This action might not be possible to undo. Are you sure you want to continue?
Step1 Consult a lender or mortgage broker to find out how much you can afford to spend on a home, or use a calculator on a financial Web site such as Quicken.com (see "eHow to Determine How Big a Mortgage You Can Afford'). Step2 Decide what type of financing you want: a fixed-rate or adjustable-rate mortgage. Step3 Know how much money you have for a down payment; typically 5 to 20 percent of the purchase price is required, depending on the loan terms. Step4 Get prequalified for a loan by a lender or mortgage broker. Step5 State what inspections you want to have done before you'll agree to buy the home. You can get general home inspections, as well as geological, roof, pool/spa, earthquake/flood and environmental inspections. Step6 State whom you want to pay for inspections, the termite report, required work, title insurance and escrow fees, and warranties. Step7 Decide how long you want the escrow period to be. Step8 Establish how long both parties should have to complete inspections, approvals and work. Step9 Put a limit on the amount of time the seller has to respond. Step10 Present your offer and a letter of prequalification for financing to the seller yourself or through your agent.
What Next? 8 Steps To Follow When Buying A Home
1. Decide to buy a home.
That sounds reasonable, doesn’t it? Yet, so many of us are really "just looking" rather than seriously considering changing the location of our home. Why is it that you want to find a new home? Has your lifestyle changed enough to warrant this type of investment? Until you identify your NEEDS and your WANTS, you’ll find it very hard to find, just the right home for you.
2. Find a great real estate consultant.
Once you’ve decided to buy a home, find a great real estate consultant. What you’re looking for is a Buyer’s Agent. This means that the consultant represents YOU as the buyer, rather than the person selling the home. They will have YOUR best interest at heart. Really good consultants know their markets, and will help you find the best match for your needs and wants. They can also recommend mortgage brokers with whom they’ve worked in the past.
3. Secure financing.
If possible, get "pre-approved" for a loan in the amount you’re willing to borrow. With this pre-approval, you are in a stronger position to buy a home when you’re ready-rather than finding your dream home, only to lose it to another buyer, because you were waiting on the approval.
4. Find your dream home.
Now that you have your "wish list", your consultant, and your "pre-approval" in hand, go forth and find yourself a home. As you go through homes, make sure to keep the listing, notes of your impressions of the house, and a photo (if possible) in a notebook, so that you can remember all the homes you’ve seen.
5. Make a written offer & negotiate the price.
Once you find your home, work through your consultant to make an offer. Typically your first offer is going to be lower than the listing price. Listen to your consultant, they are representing you and know what homes have sold for in that neighborhood. Rarely will the seller accept this first offer, so they’ll counter with another price. Back and forth you’ll go until you settle on a price. (This is where the consultant is really using their expertise).
6. Open an escrow account.
Once you and the seller have agreed on a price, through your consultant, you’ll open an escrow account. What this does is put a "good faith deposit" in a third party’s hands, to demonstrate that you are serious about buying this home. Many buyers offer 5-10% of the selling price of the home.
7. Have an inspection.
The home inspection is to protect you from buying a home that may have serious hidden structural problems or defects.
8. Sign final documents, get the key & move into your new home.
Finally! The home has been inspected, you’ve cleared the title to the property, and you’ve "closed" on the deal. All you have to do now is move in. Don’t forget to put out the welcome mat!
Make an Offer
You've finally found the property you want to buy and it's time to make an offer. Be careful not to act hastily. Draft your offer carefully and exercise good judgment. Here are some important steps to follow:
Act now. Assume there is no time to waste in making your offer. You've invested time and energy in your search for a home--now follow through. If possible, let the sellers know they'll be receiving your offer shortly. Determine your offering price. You'll want to be aware of dynamic market conditions, as well as property-specific factors contained in a comparative market analysis (CMA). The CMA is a tool for comparing the subject property with other similar properties in the neighborhood. A well-prepared CMA is critical in helping to determine the fair market value of the home (which may be what you offer). Your real estate agent should have a form specifically designed for this purpose. If during your property search you completed the Property Comparison form, the CMA is practically complete. The CMA will also include Listing Date, Listing Price, Listing Expiration Date, Sale Price, and Sale Date, number of Days on the Market. The CMA should include homes currently for sale, home sold and homes which were listed but didn't sell.
Protect yourself. Your offer should contain financing and inspection contingencies for your protection. If you're working with a licensed real estate agent, it's likely she'll be using a comprehensive form which includes standard text for virtually all normal contingencies. Think ahead. Now is the time to plan when you want to close the transaction. If you're nearing the end of your tax year, discuss with your tax advisor the best time to close. There may be benefits associated with closing in the next tax year. Consider closing near the end of the month. Pre-paid interest on your new loan will usually be less. Coordinate closing with the closing of your current home, or the termination of your lease. Present your offer. If you're working with an agent, she'll likely present your offer for you. Letting her represent you will help protect against emotional flair-ups which can occur in face-toface negotiations between principals. Negotiate. Unless you're offering the seller exactly what they're asking, prepare to negotiate. A good real estate agent will be schooled in the art of negotiation and will employ important negotiation techniques while representing you. Additionally, you can benefit by reading up on the subject. Local and on-line booksellers will have many books on the subject from which to choose.
Things to Remember When Making your Offer
Just as with retail merchandise, bargains can be found in investment real estate, but you must know where and what to look for. When you've located a property that you think will meet your investment needs, you'll want to make a purchase offer for it. But in
order to position yourself to get the best deal possible, there are some things that you would do well to keep in mind. First of all, you should remain aware that a "firm" price is actually seldom truly firm; indeed, at least some bargaining is almost always possible. Even when a seller refuses to reduce the price, he or she may frequently negotiate on the down payment amount, interest rates (assuming any seller financing), or what items stay with the property (as opposed to going with the seller). Furthermore, if you're even vaguely considering making an offer on a property you've found and evaluated, you would generally be wise to keep that information to yourself. People telling people who then turn around and tell other people can only create interest and, ultimately, unwanted competition for you at a time when you'd just as soon do without it. While there's certainly nothing wrong with letting others know after you have made a purchase, refrain from doing it before the deal is done. Seller motivation Try to discover the property owner's motivation for selling. If you're dealing directly with the owners – or if they're present when an agent is showing you the property – don't be apprehensive about asking their reason for selling. Owners will typically give you a truthful answer. The greater the owner's motivation, the more likely it is that you'll be able to purchase the property for a price significantly below its market value. When a broker advertises a property and uses the word "asking" in the ad, he or she is actually saying, "The price is soft," or, "Make the seller an offer." The same inference is given by using the words "motivated seller," or including a reason for the sale. In these situations, ask the agent how long the property has been on the market and if the seller is truly motivated. If the property has been marketed for an inordinate amount of time, a significant discount on the listed price can often be expected. While the seller's agent technically should not without permission disclose the owner's motivation to sell, many will nonetheless do so if asked. In fact, some seller agents may volunteer the fact that an owner must sell and provide the reasons. If you're using a buyer's agent, he or she has an obligation to disclose to you what's discovered about the seller's motivations. You can also instruct your agent to search for situations where there is extraordinary owner incentive to sell. Knowing why an owner is selling can literally be worth tens of thousands of dollars to you in negotiation leverage. Unmotivated sellers, on the other hand, are the primary reason that you should avoid becoming emotionally attached to any property prior to purchase. They are under no financial or emotional pressure to sell. Holding the property presents no hardship to them, and they have no strong need to use the proceeds of the sale for any particular purpose. Of course, this doesn't mean that you should not make offers for their properties – only that you should avoid prolonged dealings with them. Often sellers who claim to be unmotivated are, in fact, strongly motivated to sell. They've simply adopted a not-veryinterested approach in order to hide the fact that they may indeed be desperate to make a deal. Therefore, don't be afraid of making a low offer to anyone. The most sensible
not the original asking price. "How did you arrive at your price?" The response will often reveal very subjective thinking and indicate that the price is by no means firm. ask them frankly. Neighbors who were living there at the time the property was purchased may even remember what the present owner paid. quickly move on. you'll be able to negotiate from a position of greater strength at the low end of comparable sales. they tend to begin negotiations at a higher figure than if the sellers were motivated. Also. Some agents may feel that the CMA is proprietary. on the other hand. your bargaining position will automatically be significantly weakened. When inexperienced buyers believe that sellers are not strongly motivated to sell. If you can discover when the seller acquired the property. If a seller knows you're in love with a property. while as a buyer you want to know the seller's motivation. In talking with neighbors. it works. you're dealing with the seller's agent. Request a copy of any competitive market analysis (or CMA) that was prepared. As such. be sure to ask about any known problems with the particular property and the neighborhood in general. Find out what the seller paid for the property In preparing a purchase offer. ask the agent to prepare another analysis showing all similar sales in the area within the last six months. If. Armed with such data. you can lead up to the sellers' property and find out when it was purchased. A good follow-up question to then ask is this: "What's the lowest price that you'll accept for the property?" The answer to this question will actually serve to give you a new asking price without you having made an offer. By talking to neighbors and divulging that you're interested in purchasing in the area. Any subsequent negotiations should then be based on discounts from this new price. This technique is simple. you should be able to formulate a fairly good idea of what was paid for it. ask the agent how the price was set. you don't want a seller to know how motivated you are to buy. Conversely. you may be more likely to uncover the real reason that an owner is selling from a neighbor than from a real estate agent. it helps to know what the seller has invested in the property. If they turn out not to be. straightforward. If so. This information can typically be readily obtained from computer files. the unmotivated seller has claimed a victory even before negotiations have begun. and all your knowledge of negotiation tactics will become virtually meaningless. and not allow you access to it. and most importantly. Make your purchase at the right time . Ask how the price was set When dealing directly with the owners.approach is to make an offer under the assumption that the seller is highly motivated. They'll also set their actual target purchase price at a higher amount. or perhaps even lower.
