Introduction
Once you find the home to purchase, the next step is to write an offer which an Equity Vantage Real Estate advisor will walk you through from beginning to end. The offer is just the first-step in negotiating a sales contract with the seller. This is just the beginning of the negotiation with the seller and you should carefully craft an offer balancing your needs, the seller’s needs, and current market conditions.
The offer goes beyond price and there are a series of items for the buyer and seller along with allocation of costs in order to build in protections and contingencies to protect your investment and limit the overall risk.
In the Residential Purchase Agreement (RPA), items included beyond price are how you plan to finance the home, the amount of earnest money deposit and down payment, who pays what closing costs, what inspections are performed, timetables, whether personal property is included, terms of cancellation, any request for repairs, which professional service providers (escrow, title, etc.) will be used, when you get physical possession of the property, and how to settle disputes should they occur.
Buying and selling a home is a major event in anyone’s life and only occurs every seven years on average. The decisions made during this process will impact your life for years to come and is the biggest financial and lifestyle decision that one experiences in their lifetime, and therefore, can be an emotional experience for all involved. The goal is to make it as smooth as possible with the best possible outcome for all with a focus on resolving and finding a middle ground for any issues that arise.
Contingencies in a Purchase Offer
In most purchase transactions there are almost always a few challenges that will need to be overcome and our team will be here to help you navigate through these challenges. Contingencies in a purchase offer allow you to back out of the deal if something arises and the buyer and seller cannot mutually agree on the outcome.
There are seller disclosures that are required including the Transfer Disclosure Statement, Natural Hazard Disclosure, preliminary title report, HOA documents (if applicable), etc. As a buyer, you have the right to review these documents and should any red flags pop up, you have the right to back out.
Other common contingencies include the home and pest inspections, appraisal, and loan approval. These are protections for all parties involved in order to negotiate on these items and come to an agreement or the right to back out without forfeiting the earnest money deposit.
Basically, contingencies protect you in case you cannot perform or choose not to perform on a promise to buy a home. If you cancel a contract without having built-in conditions and contingencies, you could find yourself forfeiting your earnest money deposit which can end up being a substantial amount of money.
Earnest Money Deposit
After you have come up with an offer price, the next step is to determine how large a deposit you want to make with your offer. You want the “earnest money deposit” to be large enough to show the seller you are serious, but not so large you are placing significant funds at risk. You also want to wire the funds to escrow so they are secured by a third party. Generally speaking, earnest money deposits usually are about 2-3% of the purchase price, but are the sole discretion of the buyer and what they are comfortable putting up.
A lower earnest money deposit puts less funds at risk in the even there is a dispute between the buyer and seller where the funds can get hung up for weeks or even months. On the other hand, a larger earnest money deposit also shows the seller how serious you are and it will make your offer more enticing over the others.
Closing Costs and Service Providers
Closings costs are negotiated in the purchase agreement and include items such as escrow, title, inspections, transfer fees, HOA docs, home warranty plan, etc. All of these costs and how they are shared or who is solely responsible is spelled out in your offer. Your advisor will do a thorough review with you to walk you through what is customary in terms of what costs are shared and who pays for what, however, these are all negotiable items and up to you.
In addition, service providers need to be selected including who chooses the escrow and title company. Generally the buyer will selection their service providers for the home inspection, pest inspection and any other due diligence items that require the use of a third party.
The Closing Date
The closing date is very critical as part of the transaction as both the buyer and seller have to make arrangements for moving. Being flexible on the closing date where possible will allow for other negotiations in the transaction to have more focus and weight. In planning your move, make sure to have some flexibility built in as there can be unforeseen issues that can come up and may take longer to resolve that will delay the close of the transaction.
Transfer of Possession
The purchase of the home and transaction is considered closed when the deeds have been recorded. Possession on the other hand is an important item to have spelled out in the transaction. It is not uncommon for transfer of possession to take place three days after close in order to allow the seller ample time to move out. Sometimes, the seller will need their other property to close before possession or they may request a sale-leaseback arrangement. Nevertheless, in any of these circumstances, they need to be clearly spelled out so that all parties are in agreement and there are no major disputes.