agreement at the time the offer is written.  The only way that the buyer would forfeit the escrow deposit is if they default.  A default would occur if all of the contingencies in the contract are met but the buyer failed to go to closing.

The next step in the process of preparing the offer is to determine the mortgage amount, if any, and the acceptable terms of the mortgage.  The mortgage contingency clause is extremely important; it basically says that if the buyer is not able to obtain a mortgage for the amount and terms specified in the contract they can cancel the contract based on this contingency.

Next is to determine whether the sale will be contingent on a home inspection, radon inspection and wood destroying insect inspection.  These are the most common, but not the only, inspection-related contingencies.  Some additional inspection type contingencies are swimming pool inspections, septic inspections and well water inspections.  There are a couple of different ways to structure the inspection contingencies and they must be spelled out at the time of preparing the offer.

The actual contract that you will sign in making your offer will define in detail how all of these contingencies work.  As a buyer, you will be asked to review and sign the actual sales agreement.  There are a couple of additional documents that are expected when making an offer on a house.  The one that is often the most confusing to buyers is the Buyers Financial Statement.  While not a legal requirement, the agent for the seller will expect the buyer to complete a statement the details the assets and liabliities of the buyer along with their employment information.  The realtor representing the seller will also expect the buyer to have at least a mortgage pre-qualification letter from a lending institution.  It is a good idea to get these things together before you start the process of looking for homes.  That way, you will be fully prepared if you find the right house.

I hope that this brief overview of the offer process is helpful.  The standard Pennsylvania Association of Realtors (PAR) contract is extremely thorough and well thought out.  There are several options in completing many of the clauses; some are biased towards the seller and some towards the buyer.  It is critically important that your realtor be able to fully explain all aspects of the agreement to you.  As I indicated previously, once you sign the agreement it is fully binding when signed by the seller.  In another post, I will review the sales agreement and will explain all aspects of the agreement in greater detail.  In the meantime, you can review a blank copy of the agreement on my website at www.MartinMillner.com.