Your offer is your decision. it’s best to make sure you’ve got your bases covered from the beginning. Don't worry if the real estate agent says that it won't be accepted. When a property has problems such as vacancies or health or building code violations. But also keep in mind (and. A rejected offer costs you absolutely nothing. Remember that the primary responsibility of the seller's agent is to get the best possible deal for the seller.com/investing/things-to-remember-when-making-your-offer. Problem or distressed properties usually can be purchased at attractive prices. Further.html Checklist Making an Offer Since offers can quickly turn into contracts.900 prices is when you sell! http://www. such as those of your attorney and accountant. Use this checklist to make sure you don’t omit any items from the document. terms. don't ask your friends what you should offer. . While a very low offer in a normal market might be immediately rejected out-of-hand. especially if they aren't in the investment real estate market. Therefore. it will also appear that way to the seller. when making an offer. what would otherwise be an unacceptable offer might be welcomed. not for you. It could therefore be well worth your while to round off your offer price. You're the one making the offer and the one who will have the responsibility of making the payments. the same offer in a buyer's market will usually either be accepted or produce a counteroffer. You determine what your offer will be Your offer need only make sense to you. you as an investor will find the best bargains. it's your offer. During a buyer's market (when there are few buyers and many sellers). keep in mind that while $199. Outright rejections become less likely when few offers are being made.000. the offer must still be your own. If a property has developed a negative cash flow and the owner must pay a significant amount each month just to keep it. while it might be wise to listen to some voices. any offer may look reasonable to the owner.There are times and situations when bargains are available in both prices and terms.finweb.900 may psychologically seem to you to be a much lower price than $200. So don't be afraid to make too low an offer. Finally. The time to use those $199. but an offer that doesn't make sense for you and your unique circumstances can cost you a great deal. if necessary. remind the agent also) that he or she has a fiduciary responsibility to present your written offer to the owner. There are always some sellers who for one reason or another must sell quickly. or both. Don't worry that it may be rejected.
Financing Contingency .your lender and Realtor® may recommend that you ask for the seller to pay some or all closing costs. so don't ever feel pressured to pay more or buy a home you feel uncomfortable with. your next step will be to have your Realtor® prepare a written offer to purchase. simple.html Making Offers and Negotiating on Homes Making Offers and Negotiating on Homes Copyright © 2007-2008 Clint Wooley Once you have located a house that you want to purchase. simply tell your Realtor® that you'd like to make an offer on your favorite home. and Pest Inspection . 6. the effective selling price will mean less money to the seller. 4. Any financing contingencies (for example.• • • • • • Proposed selling price (your offer). Home Inspection. in order to enhance your offer or reduce your total down-payment. Keep in mind that if you are making a really low offer ("lowball"). based on the financing approval you have received. 3. 5. so that your Realtor® can properly complete the Offer to Purchase. A clear definition of precisely what is to be included in the sale.) Any home inspection contingencies (for example. There are a number of questions you must address when making an offer to purchase. and uncomplicated..... etc..you would be released from your contract if you were declined for financing for any reason by the lender. subject to an acceptable whole-house inspection report).com/Checklist_Making_an_Offer-a860098.directorym.you would be released from your contract if the appraisal report indicated a value less than your purchase price. When you are ready. the better as far as a seller is concerned. if you are .there are always nagging doubts about whether you are making a good decision or not. For instance. depending on market conditions and individual circumstances. http://articles. Any concessions you want the seller to make.) The amount of earnest money (your deposit) that is being tendered with the offer. or both. fireplace doors and refrigerators are included.. Survey.your Realtor may recommend a shorter or longer time. Amount of Earnest Money . Name them in your offer. subject to you being able to obtain a satisfactory mortgage. It is a good idea to ask your Realtor® for their opinion regarding offering price and terms. you may be more successful in your negotiations if the rest of your offering terms are clean. but it is also important to remember that you are the one obligating yourself to this purchase. including taxes and insurance. Closing costs . specific terms.a seller must respond by the time you specify. (Don’t simply assume that items such as porch swings. 2.who pays for these items or if they are required to be purchased as part of your contract will initially be determined by your offer to purchase. Making an offer can be both exciting and frightening. Time to respond . 1. Ask them to help you determine your total payment.be ready to adjust accordingly.. Subject to Appraisal .the more. Keep in mind that if you are asking the seller to pay your loan closing costs.. You can go as far as to state maximum interest rates.an earnest money deposit in your Realtor's escrow account helps signify your level of seriousness and intention.
If the seller accepts your offer. Be sure you're serious about buying before you make an offer. even trying to imagine how the seller is feeling is sometimes helpful in completing negotiations. it becomes a legal contract after a few days. They aren't in a rush to move. Try to remain calm and open-minded. The buyer may have the stronger position if: . and put everything in writing.offering $20k less than the offering price. Remember. Similar houses have sold for close to or above their asking price. Knowing this will help you plan your negotiation. This information itself can sometimes be useful in negotiating. then it becomes a contract. it's important to determine if you or the seller has the stronger position. Details and planning are important. Be specific. What are the steps in making an offer? Negotiate a Sales Price Before you negotiate a sales price. Making offers on homes and the negotiation process can be stressful for even veteran homebuyers. If a seller likes every part of your offer except one small detail. their response to you is still a counter-offer. At this point your lender will want a copy of the contract as soon as possible. the seller may be willing to look at your offer or at least make a counter-offer if you are pre-approved for financing and aren't requiring a home inspection. so they may order the appraisal and begin processing your loan..they are familiar with your market and will help to negotiate on your behalf. Once you and the seller agree on the price and terms of the agreement. Utilize the knowledge and experience of your Realtor®. The seller may have the stronger position if: • • • The local real estate market is strong and homes are selling quickly. Happy Hunting!!! Making an Offer Making an offer on a home is an exciting step . They might have had a previous contract that wasn't consummated because the buyers couldn't qualify for financing. and by listening to their advice and having confidence in your decisions based on the information they provide.you've found the house you want and you're working towards making it your home. Know what you would like to pay but also think about the most you're willing to pay and the total home financing amount that your lender has pre-approved you for. and everyone has signed the agreement.. and usually the most patient party in a buyer's market will come out on top in negotiations. you should be comfortable knowing you are going about this stressful business in the most intelligent and logical way. your Realtor® is more familiar with this process than you are. which you may accept or reject. nullifying your previous offer.
it becomes a legally binding contract.) Acceptance of offer or counter-offer. your contract may need to be offered with something called an escalation clause. Remember. be sure to include them in the negotiation. Before making an offer in a seller's market. There are several steps to negotiating: • Asking price. Initial purchase offer. This is the price the sellers have originally listed. to bid in case the seller gets multiple offers. If you want certain appliances or fixtures to stay. However. Remember that in some instances. You may find that you are outbid on a number of houses but don't be discouraged – the right home is out there. • Escalation clauses. • • If you've made a home inspection part of the contingencies and something serious is found during the inspection. When negotiating. If you get caught up in a hot market. your lender may not approve your mortgage if the home has serious deficiencies that could affect its value. It may include contingencies (such as a requirement that the home pass a professional inspection or that you receive adequate financing from your lender. it is truly only the perfect home for you if you can afford it. more information is better. If there's anything in need of repair or replacement. don't be tempted to bid more than you can afford for a home. meaning that the houses are selling quickly and often for above the asking price. you may be able to successfully offer below the asking price. The seller can accept your offer or make a counter-offer of a new price or additional contingencies. You may also want to make your offer contingent upon your obtaining financing or the house passing a professional home inspection. A word of caution about a "hot" market If the real estate market where you are looking to buy is "hot". Offers usually include items like: . which allows the offer to increase by certain dollar increments if another competitive offer is obtained and entertained by the seller.• • • The local real estate market is weak. know how much above asking price you are willing. you may find yourself with a bigger mortgage than you can comfortably afford. Look at your notes from when you looked at the house. you may want to submit a new counter-offer and discuss the situation with your lender. This is your first offer. In a buyer's market. Make an Offer in Writing This is the time to think carefully about what you want and what you can afford. Make sure you don't include anything in the offer that you're not totally comfortable with doing. in a seller's market you may want to be prepared to offer more. and able. If your offer is accepted. If you live in a market where homes are selling quickly and have multiple offers. Make sure you put everything in writing. you may include these costs in the negotiation. especially if it is an older home. The house has been on the market for a long time. The seller needs to move quickly. The process may go back and forth several times before you and the seller reach an offer that is acceptable to you both.
Home inspection contingencies Make sure you're prepared if the home inspection report shows major problems. Earnest money Earnest money is a deposit you offer to show you're serious about purchasing the house. Concessions This includes things you'd like the seller to help pay for. Earnest money is usually held in escrow and applied to your closing costs at settlement. • • • • • • . Acceptance This covers how long the seller has to respond to your offer before the offer is no longer binding. like the washer and dryer or the refrigerator. What's in a contract varies from state to state. Closing date and location The closing date (also called the settlement) can be several weeks to several months away to meet the seller's and your needs. but some common things you'll find include: • Legal description This describes the property you are buying in terms of its dimensions relative to a fixed point (like a road) or in relation to a recorded subdivision plat or declaration of condominium.• Proposed purchase price Remember. • • • • • • When the Offer Becomes a Contract Once the seller accepts your offer. the offer becomes a contract – you've contracted to buy a house. Home inspection If you've made the contract contingent on a home inspection. Selling price and deposit This is the price you and the buyer agreed upon. Possession date This is the date you can move in. as well as the amount of earnest money you'll pay when you sign the contract. Conveyances This covers any personal property to be included in the sale.consider that when you decide on your proposed purchase price. the seller may counter-offer with a higher purchase price . These methods are not necessarily beneficial to you. Mediation and arbitration These are legal methods for handling contract disagreements between you and the property seller. like closing costs. Mortgage contingency A contingency protects you by stating that the sale depends on a lender approving you for a specific mortgage. you may lose this deposit. It's usually the closing day or very soon after it. If you fail to meet the terms of your contract. rate. this will set an inspection date and provide an explanation of what will happen if the inspection identifies any problems. It often includes the street address of the property. and term. and you do not need to agree to them. Conveyances Double check these conveyances to make sure that the items are there and are what you and the seller agreed on in the offer.
