Define Offer Terms
Owners.com Buyer Handbook
A purchase agreement or offer includes many of the following elements, including
some "contingencies." A contingency means that unless that particular thing happens, the transaction
won't go through. In other words, if the buyer has a financing contingency and cannot obtain that
financing, the buyer can refuse to go through with the purchase.
The full amount for which property is being sold.
Full Names of Buyers & Sellers & Their Martial Status
Full legal names of buyers and sellers and whether they are single or married.
Address and Legal Description of the Property
Complete address and legal description of property.
List of Items Included in the Sale
List of what will go with the house: appliances, lighting fixtures, window treatments, etc.
Earnest Money Deposit
The earnest money deposit, also called the good faith deposit, should accompany the offer.
Rule of thumb: the earnest money deposit should be for at least 3-5% of the sales price. It
is generally deposited into an escrow account with a real estate attorney or escrow officer
after the home and radon inspection contingencies have cleared and all disclosures have been
delivered to the buyer and accepted.
Identify Escrow Company
Who chooses the escrow company
varies with locality. Generally, the party responsible for paying for the title insurance
chooses the escrow attorney or company.
Payment of Closing Costs
The contract should stipulate who will pay the buyer's and seller's closing costs and
the various transfer and recordation taxes that most localities and states charge when property
is transferred. Who pays these costs is almost always negotiable between buyer and seller, but
there are usually common practices in each locality. Contact an
escrow officer or real estate attorney
to determine the common practices for your area. It is not unusual for a buyer to ask the seller
to pay some of the closing costs, including points on the loan, transfer and recordation taxes,
and other closing costs. It is best not to try to list all closing costs that the seller will
pay, but simply to agree on a gross amount to be applied to closing costs. Generally, a lender
will not allow a seller to contribute more money than the buyer can actually spend in closing
costs. In other words, you cannot take cash away from the settlement.
Payment of Commission
If you and the seller have agreed to work with real estate agents, the contract should spell out
the amount of commission due and to whom.
Date & Location of Settlement
This is also called closing. You should agree with the seller on a timeframe for closing the
Date Property is Vacant & Property Condition
It is best to vacate the property on or before the day of closing/settlement if possible. Some
sellers will need to stay in the house after closing/settlement for a period of time. If your
sellers need to do this, they will generally agree to pay you a pro-rated "rent back." This rent
back amount is usually equal to the daily cost for your entire mortgage payment, including taxes
and insurance. The property is generally left in "broom clean" condition. You should require a
walk-through of the house on the day before or day of settlement to ensure it is in substantially
the same condition as when you purchased it.
Pro-ration of Expenses
How real estate taxes, rents, fuel, water bills and utilities are to be adjusted (pro-rated)
between buyer and seller.
The contract should stipulate the terms and amount of the mortgage and down payment the buyer
will make to purchase the house. Under most contracts, if the buyer does not qualify for the
specified loan, the buyer is entitled to the earnest money deposit back. That's why it is
critical to move the financing along as quickly as possible. The financing contingency should
- The period of time you have to obtain a "pre-approval" letter, complete with credit and
source of funds review.
- The period of time you have to make a formal loan application, which you agree to
- The period of time you have to obtain a FULLY approved loan, complete with an appraisal
and all other documentation the lender needs. This final approval is called a commitment
Home Inspection Contingency
If you choose to have a home inspection,
the contract should indicate how long you have to complete the inspection. The buyer orders and
pays for the home inspection. We highly recommend having a home inspection.
There are several ways to handle this contingency. Two popular ways are:
- The seller has the right to repair all of the deficiencies the inspector finds and hold
the buyer to the contract OR the seller has the right to choose not to repair the items and
releases the buyer from the contract and returns the earnest money deposit. In other words,
the power to move forward to settlement is in the seller's hands.
- The buyer has the right to walk away from the deal if they are unsatisfied with any aspect
of the inspection, in spite of the seller's willingness to repair the deficiencies. In other
words, the power to move forward to settlement is in the buyer's hands.
Radon Inspection Contingency
A radon inspection is common in
many areas of the country. If you choose to have a radon inspection, the contract
should stipulate how long you have to complete it. The buyer orders and pays for the radon
Additional Inspection Contingency
You may want other special inspections
, including roof, electric, or plumbing.
Termite Inspection Contingency
The termite inspection
is generally required by lenders in many areas of the country. A licensed pest inspector
completes a report that indicates the current presence of wood boring insects and/or any
past damage caused by them. The inspection must be dated within 30 days prior to settlement
and is usually ordered by the buyer and paid for at closing. Generally, the lender will
require any past damage to be repaired prior to settlement. Usually the seller pays for
these repairs. The seller can limit their exposure and agree to pay only up to a certain
amount in prior pest damage repairs, if any are discovered in the inspection and the lender
If you are in a locality that requires certain
, the contract should indicate:
- When the seller is required to give the disclosure forms to you.
- How long you have to review the disclosures.
The contract should also advise you IN WRITING whether the information is acceptable. If
you are buying a condominium or co-op, the seller will have to provide condo or co-op
documents for your approval.
Clear Title Requirement
The seller must provide a clear and marketable title to the property.
Home Purchase Contingency
Use if the seller has to find a house before they can close on their old house. There
should be a timeframe for the seller to locate and put a contract on a new house of their
choosing, which they agree to diligently pursue. Your deposit should be refunded in full
if the seller cannot locate and contract for a new house.
Home Sale Contingency
Use if you must sell another house before purchasing this house. There should be a timeframe
for you to find a buyer for your old home and settle on that home, if necessary.
Suggested Timeframes for Completion
The pre-approval letter with credit check should be obtained within 5-7 days after contract
ratification, if you weren't pre-approved when the offer was presented. The application
should be made within 5-7 days after contract ratification. A fully approved loan should be
obtained within 30-45 days from the date of contract ratification.
Inspection & Disclosure Timeframes
Inspections and delivery of any disclosures should be completed within 5-7 days from contract
ratification. You should have 2-3 days after completion to indicate to the seller IN WRITING of
any problems discovered in the inspection or disclosures. The seller should then have 2-3 days
to determine whether and how to fix the problems and respond back to you IN WRITING.
Termite Inspection Timeframe
The termite inspection is to be completed within the 30 days prior to settlement. Lenders
generally limit the window to 30 days to ensure the termite inspection is current.
Realty Transaction Task List
For a summary of tasks and timeframes, see our
Realty Transaction Task List.