When you find a home you truly love and it is priced within your budget, it’s the right time to make an offer. Your real estate agent will help draw up a document known as a purchase contract and give it to the seller. This contract outlines the terms of your offer and sets the foundation for negotiations, ensuring you move forward smoothly in the buying process.
“Owning a home is a keystone of wealth – both financial affluence and emotional security.” – Suze Orman
Breaking Down the Purchase Agreement
When making an offer, your real estate agent will provide copies of the purchase contract, which is a standard agreement in your area. This contract includes key details:
- Offer price and specification of the down payment amount
- Financing information, including the mortgage you hope to secure and the lender
- Legal description of the property
- List of items included in the sale, such as appliances, fixtures, and carpeting, as well as those not included
- Move-in date and closing date
- Termination date to ensure the seller does not delay the process
- Other conditions that help protect your interests when buying a home
| Essential Elements of a Home Purchase Contract | Description |
| Offer Price | The amount you are willing to pay for the home. |
| Down Payment | The initial amount paid upfront to secure the home. |
| Financing Information | Details about the mortgage, lender, and terms. |
| Legal Description of Property | Official details of the home’s location and boundaries. |
| Inclusions & Exclusions | Specifies items included or excluded, such as appliances. |
| Move-in & Closing Date | Timeline for when the home will officially be yours. |
| Termination Date | A deadline to prevent unnecessary delays in closing. |
| Contingencies | Conditions that must be met before finalizing the purchase. |
Important Safeguards in Your Home Offer
When making an offer, including contingencies in your purchase contract is essential to protect yourself financially. These conditions allow you to back out if specific requirements aren’t met.
- A mortgage contingency ensures you can cancel the deal if you’re unable to secure a mortgage.
- An inspection contingency lets you withdraw if hidden structural problems or unacceptable physical defects are found in the house.
- An attorney-approval contingency allows your lawyer to approve the agreement before you commit.
- You can reopen negotiations for corrective work if inspections reveal expensive repairs.
- A title contingency enables you to review the title for accuracy and validity, backing out if title problems are uncovered.
- A final verification before closing ensures no significant defect or problem was hidden by the seller.
| Different Types of Contingencies in Home Buying | Purpose |
| Mortgage Contingency | Ensures you can cancel the deal if financing falls through. |
| Inspection Contingency | Allows withdrawal if significant defects are found. |
| Attorney-Approval Contingency | Permits your lawyer to review the agreement before commitment. |
| Repair Contingency | Gives room for renegotiation if expensive repairs arise. |
| Title Contingency | Ensures the title is valid and free from legal disputes. |
| Final Verification | Confirms no last-minute issues arise before closing. |
“The best investment on Earth is Earth.” – Louis Glickman
Understanding Earnest Money and Down Payments
When making a purchase offer, it is likely that you will need to include either earnest money or the entire down payment to show commitment. This deposit can range from $500 to several thousand dollars, depending on the agreement. Be sure to specify in the contract that the amount should go into an interest-bearing account, ensuring that any interest earned belongs to you.
Strategic Pricing for a Competitive Offer
When bidding on a house, your goal should be to make the lowest possible offer that is still accepted by the seller. The right asking price depends on market conditions and two key factors:
- CMA (Comparative Market Analysis) helps you see if the seller’s price is fair based on sales prices of comparable homes. If it’s too high, you should probably bid below the asking price.
- In a seller’s market, you’re likely to pay higher than CMA value, while in a buyer’s market, you can safely offer lower and still have a chance to get the home.
| Factor | Description |
| Comparative Market Analysis (CMA) | Helps assess if the seller’s price is fair based on similar home sales. |
| Market Conditions | Determines whether to offer above or below the asking price. |
Handling Counteroffers & Mastering Negotiation – The article doesn’t discuss what happens if the seller makes a counteroffer or how buyers should negotiate to get the best deal.
“Price is what you pay. Value is what you get.” – Warren Buffett
The Role of Home Appraisals in Your Offer – A home appraisal is often required by lenders before finalizing a mortgage. If the home appraises for less than the offer price, renegotiation may be necessary.
What to Expect During the Escrow Process – Once an offer is accepted, the escrow process begins, where funds and documents are held by a neutral third party until all conditions are met.
When Can You Get Your Earnest Money Back? – While you mention earnest money, it would be helpful to clarify under what circumstances the buyer can get a refund if the deal falls through.
“Buy land, they’re not making it anymore.” – Mark Twain
Frequently Asked Questions
What is the first step in making an offer on a home?
The first step is consulting your real estate agent, reviewing comparable sales, and deciding on an offer price before drafting a purchase contract.
How much earnest money should I put down?
Earnest money varies, but typically ranges from $500 to 3% of the purchase price, depending on market conditions and the agreement with the seller.
Can a seller reject my offer?
Yes, sellers can reject offers if they find them too low, have better offers, or disagree with the proposed terms and contingencies.
What happens if the home inspection reveals issues?
You can negotiate repairs, request a price reduction, or back out of the contract if the inspection contingency allows.
What is the typical timeframe for a seller to respond to my offer?
The response time varies but is typically 24-72 hours. Sellers can accept, reject, or counter your offer.
What if I can’t secure a mortgage after making an offer?
A mortgage contingency allows you to cancel the deal without penalty if financing falls through.
Can I negotiate the price after my offer is accepted?
Yes, negotiations can continue if new issues arise, such as low appraisals or costly inspection findings.
What is a counteroffer, and how should I handle it?
A counteroffer modifies some terms of your offer. You can accept, reject, or counter with new terms to negotiate a final agreement.
When does the earnest money deposit become non-refundable?
It becomes non-refundable after all contingencies are cleared and the contract moves forward to closing.
What happens if I back out of the deal?
If you back out without a valid contingency, you may lose your earnest money and face legal consequences, depending on the contract.
Conclusion
Making an offer on a home is a crucial step in the home-buying journey, requiring careful consideration and strategic planning. By understanding the purchase contract, including key components like contingencies, earnest money, and pricing strategies, you can protect your interests and improve your chances of securing the home you want. Negotiation skills, awareness of the appraisal and escrow process, and knowing your rights regarding earnest money refunds can help you navigate this process smoothly. With the right approach and guidance from a trusted real estate agent, you can confidently make an offer that aligns with your budget and homeownership goals.
Rhys Henry is a Luxury Realtor & Senior Partner at Tyron Ash International, specializing in South East London & Kent Division. A dedicated real estate agent, Rhys is passionate about helping clients navigate buying, selling, and investing in luxury properties with expert guidance and industry-leading strategies.