or the termination of your lease. P ro t e c t y o u r s e l f . n u m b e r o f D a ys o n t h e M a r k e t .. Property disclosures This includes legal notification of any required information concerning the property (such as copies of documents from the homeowners' association). Coordinate closing with the closing of your current home. I f yo u ' r e n e a r i n g t h e e n d o f y o u r t a x y e a r. I f y o u ' r e w o r k i n g w i t h a l i c e n s e d r e a l estate agent. • http://www. L e t t i n g h e r r e p r e s e n t y o u w i l l h e l p p r o t e c t against emotional flair-ups which can occur in face-to-face negotiations between principals. • • • • . home sold and homes which were listed but didn't sell.n o w f o l l o w t h r o u g h . This can be the buyer's or seller's policy. C o n s i d e r c l o s i n g n e a r t h e e n d o f t h e m o n t h . d i s c u s s w i t h y o u r t a x advisor the best time to close. S a l e P r i c e . Here are some important steps to follow: • A c t n o w . Yo u ' l l w a n t t o b e a w a r e o f d yn a m i c m a r k e t c o n d i t i o n s . D r a f t y o u r o ff e r c a r e f u l l y a n d e x e r c i s e g o o d judgment. Yo u r o ff e r s h o u l d c o n t a i n f i n a n c i n g a n d i n s p e c t i o n c o n t i n g e n c i e s f o r yo u r p r o t e c t i o n . A s s u m e t h e r e i s n o t i m e t o w a s t e i n m a k i n g y o u r o ff e r. s h e ' l l l i k e l y p r e s e n t y o u r o ff e r f o r y o u . it's likel y she'll be using a comprehensive form which includes standard text for virtually all normal contingencies. B e c a r e f u l n o t t o a c t h a s t i l y.com/corporate/buyown/english/purchasing/offer/ Make An Offer Yo u ' v e f i n a l l y f o u n d t h e p r o p e r t y yo u w a n t t o b u y a n d i t ' s t i m e t o m a k e a n o f f e r.• Property insurance This details the home insurance policy that will cover the property until the closing date. If during your propert y search you completed the Propert y Comparison form. N o w i s t h e t i m e t o p l a n w h e n yo u w a n t t o c l o s e t h e t r a n s a c t i o n . A well-prepared CMA is critical in helping t o d e t e r m i n e t h e f a i r m a r k e t v a l u e o f t h e h o m e ( w h i c h m a y b e w h a t yo u o f f e r ) . l e t t h e s e l l e r s k n o w t h e y ' l l b e r e c e i v i n g y o u r o ff e r s h o r t l y. L i s t i n g E x p i r a t i o n D a t e . Yo u r r e a l e s t a t e a g e n t s h o u l d h a v e a f o r m s p e c i f i c a l l y d e s i g n e d f o r this purpose. Pre-paid interest on your new loan will usuall y be less. There may be benefits associated with c l o s i n g i n t h e n e x t t a x y e a r. P re s e n t y o u r o f f e r . I f p o s s i b l e . The CMA will also i n c l u d e Li s t i n g D a t e . a s w e l l a s p r o p e r t y. L i s t i n g P r i c e . The CMA is a tool for comparing the subject property with other similar properties in the neighborhood. issues or problems with the property. the CMA is practically complete.s p e c i f i c f a c t o r s c o n t a i n e d i n a c o m p a r a t i v e m a r k e t a n a l ys i s ( C M A ) . a n d S a l e D a t e . Yo u ' v e i n v e s t e d t i m e a n d e n e r g y i n yo u r s e a r c h f o r a h o m e . T h i n k a h e a d . T h e C M A s h o u l d i n c l u d e h o m e s currentl y for sale. D e t e r m i n e y o u r o f f e r i n g p r i c e . I f yo u ' r e w o r k i n g w i t h a n a g e n t .freddiemac.
If you are not working with a REALTOR®. prepare to negotiate.or kept as damages if you later back out for no good reason Method by which real estate taxes. REALTORS® usually have a variety of standard forms (including Residential Purchase Agreements) that are kept up to date with the changing laws. will become a binding sales contract (known in some areas as a purchase agreement. but all the terms and conditions of the purchase.for example. by the seller's REALTOR® if that's a different agent. State laws vary. cash or promissory note. In addition. or often by the two together. if the sellers said they'd help with $2. rents. be sure that's included in your written offer and in the final completed contract. A d d i t i o n a l l y. This proposal not only specifies price. all cash or subject to your obtaining a mortgage for a given amount Seller's promise to provide clear title (ownership) Target date for closing (the actual sale) Amount of earnest money deposit accompanying the offer. REALTORS® cover the questions that need to be answered during the process. which starts with your written proposal. if accepted as it stands. keep in mind that you must draw up a purchase offer or contract that conforms to state and local laws and that incorporates all of the key items. that it contains all the items that will serve as a "blueprint for the final sale. When you use a REALTOR® these forms will be available to you." These purchase offer items include such things as: • • • • • • • Address and sometimes a legal description of the property Sale price Terms -. earnest money agreement or deposit receipt). Local and on-line booksellers will have many books on the subject from which to choose. and certain provisions may be required in your area. you need to enter into a written contract. fuel. In a few areas. and whether it's a check. U n l e s s yo u ' r e o f f e r i n g t h e s e l l e r e x a c t l y w h a t t h e y ' r e a s k i n g . sales contracts are typically drawn up by the parties' lawyers. It's important. A good real estate agent will be schooled in the art of negotiation and will employ important negotioation techniques while r e p r e s e n t i n g yo u . http://www. or you won't have grounds for collecting it later. Oral promises are not legally enforceable when it comes to the sale of real estate. water bills and utilities are to be adjusted (prorated) between buyer and seller . therefore.• N e g o t i a t e . What the offer contains The purchase offer you submit. and how it's to be returned to you if the offer is rejected -.sharahayden. and the REALTOR® will ensure that this takes place.000 toward your closing costs. After the offer is drawn up and signed. In many states certain disclosure laws must be complied with by the seller. Therefore. y o u c a n b e n e f i t b y r e a d i n g u p o n t h e subject.com/makeanoffer.htm The Basics of Making an Offer A written proposal is the foundation of a real estate transaction. it will usually be presented to the seller by your REALTOR®. For example.
which might include a chance for attorney review of the contract. Negotiating tips You're in a strong bargaining position -. A seller is understandably suspicious of a written offer that is not accompanied by a cash deposit to show "good faith.if: • • • You're an all-cash buyer. In those circumstances. or You're already pre-approved for a mortgage. A satisfactory report by a home inspector "within 10 days (for example) after acceptance of the offer." A REALTOR® or an attorney usually holds the deposit. you look particularly welcome to a seller -. If the sellers are divorcing. survey. in a "hot" seller's market. they may just want out quickly. Again." The seller must wait 10 days to see if the inspector submits a report that satisfies you. and Estate sales often yield a bargain in return for a prompt deal. you may want to offer the list price (or more) to beat out other early offers. the contract would become void. you may be able to negotiate some discount from the listed price. and You don't have a present house that has to be sold before you can afford to buy. make sure that all the details are nailed down in the written contract. Buyers: the seller's response to your offer . This will become part of your down payment. It's very helpful to find out why the house is being sold and whether the seller is under pressure." you're saying that you will only go through with the purchase if that event occurs. the amount of which varies from community to community. If the loan can't be found. Earnest money This is a deposit that you give when making an offer on a house. the buyer won't be bound by the contract. termite inspections and the like Type of deed to be given Other requirements specific to your state. The following are two common contingencies contained in a purchase order: • • The buyer obtaining specific financing from a lending institution.• • • • • • Provisions about who will pay for title insurance. which are an extremely important matter and discussed in detail below Contingencies If your offer says "this offer is contingent upon (or subject to) a certain event. On the other hand. If not. Keep these considerations in mind: • • • Every month a vacant house remains unsold represents considerable extra expense for the seller. disclosure of specific environmental hazards or other state-specific clauses A provision that the buyer may make a last-minute walk-through inspection of the property just before the closing A time limit (preferably short) after which the offer will expire Contingencies. if the perfect house comes on the market.meaning.
arrive at any agreement you and the buyers want about who pays for: • • Termite inspection. remember that you will receive a refund of money left in that account. when you're presented with two offers at once. however. unconditionally. . or even in some cases. unconditionally. For example. If the seller likes everything except the sale price. If the offer is rejected. Any other liens (equity loan. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side's proposal. Survey. calculating net proceeds becomes simple. Any change you make in a counteroffer puts you at risk of losing that chance to sell. Unpaid property taxes and water bills. etc. be sure to do so only after consulting a lawyer who is experienced in real estate matters. For sellers: calculating your net proceeds When an offer comes in. upon receiving your written offer. refuse it (seldom a useful response). In evaluating a purchase offer. If you do want to revoke your offer. escrow agent). except that we still insist on having the pool table. with the changes the seller prefers. You can. if you haven't yet been notified of acceptance. "We accept the counteroffer with the higher price. the other side is free to accept or reject it. termite inspection. If required by the contract: cost of survey. For example. and the sellers could not later change their minds and hold you to it." Each time either party makes any change in the terms. which will add to your proceeds. remember that unless you accept it exactly as it stands. Broker's commission. You don't want to lose your earnest money deposit. From the proposed purchase price you can subtract: • • • • • • • Payoff amount on present mortgage. you can accept it exactly as it stands. Legal costs of selling (attorney. or find yourself being sued for damages the seller may have suffered by relying on your actions. signs an acceptance just as it stands. Your present mortgage lender may maintain an escrow account into which you deposit money to be used for property tax bills and homeowner's insurance premiums. repairs. or counter again. right up until the moment it is accepted. or the basement pool table you want left with the property. the buyer will be free to walk away. The offer becomes a firm contract as soon as you are notified of acceptance. Withdrawing an offer Can you take back an offer? In most cases the answer is yes. You are then free to accept or reject it or to even make your own counteroffer. Once you have a specific proposal before you.You will have a binding contract if the seller. or the proposed closing date. In that case. For sellers: counteroffers When you receive a purchase offer from a would-be buyer. you may discover you're better off accepting the one with the lower sale price if the other asks you to pay points to the buyer's lending institution. or make a counteroffer to the buyers with the changes you want. you should estimate the amount of cash you'll walk away with when the transaction is complete. that's that. Transfer taxes. judgments). buyer's closing costs. you may receive a written counteroffer. Who pays for what items is often determined by local custom.
