Chances are, when you find a home you absolutely love, someone else may love it too. So it’s important to act quickly and make an educated offer based on a rational approach to pricing and negotiating that you and your agent have discussed.
To start the process rolling, your agent will draw up a contract that includes your offer price and other terms and contingencies. Buyers often focus on price, but there are other important terms to a real estate contract. You can include any terms you like, but the more you add, the more likely the seller is to object. Here are the most common elements of a real estate contract:
Price: The market will determine the final price, but your agent will help you formulate an offer based on comparable listings and sales, and current market conditions.
Mortgage Contingency: A mortgage contingency stipulates that you will buy the home subject to obtaining a mortgage. If you cannot obtain a mortgage, and the seller will not agree to finance the sale, then the contract will be void. The terms of the mortgage must be stated in the contract, and you will also need to establish a timeframe for securing financing.
Home Inspection Contingency: A thorough inspection of the property by a licensed home inspector protects you against structural or material problems that are not detectable in a casual walk through. Home inspections are just as important in new construction as they are in a resale. Obviously, buyers can’t inspect a home that isn’t built yet, but they can request an inspection prior to closing. In new construction, an inspector will make sure that all mechanical systems are working properly. They may also spot repairs that need to be added to the builder’s punchlist (a list of items that need to completed). The buyer, not the seller, is responsible for hiring and paying the inspector.
Earnest Money: Earnest money is a deposit, given by the buyer to the seller, which secures the contract until closing. An initial deposit, usually in the form of a check, must be given to the seller or seller’s agent along with the contract, and the balance of the earnest money is usually due approximately two weeks later. Earnest money is typically held in an escrow account until closing, when it may be applied to the down payment and/or closing costs. If the sale does not go through, then the earnest money may be returned to the buyer. However, if the buyer is in breach of contract, then a seller may be entitled to keep all or a portion of the earnest money.
Closing Date: One of the most important terms of a real estate contract is the closing date — the date when ownership changes hands. Flexibility on the closing date can give a buyer a big advantage over other potential buyers. Occasionally, it can also allow you to negotiate a lower price or other, more favorable terms.