When you’ve found a home you love that’s priced within your budget, it’s time to make an offer. To make an offer on a home, you and your real estate agent draw up and give to the seller a document called a purchase contract.
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The Purchase Contract
Your real estate agent will have copies of the type of purchase contract that’s considered standard in your area. Purchase contracts typically contain the following:
- Your offer price, including a specification of the down payment amount
- Financing information that specifies the amount of the mortgage you hope to get and that identifies the lender
- Legal description of the property
- List of what’s included (appliances, fixtures, carpeting, and so on) and not included in the sale
- Move-in date
- Closing date
- Termination date, so the seller can’t delay
The purchase contract you give the seller should contain contingencies, or riders, that allow you to back out of the contract if certain conditions aren’t met. Including these contingencies is a crucial way to protect yourself financially as you work through the transaction:
- Mortgage contingency: Allows you to back out of the contract if you’re unable to get the mortgage.
- Inspection contingency: Allows you to back out if the inspection turns up hidden structural problems or other unacceptable physical defects in the house.
- Attorney-approval contingency: Allows you to back out if your lawyer does not approve of the contract.
- Negotiations for corrective work: Allows you to reopen negotiations if inspections turn up expensive corrective work needed on the house.
- Title contingency: Allows you to review the title on the property to evaluate its accuracy and validity and to back out of the deal if title problems are uncovered.
- Final verification of condition: Allows you to renegotiate or back out if, during the final walkthrough before closing, you spot a significant defect or problem with the house that is new or that the seller hid.
Earnest Money or Down Payment
Along with the purchase offer, you’ll likely have to include either earnest money or the entire down payment. (Earnest money is a deposit that usually ranges from $500 to several thousand dollars.) Specify in the contract that the money must be deposited in an interest-bearing account and that the interest on this amount belongs to you.
How to Price Your Offer
Your goal in bidding on a house is to make the lowest possible offer that will be accepted. That offer could be higher, lower, or equal to the seller’s asking price. When deciding how much to bid, consider two factors:
- CMA: If the asking price is much higher than the sales prices for comparable homes, you should probably bid below the asking price.
- Market conditions: If it’s a seller’s market, you’ll likely have to bid higher than the CMA price—maybe considerably higher. If it’s a buyer’s market, you may safely be able to bid below the asking price.