Adding Contingencies to Your Offer Real estate offers almost always contain contingencies -.com/Basics/Buy/ChooseOffer/MakeOffer. Repairs required by the lender. The seller will either accept your offer. and prices are going up) or cold (prices are dropping) the seller's needs. or your ability to sell your existing house first. you must make a written offer to buy it. such as to move quickly or to be reassured you've got the financial resources you say you do whether the house is uniquely valuable to you. see Contingencies to Include in Your House Purchase Contract. . In other states your offer must be so complete that the seller could sign it and you'd have a contract right there. and what you can afford. More articles: How to choose a neighborhood How to choose a home Home comparison chart Wait! Are you buying the right house? http://www. In some states. the house's passing certain physical inspections (see Get a House Inspection Before You Buy).particularly first-timers -are short of cash. after a careful examination of your budget. or reject it outright.asp Making an Offer on a House How to make the offer that wins. It's up to you to decide how much the house is really worth." after which the seller writes up a draft contract. including setting the price. Buyer's broker. Once you've found a house you like.events that must happen within a certain amount of time (such as 30 days) or else the deal won't become final. make a counteroffer with one or more changes.• • • • • Buyer's closing costs. What form that offer takes depends on what state you live in. based on such factors as: • • • • • how much comparable houses have recently sold for whether the local real estate market is hot (demand for houses is high. and Home Protection Policy. Points to the buyer's lender. and developing your strategy for competitive housing markets. you may want to make your offer contingent on your qualifying for financing.realtor. Helping them may be the best way to get your home sold. the offer is a bare-bones statement that "I'll take the house for $X. You may feel some of these costs are none of your business. Deciding How Much to Offer The advertised price of a house is just a starting point. but many buyers -. For more information. for example if you need an in-law unit or art studio. adding contingencies. For example.
. Shelley O' Hara and Nancy D. a seller usually doesn't have to accept any particular offer. such as the offer being conditional on an inspector's report. A contract is formed when either the seller or the buyer accepts all of the terms of the other's offer or counteroffer in writing within the time allowed. Warner define the offer process as "a combination of price and terms. brokers. contingencies or terms are outlined. the terms.the price. it's not . You can ask for what you want. etc.if the seller needs more time to move out contract contingenies -. then quickly moves to the crux of the matter: the purchase price offered. While no buyer should be afraid to offer below asking price. http://www. In The Complete Idiot's Guide to Buying and Selling a Home. and the deposit. for closing on the home. which together you rework to fit your needs. Alayna Schroeder and Marcia Stewart. Everything is negotiable ." Then. If a bid is way out of line pricewise. For a more detailed analysis of how to decide the right price for a house. If you give something up on price. and for moving in. the loan amount. or the first of many. But even with very attractive offers. the occupancy date. but you can ask. Time limits are set for a response to the offer." Price A buyer should understand with confidence what comparable properties in the neighborhood are selling for. reject it. don't offer your best price first. but that's just an average and it varies widely from market to market.if the seller doesn't want to wait for you to succeed in selling your current house. Experts estimate that most homes sell for about 6 percent less than asking price. he or she should know very well what a fair price is for the house of your choice. you can expect to take something on terms. by Ilona Bray. The contract begins by identifying the focal points. see Nolo's Essential Guide to Buying Your First Home.com/article. what personal property is included. Invariably the agent will provide you with a preprinted form of a purchase contract. Assuming your agent is a busy local player. the seller is likely to respond with a written counteroffer accepting some or most of the terms. You may not get it. and negotiate the final contract. In addition. or present a "counter counteroffer. the down payment. You can accept the seller's counteroffer. property location.nolo. Ask your agent for statistics of list price versus sales price for the neighborhood. Compare the price and quality of other homes you've seen with the one you wish to purchase.cfm/ObjectID/EDD71C83-8A97-4EF0-90E6925160757574/catID/912dd28b1329-4ceb-9e4ff25438cb52df/213/243/217/ART/ Making the Offer Good real estate agents are invaluable when it comes time to make an offer on a house. seller. Leave room for negotiating. buyer.if the seller wants more money than offered closing date or occupancy date -. the negotiations will continue until either a deal or an impasse is reached. everything. but proposing changes to the: • • • price -. for obtaining financing. Unless you are in a very competitive seller's market. or wants you to schedule the inspections more quickly. the seller is likely to reject it on the spot. craft an offer tailormade to your and the seller's needs and interests.Counteroffers Whether it's the only offer.
You may also ask for assistance on the prorating of taxes. Many mortgage companies will preapprove at little or no cost if they can check your credit and verify your income and assets. etc. inspecting faucets and sinks for leaks. If either is true. the seller will have to fix it. Prequalification is merely the result of a loan officer asking a few questions and typing up a superficial letter. This is easy since the city usually keeps them all in one file. Even here you have an opportunity to play with the terms. so if you're offering full or close to asking price you may have an opportunity to improve your terms. which works to both parties' advantage. and termite inspection should be completed during escrow. the seller is unlikely to have time and money to wait for a buyer who will meet the asking price. Terms Sellers are said to focus on price more than anything else. Money A fairly complete financial portrait of the buyer is revealed in a purchase contract. Preapproval is not to be confused with prequalification. Then. or to provide a home warranty in case something wrong is not detected during escrow or goes wrong in the following year. trying every appliance. Has the price already been reduced? If yes. A buyer could save thousands of dollars having this advantage in the negotiations. professional property. These permits can tell a lot about the work that was necessary on a property. homeowner's association fees. There are many reasonable requests you might make with an offer. which resonates much better with the seller. and more than once. You could ask for 60 days to secure financing and then set a date for the seller to be out of the property. not to mention other valuable information such as whether the seller is going through a job transfer. The only thing missing is the appraisal and title search on the house. or has already purchased a new home. if you find something not working during escrow.realistic to expect a seller to go below 5 percent of the list price unless the property has been on the market for a long time and the buyer has set very few contingencies. For instance. If you want the offer to become null and void if an inspection turns up major structural damage. your agent may be able to come up with a ballpark estimate. An offer is far more attractive to a seller if the buyer is preapproved for a loan. which gives you an opportunity to double-check if the problem was repaired properly or just executed as a stopgap measure. Being preapproved turns a buyer into someone akin to a cash buyer. Certain indicators can clue you in to the seller's motivation to sell quickly. Check to see what sort of permits have been issued for the property. In most states the seller is obligated under law to disclose all known defects of the property in written form as part of the purchase contract. club dues. you may ask the seller to contribute to closing costs. When did the seller originally buy the home and for how much? If you can't ask directly what their equity is. roof. you may be dealing with a highly motivated seller. make sure that is a clear contingency in the purchase contract. Find out how long the house has been on the market. House inspection A thorough. This should not replace a buyer's own inspection. . Ask that the seller check the boxes warranting that all appliances are working. and so on. Preapproval from a lender is far more meaningful because the mortgage company has done the same due diligence necessary for full approval. This should divulge material facts that could affect the property's value. Most offers will be contingent upon the buyer getting financing and on a professional inspection and lender appraisal. such as noisy neighbors or a spate of recent home burglaries.
and contingencies. 2001). the time will come when you find a house that you'd like to call home. escalating interest rates.salary. the seller will probably want to see that you have some flexibility in the financing terms you are willing to accept.com/personal/layoutscripts/psnl_articles. With supply low and demand high. high tech jobs were plentiful and.. Begin. But first. Purchase contracts vary from state to state." But if you're in a market in which houses are on the market longer. "The economy was hot.asp?tab=psn&cat=cat011&ser=ser035&part=par 262 What You Should Know About Making an Offer by Michele Dawson Once you're preapproved for a loan and you've survived the rigors of house hunting. You'll also want to keep the local conditions in mind.When you write up a purchase contract. they say. your financing terms. And finally. homeowners got top dollar and plenty of offers. Colo. define the maximum interest rate at which you are prepared to finance. A good basic offer includes the price you're willing to pay for the house. In other words. There is a high demand for homes up to $220.." authors Eric Tyson and Ray Brown say there are three key elements to a good offer. buyers are being caught in a bidding war. with a realistic offering price." said Denver Realtor Laurie Erb. The offer is the first step in the negotiation process. Pennsylvania Realtor." The second element to include in your offer is realistic financing terms. which could land you with a much higher mortgage payment than you had anticipated." said Maureen Clay. as a result. the days of easy sales are gone. At the same time. you'll need to make an offer.000 to fix it? . Your agent will help you with this. That would be the case in some regions of the country. if houses are selling quickly and many houses are receiving multiple offers. "Homes that are being placed on the market are selling quick with multiple offers being presented. but basically you want to come up with a price based on similar houses sold in the neighborhood in the past six months. include a property inspection clause.000. What if it's determined the roof needs to be replaced. Like the jobs that fuel home buying. Regardless of where you live. "The market is strong for sellers. a Carlisle. like Denver. "In past years. Not any more. you want it to be carefully worded and well thought out. you'll need to bid competitively. selling a home in Denver was about as easy as putting a for sale sign in your front yard and waiting for buyers to come in droves. It will also give you an edge over any other offers that don't have a pre-approved loan. be sure to include that in the offer so the seller knows you're serious. If you're pre-approved for a loan. or the heating and cooling system is faulty and it will take $3. if you're making an offer. http://www. In the book "Home Buying for Dummies (Hungry Minds Inc. such as specifying what will happen if negative findings come up during the inspection. This is to protect yourself against volatile. then you can be proceed a bit more cautiously with a bit more wiggle room for negotiation. including Pennsylvania.
put everything in writing. Offer too much. perhaps three days.htm Making an Offer on a House How to make the offer that wins. Treat the asking price as only a rough estimate of what the seller would like to receive. Also. For instance. This includes what is included in the sale. adding contingencies. a refrigerator. Prices for comparable houses. When figuring out the cost of the house. or the owners will wait to receive higher offers. In a market where prices fluctuate fairly fast. The seller will either accept your offer without changing it. you may choose to make the offer contingent on approval of a mortgage with a specific rate and terms. If the seller tells you he'll provide a carpet allowance for the shabby avocado-colored carpet but it isn't specified in the offer. Some sellers deliberately overprice. however. which will be about 2%-5% of the purchase price."It's smart to use property inspection clauses that enable you to reopen negotiations regarding any necessary corrective work after you've received the inspection reports. then you may not get the money . But if it's not. others ask for pretty close to what they hope to get. be sure to factor in your share of the closing costs. Meanwhile. Consider the following factors when deciding how much to offer: The advertised price of the house. Don't rely on verbal agreements. If you're in a hot seller's market. most offers include a deadline for a response. . make a counteroffer with one or more changes. you must make a written offer to buy it. Before making an offer to purchase. What you can afford. Freddie Mac says there are additional items that should be covered in the offer: Any concessions you'd like the seller to make. the better). you should know the selling prices of nearby houses similar to the one you're interested in buying. keep the following guidelines in mind: • A comparable sale should have occurred within the last three to six months (the more recent.com/rtpages/20030610_makingoffer. or reject it outright. For reliable comparable prices (called "comps" in the real estate trade). The seller has no obligation to sell to you or anyone at the advertised price. The amount of your deposit. http://realtytimes. including setting the price. comps should be houses that sold in the last month or so. Once you've found a house you like. Financing contingencies." the homebuying Dummies book says. and other bidders will beat you. Conveyances. Finally. Deciding How Much to Offer Offer too little.and be stuck with green carpet. like paying part of the closing costs or providing an allowance to get worn carpet replaced. and developing your strategy for competitive housing markets. and recognize that different sellers price houses differently. your loan should already be approved. and a few underprice their houses in the hope of attracting a flood of potential buyers who will compete and overbid. What you can pay for a house will probably depend on how much you already have in cash and how much you can reasonably borrow in a mortgage. and you might be wasting your money.
Some buyers.in terms of age. the house is in an excellent school district. Remember that price alone is not the only consideration for sellers. You'll want to arrive at a bid amount that will beat out the competition -. and the lot is large enough to add on a few rooms.com/Homevalues. or more above the asking price in hot markets.may make or break your offer. and expect bidding wars to erupt among frenzied buyers. In a cold market. . Simply enter your prospective new home's address or zip code. sales date.for example.are available from SmartHomeBuy at http://www." meaning that you pay for needed repairs -. deliberately bid sky-high in order to stop the madness and find a home as soon as possible.including neighborhood information. Homes often sell for 10%. and type and number of rooms. your flexibility and sensitivity to the seller's needs -. In competitive areas. especially if they have been outbid on properties two or three times already. or by not including a contingency saying that you have to sell your existing house first -. square footage. details on houses -. Less detailed information (purchase price. A modest house listed at a reasonable price may be a bargain if you have three kids. if a freeway or other dividing line splits the neighborhood. Strategies for Beating Multiple Offers If demand for homes is so high in your area that you feel like you're elbow to elbow with other eager home buyers.is often crucial. A comparable sale should be within six to ten blocks of the house you want to buy -. The same house may be overpriced. Your ability to close the deal quickly -. Whether the house is uniquely valuable to you. and you may get a bargain. however. and address) is available for free from sites including http://realestate.yahoo. it's crucial to develop a bidding strategy. size.com. especially in hot markets. address.whether it's extending the closing date for a seller who can't move for a few months or making the offer "as is. sales history. Comparing Sales Prices Online For a modest fee. The seller's needs. Local real estate brokers will have good comparable sales data.smarthomebuy. Finally. and property tax information -. you'll have to offer the asking price or more. Whether the local real estate market is hot (prices are going up) or cold (prices are dropping). with home prices rising by the minute. you'll have more room to negotiate with the seller. for a couple not planning to have children.• A comparable sale should be for a house quite similar to the one you're interested in -. however. 30%.or less. by having your loan preapproved. number of bedrooms and baths. and you can also find useful information online. Don't get so carried away with judging objective market considerations that you forget your personal needs.but only just.
findlaw. the next highest if there are only one or two other people making an offer. But even very attractive offers are rarely accepted as written. You can accept the seller's counteroffer. however. Adding Contingencies to Your Offer Real estate offers almost always contain contingencies -. the seller is likely to reject the offer on the spot. you might bid on several houses at once. and your interest in being flexible in order to make the deal go through. your desire and ability to take good care of the house and garden. You might also write a cover letter to accompany your offer. sometimes the successful bidder will have taken a calculated risk and made an offer with no contingencies. http://realestate. Remember that price alone is not the only consideration for sellers.for example. Legally.events that must happen within a certain amount of time (such as 30 days) or else the deal won't become final. a seller usually does not have to accept any particular offer.the seller wants the buyer to schedule the inspections more quickly. A contract is formed when either the seller or the buyer accepts all of the terms of the other's offer or counteroffer in writing within the time allowed. the house passing certain physical inspections. that the more contingencies you place in an offer. $50. and your highest price if there are three or more bidders.000 over the asking price and not a penny more.the seller needs more time to move out contingency on buyer's sale of current house -. For example.the seller doesn't want to wait for this to occur inspection contingency -.com/buying-home/buying-home-process/making-an-offer-on-a-house. If you have two offers accepted at once. Think twice before you get caught in a bidding war. but proposing certain changes. you'll need to formally revoke the one you don't want. If a bid is way out of line pricewise. More typically. you may want to make your offer contingent on your qualifying for financing. the negotiations will continue until either a deal or an impasse is reached. reject it. Be aware. telling the seller about yourself.the seller wants more money than offered closing date or occupancy date -. The buyer's first offer can create a contract only if the seller accepts it with no changes. this isn't a problem as long as you don't find yourself with two offers outstanding simultaneously and neither hedged with significant contingencies." Then. If so.html .For example. If you decide that a house is so attractively priced that you want to try to preempt other bidders by making the highest offer. or present a "counter counteroffer. the less likely the seller is to accept it. the seller will respond with a written counteroffer accepting some or most of the offer terms. prepare your bid accordingly. you'll know beforehand how many people will be bidding on a particular house. Most counteroffers propose changes in these areas: • • • • price -. or the first of many. If you're lucky. Counteroffers Whether it's the only offer. it's crucial that you set a limit for yourself -. In the hottest markets. or your ability to sell your existing house first. Another option is to prepare several bids at different prices. Present the lowest bid if you're the only one making an offer.
Always get a home inspection before you buy to make sure the home is structurally sound and in good condition. If the housing market in your area is hot. . the seller has the right to review it at their leisure. a good place to start is at five percent below the asking price. you could make a higher offer. The seller can make a counteroffer. At that point. it may be wise to split the difference. knowing there will be some bargaining involved. Generally. you've found the home of your dreams. Usually 48 hours or so. Once you're serious about buying the home. That should be enough time to get your mortgage application processed and get all the contingencies removed from the purchase agreement. depending on your circumstances. or at least the one you like most that you can afford. otherwise you may risk losing the house and the deal. You can also get a comparable home sales report from your agent. Contingencies A contingency is nothing more than saying that you will purchase the home as long as certain things are done. be prepared to remove certain contingencies. Remember that there is always room for negotiation. In fact you can make a counteroffer to the seller's counteroffer and at that point. but must respond within the time limit that has been set. you need to make an earnest money deposit as a show of good faith. That will tell you what similar homes actually sold for and will give you a good ballpark where to start. perhaps four to eight weeks from the date you sign the purchase agreement. If there has been no response. The Offer and Counteroffer You'll need to include an expiration date for your offer. Set a time limit on how long it should take for the contingencies to be met. Most sellers will price their homes a little high. You'll also want to set a target date for the closing. firm your offer or drop out. What's a Reasonable Offer? If you've never bought a house before. but understand that you are not obligated to accept it. you may have to make an offer that's close to the asking price. So the next step is to make an offer on the home. Contingencies can be written into purchase agreement and can include making sure that: • • • • The appraisal and title reports are satisfactory The mortgage you're taking over is paid up to date The seller gives you a comprehensive loss underwriting report (CLUE) on the property Certain repairs are made. Alright. If the seller receives another attractive offer.Your First Offer to Buy a Home Overview: Your initial offer on a home is not necessarily final. you probably don't even know where to start in terms of making an offer. Now you're ready to buy the home. Once you make an offer. you can assume that deal has been rejected.
but it should be enough to let the seller know you're serious.and goes towards your closing costs. A Show of Good Faith An earnest money deposit is made to show good faith.quickenloans. The money goes in escrow . An inspector examines everything from the roof to the foundation and everything in-between . septic or sewer systems. Seller concessions are limited to between two and nine percent of the home's purchase price or appraised value. The amount of the earnest money deposit is really up to you. the offer is a bare-bones statement that "I'll take the house for $X. It may be wise to hire a lawyer to help you review all documents and to protect your interests." after which the seller writes up a draft contract. when making an offer. and processing fees. consider asking about seller concessions . origination fees. you must make a written offer to buy it. What form that offer takes depends on what state you live in.a neutral. make a counteroffer with one or more changes. but it's not a corner that should be cut. third party account . You wouldn't want to move in to your home and find out months later that you have significant termite damage or that the subfloor of your bathroom was rotted out and needed replacing. Home inspections do pose an extra expense. the American Society of Home Inspectors (ASHI) Web site. you are entering into a binding contract. The seller will either accept your offer. Once you and the seller both sign the purchase agreement.Also. Seller concessions can help the seller sell his or her house more quickly and can reduce the financial burden on you to buy the home. In other states your offer must be so complete that the seller could sign it and you'd have a contract right there. etc. the money may be kept by the seller. Your real estate agent can help you understand anything you may still be confused by. title insurance. https://www. Other Tips to Remember: • • • Always get title insurance to ensure that the title is free and clear. These costs may include attorney fees. . be sure to read it carefully and in its entirety so that you know exactly what you're getting into. electrical systems.com/home-buying/learn/why/your-first-offer-to-buy-a-home Making an Offer on a House Once you've found a house you like. A good place to find a home inspector is by visiting www. discount points.plumbing. It's natural that making an offer on a home may be nerve-wracking.org.fees and costs which the seller agrees to pay for on your behalf at the closing. among others. Make sure you get home insurance . Always Get a Home Inspection Though it's not required. every home buyer should have a home inspection performed to make sure there are no problems with the structure or condition of the home. that you're serious about making an offer on the house. Remember that if you back out of the deal.ASHI. or reject it outright. your loan amount and how you plan to occupy the home. but your real estate agent and your mortgage banker should be able to answer any questions you have and put your mind at ease. inspection fees. heating and air conditioning units. As with anything you sign. In some states. appraisal fees. insulation. the amount varies by the type of mortgage you get.it's required by the lender in order to close your loan.
the seller is likely to reject it on the spot. a seller usually doesn't have to accept any particular offer. after a careful examination of your budget. and what you can afford. and prices are going up) or cold (prices are dropping) the seller's needs.net/Making_an_Offer_on_a_House_Wisconsin-r935877-Wisconsin.events that must happen within a certain amount of time (such as 30 days) or else the deal won't become final. Poorly written offers reflect badly on everybody and lessen your chances as a buyer to get your offer accepted. http://articles. for example if you need an in-law unit or art studio. however.if the seller wants more money than offered closing date or occupancy date -. the negotiations will continue until either a deal or an impasse is reached. For example. You can accept the seller's counteroffer. or the first of many.html Top 10 Tips for Writing Purchase Offers Sometimes buyers get so excited over finding that perfect home to buy that less attention is paid to how they write the purchase offer. For more information. But even with very attractive offers. Here are 10 basic tips to guide you. A contract is formed when either the seller or the buyer accepts all of the terms of the other's offer or counteroffer in writing within the time allowed. .Deciding How Much to Offer The advertised price of a house is just a starting point.directorym. you may want to make your offer contingent on your qualifying for financing. based on such factors as: • • • • • how much comparable houses have recently sold for whether the local real estate market is hot (demand for houses is high. or wants you to schedule the inspections more quickly. the seller is likely to respond with a written counteroffer accepting some or most of the terms. It's up to you to decide how much the house is really worth. Adding Contingencies to Your Offer Real estate offers almost always contain contingencies -. or present a "counter counteroffer. such as to move quickly or to be reassured you've got the financial resources you say you do whether the house is uniquely valuable to you. see Contingencies to Include in Your House Purchase Contract. the quality of your offer is almost as important as the price you offer to buy that home. If a bid is way out of line pricewise. but proposing changes to the: • • • price -." Then.if the seller doesn't want to wait for you to succeed in selling your current house. or your ability to sell your existing house first. reject it. Counteroffers Whether it's the only offer. the house's passing certain physical inspections .if the seller needs more time to move out contract contingenies -. Listings agents should not be placed in the position of having to educate selling agents on how to write an offer.
• • • Some contracts allow you to specify a maximum interest rate. personal check. you should disclose it. Each state has its own laws. FHA. cashier's check or other modes such as personal property. mortgages or unsecured promissory notes. Disclose your Down Payment Your down payment could be cash. Determine Price Some courts have ruled that offers containing acceleration clauses such as "I will pay $1. assumption or other. Realtor associations publish purchase contracts. when added to your down payment and financing should equal the total consideration paid. you need to make a good faith deposit.almost anybody but the seller! If your state has "liquidated damages. we have at our disposal: • • • • • • Manufactured Home Purchase Agreement New Construction Residential Purchase Agreement Probate Purchase Agreement Residential Purchase Agreement Residential Income Property Purchase Agreement Vacant Land Purchase Agreement And that's not every conceivable form. to have a binding offer." the seller could be entitled to retain your deposit if you default under the contract. Name Financing Terms Please remember that your deposit.1.000 more than your best offer. Make an Initial Deposit In most states. Barring extreme buyers' markets or sizzling sellers' markets. there are a lot of purchase contracts available. VA. Some states require verification of your down payment within a certain time period. 3. promissory notes. 6. You can ask for guidance. especially if you are asking the seller to pay them. real property. contract of sale. you will probably want to offer a bit less than you expect to pay. Include maximum points. if so. real estate or other assets." do not constitute a bonafide offer. 5. either. stocks. 2. Put it in writing. In California. but don't expect your real estate agent to name a price for you. Use the Correct Form While this may seem elementary to you. You have a price in mind. It could be cash. Disclose the type of financing you hope to obtain: conventional. that action could be considered a contingency of the transaction and. Include Contingencies . for example. Generally. Spell out who will hold the deposit -. Picking buyer's prices is not an agent's job. 4. If you are selling an asset such as liquidation of a mutual fund to receive cash. giving you a way to cancel the deal if your interest rate comes in higher. it is readily available cash.
Some deals fall out because sellers and buyers have unreasonable expectations about possession. escrow. Federal law gives all buyers 10 days to inspect for lead paint. Call the listing agent before you write the offer and ask. Many contracts carry provisions for such contingencies as: • • • • Appraisal Loan Funding Physical Inspections. homebuying. Address the issues you want discovered. It is on closing? A day after closing? If possession is prior to closing. Depending on your state law. request a report. unless waived in writing.com/od/offersnegotiations/Writing_Offers_and_Negotiating_Acceptance. if the seller is paying for title and it's customary for the seller to choose. Sellers feel duped. execute a rental agreement to protect the buyer. ask for them. Buyers feel mislead. If you don't know custom. Other states are similar. the buyer could lose the transaction if another buyer popped up out of nowhere. 9. Request Special Reports If you are concerned about a specific inspection. all the way to closing! 7. Few disputes irritate a seller more than to find out halfway through a transaction that the buyer had a concern that was not addressed upfront. For example. If possession is more than two or three days after closing. Some states allow the buyer to conduct all inspections before writing the offer just to alleviate this type of miscommunication. Make sure to pay the same level of attention to these steps as you did when you were house hunting. Clarify to whom the accepted offer should be delivered. county or city transfer taxes can equal one to two percent of the sales price.California Association of Realtors (CAR) purchase contracts in California give the buyer by default 17 days to do inspections. execute a rental agreement. Sometimes fees for title. and the buyer is unavailable to accept delivery. If you are unsure. Spell Out Who Pays the Fees Although most contracts call for fees to be negotiable. are customarily paid by one party. 10. let her choose. Sellers can be out of town or have emergencies. • • • Spell out the possession date. If it's customary for a seller to provide certain reports.about. If it's the buyer. depending on your locale.htm Closing on a Home Closing on a home involves a number of important steps. they may still be in effect. some fees. Clearly State Expiration of Offer • • • Deals sometimes fall through because buyers did not allot enough time for a seller to respond to the offer. 8. if you do not remove your contingencies in writing. call the listing agent and ask how much time is required. Address Possession Succinctly My experience shows more battles are fought over possession than are ever necessary. you may be unintentionally inviting a counter offer. . to protect all parties. Read your state contract laws regarding offer expiration.
potentially saving you thousands of dollars down the road. Even if it seems like it's in great shape. Older Homes Older homes can be charming. When getting a home professionally inspected. No home can "fail" a home inspection. but you should be aware of special issues with them so you're not surprised once you own the home. Resources • The American Society of Home Inspectors (ASHI) can be a source of information about home inspections. a professional home inspection protects you from unpleasant surprises in the future. Know what to look for when shopping for homeowner's insurance. Home Inspection Tips • • • • Never forgo a professional home inspection and don’t think you can do it yourself – a professional can uncover problems before you buy. Again. Foundation problems. Hire a Professional Home Inspector Hiring a professional home inspector can be one of the most important things you can do to make sure your home is in good condition. your real estate agent can be a good reference for a home inspector. and radon. you'll know up front and can negotiate with the seller for the cost of the repair or replacement. Make sure you factor in any potential problems and the costs to fix them when looking at your housing budget and making your offer. but certain problems can be brought to light. Schedule your home inspection when you can be there. It's not required that you be there but you may learn valuable things about your home. including how best to maintain it. If the home inspector finds a serious problem. the problem (and cost) are yours alone. An independent authorized inspector can uncover defects with the house that could cost you a lot of money down the road. overloaded electrical systems and lead paint are not unusual in many older homes. like the roof needing to be replaced. Understand what to expect when you attend closing (the actual settlement meeting). Every house needs an inspection. Questions to ask your home inspector: • • • • • • What does the inspection cover? How much experience does your inspector have? How many inspections has the inspector done? Is the inspector experienced in residential inspection? How long will the inspection take? How much does the inspection cost? What type of report is provided and how long will it take to receive? . you may also want to think about testing for environmental hazards like lead paint. asbestos.What do you need to know during the closing process? • • • Learn why hiring a professional home inspector is so important. If you don't find out until after you own the house.
minus a depreciation allowance. Be sure to understand exactly what disasters your insurance covers and what it does not. Earthquake coverage is also a separate policy or sometimes an endorsement to your existing policy. Guaranteed replacement cost This insurance covers the cost of replacing damaged property without a depreciation deduction or a maximum dollar amount. Replacement cost This insurance covers the cost of replacing damaged property without a depreciation deduction. but with a maximum dollar amount. Flood insurance can be purchased through your insurance agent. earthquake insurance can also be purchased through the California Earthquake Authority. or hail. • • Disaster Insurance Most home insurance policies do not cover flooding or damage due to earthquake. including: • Casualty Insurance covers most types of damage to the structure of your house like fire. and is also available through the National Flood Insurance Program for areas at high-risk for flooding. floods or earthquakes.• • Is your inspector a member of a professional home inspection association? Is your inspector up-to-date in his or her expertise? Does your inspector attend continuing education to stay abreast of issues in home inspection? Shop for Homeowner's Insurance Homeowner's insurance protects you and your mortgage lender from things that can go wrong. usually available through your insurance agent. Types of Homeowner's Insurance There are four main types of insurance related to repairing structural damage: • Actual cash value This insurance covers an amount equal to the replacement value of the damaged property. and appliances. Extended replacement cost This insurance covers the cost of replacing your home up to a stated percent (usually 20-30%) over the amount insured. For a guide to disaster coverage. wind. • • • . Theft or damage to personal property Insurance covers things like your furniture. visit The Insurance Information Institute. you'll probably need an additional policy to protect you from damage from specific natural disasters. In areas prone to wildfires. Liability Insurance provides protection in case a visitor is injured in your home. clothes. In California.
You can probably get discounts. Flaunting your age If you're over 55. in the event of a loss. Quitting smoking Some companies offer reduced rates for nonsmokers. Construction designed to be particularly resistant to wind and earthquake damage may also lower your rates. the land your home sits on is not. Don't take a deductible that will be too much for you to pay in the event of a loss. deadbolts and other safety devices. Staying with your insurance company Some companies reward loyal clients with reduced premiums. etc.The terms can be a little confusing. You should ask your lender for information about a homeowner's title policy. Consolidating your insurance If you buy homeowner's and auto insurance with the same company. Be sure to ask an insurance professional to give you real-life examples so you can understand the differences. You can also check with the federal government's Citizen Information Center. Shop around and compare different services and prices. you may be able to get a discount. Your policy will protect you as long as you own the home. Other ways to save some money include: • Increasing your deductible The higher the deductible. Being safe! Install smoke detectors. credit union. even if you refinance or pay off your loan. you'll have to pay the amount of your deductible from your own money before your insurance pays for any damages. Getting group coverage Your college. .. Only insuring the value of the structure and its contents While your home and its contents are at risk from fire. the title insurance company will issue a homeowner's policy that gives you the same protection. Your family and friends can be good resources. the less expensive the insurance premium. • • • • • • • • Title Insurance Your lender will also obtain a lender's title insurance policy to insure against claims that you do not have "clean title" to your property and that the lender has a first lien on your property. theft. For a small additional fee. or AM Best. Looking at the age and construction of your home Insurance costs tend to be lower in newer homes with new equipment. Safety features can lower insurance rates. Saving Money on Insurance You can save money on your homeowner's insurance by doing your research. security systems. let the insurance company know. or business associations may qualify you for special rebates. But don't forget that.
brokers who use and fill out these forms are not considered to be practicing law. 81. sellers. 8. The form is intended specifically for use by licensed real estate brokers in connection with the sale and acquisition of a wide range of commercial properties. and attorneys to consider when using the form. and unlimited remedies. the terms and provisions of the standardized commercial offer to purchase form create a contract with broad representations. In accordance with chapter RL 16 of the Wisconsin Administrative Code. No. By contrast. sellers. which was last updated in 2000. This familiarity allows attorneys and brokers to quickly spot issues or concerns related to a particular type of transaction. Here are some of the issues parties should consider when using the commercial offer to purchase form. August 2008 Using Wisconsin's Commercial Offer to Purchase Form Generally speaking. through regular use. by Douglas S. from practicing law without a law license Therefore. The form's drafters knew that it is impossible to address in a single preprinted form every potential issue related to a broad range of commercial transactions and real estate investment classes. Buck & Katherine R. including apartment. brokers. such as the WB-15. including licensed real estate brokers. The Wisconsin Department of Regulation and Licensing (DRL) developed the form. to assist brokers in carrying out their duties without violating the law. However. which may be used by brokers. limited contingencies. 1 One of the major benefits of standardized forms such as the WB-15 is that. perhaps the biggest downside to the form is that purchasers. and office buildings. The form thus represents a starting place for the parties to begin their . and limited remedies. open-ended contingencies. Background Wisconsin law forbids all persons. This article lists important issues for purchasers. the DRL adopted an extensive set of preprinted and preapproved forms.Wisconsin Lawyer Vol. Rist Sidebar: • State Bar CLE Books' Real Estate Transactions System (Third Edition) can enhance your practice ttorneys in Wisconsin who handle commercial real estate transactions find one type of purchase and sale contract appearing on their desks time and again: the WB-15 Commercial Offer to Purchase form (the form or WB-15). attorneys and brokers can become familiar with the forms' terms and provisions. industrial. many commercial real estate sale agreements contain narrow representations. retail. and brokers sometimes mistakenly believe that the form adequately covers all the issues that might arise in connection with their transactions.
Even when electing not to use the form. investigation periods and contingencies. In ruling in favor of the purchaser and allowing the case to go to trial. purchasers." This is a vague provision. For instance. In addition to examining the issues that the form addresses. and sellers feel more comfortable using the form as a starting point. Representations and Warranties The WB-15 contains a general representation to the purchaser that the "Seller has no notice or knowledge of conditions affecting the Property or transaction" (lines 52-53).negotiations and should be used only after a careful examination of how the form addresses the various issues involved in a transaction. and at least one Wisconsin court has interpreted it to include a wide range of matters that the parties might not contemplate. the purchaser might actually want to broaden the representations by eliminating the "materiality" qualifiers that the form attaches to several of the representations. many brokers. it also is important to consider the issues that the form overlooks. Some key topics for attorneys. but that a buyer would want to know about because of their effect on the value of the property. title. the form contains a very open-ended representation in lines 74-75 that the seller has no notice or knowledge of any "other conditions or occurrences which would significantly reduce the value of the Property to a reasonable person with knowledge of the nature and scope of the condition or occurrence. In Kailin v. the use of the WB-15 usually is not appropriate. the Wisconsin Court of Appeals noted that the language in lines 74 and 75 of WB-15 "is obviously intended to include conditions or occurrences that are not specifically listed. and a purchaser's counsel should consider whether these representations are broad enough. and default. When electing to simply use the WB-15 language. after the seller allegedly failed to disclose to the purchaser a tenant's history of delinquencies and rent arrearages as of the date of the contract. For example. Armstrong. sellers should carefully examine the precise language of the form. estoppels. in a complex or major real estate transaction. one of the condition-affecting-the-property clauses in the . and purchasers to consider when using the form include representations and warranties. the plaintiff-purchaser sued the defendant-seller for a breach of this clause. the parties to a commercial real estate contract should consider many of the issues discussed in this article. A "condition affecting the Property" is defined by the WB-15 broadly to include a wide range of matters (lines 57-75)." 2 3 From the purchaser's perspective. brokers. surveys. Attorneys frequently use addenda or riders to address issues about which the form is silent or to tailor the form to the transactions at hand. even if the seller agrees to make the representations contained in the WB-15. That said. but the discussion below of these items should provide a better understanding of the form's terms and provisions. rent rolls. A seller's counsel should review these representations with the client to ensure their veracity. earnest money. sellers. This list is by no means exhaustive. In fact.
but also as of the time of closing. sellers' attorneys will frequently add extensive "as is. regardless of the limits on damages or time periods that they agreed to in the contract. it should be noted that under chapter 709. unless the transaction involves an apartment building with fewer than five units. focusing on commercial real estate law. they can later sue . a real estate condition report is required only when transferring residential property (such as an apartment building) with one to four units. the form also contemplates that the seller will fill out and deliver to the purchaser a real estate condition report. zoning. In addition to the representation on conditions affecting the property. chapter 709. Madison. Stat.except as expressly contained in the agreement on which the purchaser is relying. is an associate at Foley & Lardner LLP. Such a report is prescribed by Wis. A purchaser. among other things. However. is a partner at Foley & Lardner LLP. U. that the seller and its principals. In other words. 2005. First. All these provisions can have a material impact on the transaction. or other interested parties might simply not be interested in a transaction if there are any violations of environmental laws or other laws affecting the use of the property. Sellers often add three other terms and provisions to the representation sections of commercial real estate contracts. Buck. Katherine R. it is not uncommon for parties to strike the provisions requiring the seller to deliver a real estate condition report." as provided in line 52 of WB-15. employees. 1993. Rist. Madison. Douglas S.W. and purchasers should weigh the benefits and potential consequences of such provisions before agreeing to them. its investors. Accordingly. Typically such provisions note. or limit. and brokers have not made any representations or warranties . even if the seller believes they are not "material. lenders.W. large institutional sellers often seek to include language whereby purchasers agree to place a cap. focusing on commercial real estate.WB-15 is any "material violations of environmental laws or other laws or agreements regulating the use of the Property" (line 67). a real estate condition report is not required in a commercial transaction. including potentially the purchase price. Second. sellers often add language whereby purchasers agree to limit the time periods in which they can bring a breach of representation or warranty claim against the sellers. U. Third. Some purchasers agree to such provisions on the assumption that. where is" and release language to their contracts. on the damages that the purchasers can recover from the sellers for a breach of the representations and warranties after a transaction has closed." A purchaser also might want to specify that the form's representations are made not only "as of the date of acceptance. and lending.
that the lease is without default. However. Under the WB-15. The applicability of the economic loss doctrine to real estate contracts places an increased importance on the specific language used in the representations and warranties in the form. are essential to the purchaser's interest in a property. Title Title is a key component to any real estate acquisition. the seller is not required to . expiration dates. Such facts often play a large role in helping the purchaser determine the purchase price and. against the other party after a purchase contract has been executed. the form contains two major drawbacks. importantly. in a decision issued by the Wisconsin Supreme Court in July 2008. related to the property's leases. such as the rental amounts. For example. security deposits. be contemplated by the parties before signing a contract.unscrupulous sellers in tort for fraud or misrepresentation. The absence of any reference to a rent roll or to estoppel letters is an excellent example of the type of important issue that the form simply does not address but that should. Typically. lease expiration dates. a tenant certifies and confirms to the purchaser various facts. it is common in many commercial real estate transactions (other than ones involving apartment buildings) for the purchaser to require the seller to deliver a so-called estoppel letter from its tenant(s). and. real estate investors often want assurances that the rental income to be acquired arises from valid and binding leases. with respect to title. the form does not allow enough time for the parties to review the title. one significant omission in the form is the lack of any representation related to the property's leases (if any). However. this assumption may not be correct. Courts have since applied this doctrine to real estate transaction and have thereby barred parties from bringing general tort claims. First and foremost. thus. such as delinquencies. the economic loss doctrine was first applied to bar purchasers of products from recovering under tort theories from manufacturers for damages that the courts considered to be solely economic losses. security deposits. In addition. purchasers are left with claims for breaches of the express misrepresentations and warranties contained in the contract itself. As a result. A judicially created rule. Rent Roll and Estoppels From a real estate investor's perspective. a seller or its broker will deliver a rent roll to the purchaser setting forth the amount of rent. an estoppel letter is intended to prevent the tenant from later claiming rights or causes of action against the new owner contrary to the statements made in the estoppel letter. given the increasing use of the economic loss doctrine in Wisconsin. Once signed. A purchaser therefore should consider having the content of the rent roll incorporated into the seller's representations in the contract. at a minimum. the court ruled that the economic loss doctrine bars common-law claims for intentional misrepresentation even in the context of residential transactions 4 5 Without the ability to bring an action in tort for misrepresentation. In an estoppel letter. and other key facts. such as intentional or negligent misrepresentation.
It should be noted. the contract is simply . Under the WB-15's language. but instead should give the purchaser a reasonable period of time in which to object to any unsatisfactory title matters. if the seller cannot cure a title defect. For example. The courts have attempted to provide some clarity by defining these terms. the form's merchantable title language is favorable. if it so desires. as the form does. WB-15 provides that the following constitutes merchantable title: a title "free and clear of all liens and encumbrances. That way. The term "merchantable" is synonymous with "marketable.provide a title commitment (a report on the status of title) until three business days before closing (line 195). it may be helpful to know about title issues well before the scheduled closing date so that the seller. but their decisions have not yielded much precision. appraisers. or protective covenant. and the purchaser will not waive its objections. especially if the seller needs funds from the sale to meet other financial obligations. may render the agreement void under Wisconsin law (see the discussion below of Investigation Periods and Contingencies). the purchaser does not have the right to object to such a use restriction if it is not inconsistent with the property's present use nor does the purchaser have the right to terminate the contract on discovering the restriction (line 185). however. From a seller's perspective. except: municipal and zoning ordinances and agreements entered under them. consider the situation in which the title commitment for a neighborhood retail center reveals a use restriction. in favor of a neighboring property that forbids restaurants from being operated within the center. the purchaser may terminate the agreement and receive a return of its earnest money. recorded building and use restrictions and covenants" (lines 181-85). Under this type of provision. recorded easements for the distribution of utility and municipal services. Thus. especially if the purchaser was considering bringing in one or more new restaurant tenants. The second major drawback with the title provision is that it requires the seller to deliver to the purchaser evidence that the title is "merchantable" (WB-15. This short period to review title is an issue for both sellers and purchasers." Both terms. a real estate contract should not try to define merchantable title. From the purchaser's perspective. Purchasers often want to review the title to a property promptly after signing the contract. line 196). This leaves the parties with very little time to review title and any underlying documents associated with it. The seller has no affirmative obligation to deliver merchantable title. which relies on the purchaser's "satisfaction" for its fulfillment. and other consultants. are amorphous. However. if the seller is unable or unwilling to cure a title defect identified by the purchaser well before closing. the purchaser can spot any issues before making financial commitments to its lenders. that there is some concern that such an open-ended title provision. From a seller's perspective. such a use restriction may have a material adverse effect on the value of property to a purchaser. however. has time to cure any title problems. 6 Many title matters defined as merchantable by the WB-15 could be considered unacceptable to a purchaser.
adverse possession claims. a title company in Wisconsin normally will not issue a title policy with "extended coverage" over the general exceptions to the title policy. may reveal significant matters regarding access to the property. a purchaser should carefully deal with the precise language used in. 2) a document review. or unrecorded easements that otherwise would go undiscovered by the purchaser. zoning violations. and the limitations placed on. without a recent survey and an owner's affidavit. The enumerated contingencies in the WB-15. title and survey contingencies often go hand in hand. covering the seller's authority to sell the property. estoppel letters. contains no express contingency granting the purchaser the right to object to matters disclosed by a survey. Survey In a commercial real estate transaction. The purchaser. and a Uniform Commercial Code search. Since a large number of title claims relate to matters excluded from coverage by the general exceptions to a title policy. a list of personal property. who may have expended significant sums on due diligence and loan commitments for the property. obtaining a survey and removing the general exceptions by an endorsement to the title policy can be valuable to a purchaser.declared null and void (WB-15. When electing to use the form's contingencies. furthermore. the contingencies. a picture is worth a thousand words. purchasers should consider adding additional contingencies. A detailed survey of a property. It allows the seller to bind the purchaser to the contract. Additional contingencies could include items such as a zoning review. The form's express contingencies are much more limited than what is normally found in a typical commercial real estate contract and. therefore. The purchaser must affirmatively elect these contingencies by checking the appropriate boxes and filling in certain information. 3) a phase-I environmental site assessment. Investigation Periods and Contingencies As the form is written. Purchasers. For instance. should consider adding a survey contingency and retaining some right to object to matters revealed by the survey. which shows the location of all improvements and easements. consequently. the financing contingency is very favorable to the seller. are: 1) financing. is potentially left with no recourse against a seller that is unwilling or unable to cure title defects. The form does not require the delivery of a survey and. As the cliché goes. the purchaser's obligation to close on a property's acquisition is contingent on only a few express contingencies. and 4) a physical inspection. These matters can be crucial to the purchaser's intended use and operation of the property and have a significant impact on the purchaser's willingness to buy the property. even if the purchaser's lenders deny its requested loans. Another important consideration for purchasers is that. . any number of which a purchaser may elect. encroachments. lines 203-04). surveys. and a statement that all the seller's representations and warranties will be true as of the closing.
The environmental contingency limits a purchaser to conducting a phase-I environmental site assessment by explicitly forbidding the purchaser from undertaking testing (WB-15. other courts in Wisconsin have observed that a contract is illusory when performance is conditioned on an event wholly under the control of one of the parties: "[P]romissory words are illusory if they are in form a promise that is conditional on some fact or event that is wholly under the promisor's control and his bringing it about is left wholly to his own will and discretion. allow the purchaser to undertake very broadly-defined investigations and to terminate the contract and receive the return of its earnest money if the purchaser is dissatisfied with the results of these investigations. courts in Wisconsin have on occasion voided contracts that allow one party to determine. differs significantly from many commercial real estate contracts that. with its narrowly enumerated and defined contingencies. comes dangerously close to an illusory or aleatory contract. the WB-15 defines a physical defect as. among other things. Furthermore. the Wisconsin Supreme Court ruled that such a phrase was so vague as to make the contract void for indefiniteness: "[A]ny interpretation. Under this latter form of contract." Cases such as Gerruth and its progeny are the reason why the form's language seeks to precisely define the contingencies it contains. The form. v. lines 169-74 of the WB-15 provide that.Specifically. the purchaser often is expressly required to act reasonably in making such a determination. the meaning of an ambiguous term. thereby limiting the purchaser's ability to unilaterally determine if the contingency is satisfied. who may spend substantial sums of money in negotiating a contract. As mentioned above. "structural. the seller itself can elect to provide such financing to the purchaser. Pire the parties' contract stated that the transaction was generally "contingent upon the purchaser obtaining the proper amount of financing. 9 Courts in many other jurisdictions. which allows one party to a contract to determine without limitation and in a subjective manner the meaning of an ambiguous term. however." In Gerruth." 7 8 Following the Gerruth precedent. allow parties to freely negotiate contracts whereby one party can elect. but in other forms the purchaser is allowed to terminate the contract if the results of its investigations are unsatisfactory to the purchaser in its sole and absolute discretion. For example. without limitation and in a subjective manner. lines 86-89). in Gerruth Realty Co. to terminate the agreement if its investigations are unsatisfactory These courts reason that a purchaser. obtaining a survey 10 . This definition of a physical defect could potentially lead to a dispute between the parties as to its application to their particular facts and circumstances. in its sole and absolute discretion. if a purchaser is denied financing by a lender or another third party. by contrast. Other provisions the parties might want to modify are the environmental and physical inspection contingencies. emphasis added). mechanical or other condition[s] that would have a significant adverse effect on the value of the Property" (line 286.
11 Parties in Wisconsin who wish to modify the form to add broad contingencies should carefully document the fact that each such contingency represents a negotiated term that was clearly understood and agreed to by all the parties to the contract. In a sense. Default Finally. the environmental contingency has clearly failed. have the benefit of allowing parties to avoid potentially expensive litigation over whether the purchaser acted reasonably or in good faith in terminating the contract during a contingency period. the Parties may seek any other remedies available in law or equity" (line 228). which reviews the broad range of options open to the parties but fails to mandate any specific remedies. the parties to the form are left to agree. even if these rights are unilateral Unilateral contingencies. including binding arbitration (lines 230-32).and environmental report. or potentially disagree. Instead. Instead. A purchaser who makes a significant earnest money deposit under the terms of the form should specify the parties' agreement that if the purchaser's contingencies are not met. but the form does not explicitly provide that the purchaser is entitled to receive a return of its earnest money if. . the form's default section is a disclosure provision. the WB-15 states that "[i]f this Offer does not close. the form states that the parties may apply to a court of law to resolve their disagreement. Under such circumstances. what happens under the terms of the form if one party defaults? The form does not mandate any remedies. seeking financing. The form sets forth a basic dispute resolution process for parties to use if they do not agree on these questions. if the contingency has not been satisfied. If that dispute resolution process is not successful. and perhaps paying a commitment fee to a lender. In practice. "[i]n addition. The WB-15 also discusses the fact that the parties can seek nonjudicial dispute resolution. it lists a number of remedies available to the parties and then states that. should be able to rely on the validity of its termination rights during the inspection period. the earnest money shall be disbursed according to a written disbursement agreement" (lines 243-44). for example. while certainly not appropriate in a preprinted form. Earnest Money Although the form provides for the payment of earnest money by the purchaser. who gets the earnest money. it does not explicitly specify how the earnest money will be disbursed if one or more of the contingencies is not satisfied and the transaction does not close. parties generally do not execute written disbursement agreements specifying the terms under which the earnest money will be released. In this regard. the earnest money will be returned to the purchaser. This is typically the implied understanding of most sellers and purchasers. many attorneys add language to their contingencies whereby the parties waive any and all rights to challenge the enforceability of the agreement on the basis that the conditions or contingencies are at the seller's or the purchaser's sole discretion or on the basis that the agreements contained therein are illusory. first as to whether the contingency has been met and then.
Dinger.W.2d 132. Stat. This type of provision benefits both sellers and purchasers by allowing the parties to avoid potentially costly litigation. 252 Wis. they must modify the form. by Scott C. cross indemnities.2d 685 (1961). delinquent rent prorations. Instead the WB-15 states the seller may "request the earnest money as liquidated damages" (lines 223-24. An in-depth analysis of the form's terms and provisions. 109 N. if the parties wish to create a binding liquidated damages clause. the purchaser's earnest money is surrendered automatically to the seller as liquidated damages and as the seller's sole and exclusive remedy. the form's terms and provisions create a contract with broad representations. § 757. the nonbreaching party may bring a suit for. closing documents. 3 . State ex rel. Another excellent reference when using the WB-15 is Wisconsin Real Estate Clauses and Other Standard Provisions. Conclusion Parties have many issues to consider when using the commercial offer to purchase form. 14 Wis. limited contingencies. specific performance or for damages 12 As a result. in a vast majority of commercial real estate contracts. available from the State Bar of Wisconsin. under which the seller's remedies are limited to retaining the earnest money. 2d 676. and unlimited remedies. Minter and Richard J.W. among other things. emphasis added). Endnotes 1 See Wis. include provisions regarding broker fees. Another common provision not contained in the WB-15's default section is an agreement allowing the prevailing party to recover its attorney fees from the nonprevailing party in any litigation that ensues. By contrast. 643 N. Id.30. Generally speaking. as well as many of the other DRL forms. can be found in the publication Real Estate Transaction Systems. Reynolds v. Staff. many commercial real estate sale agreements contain narrow representations. Purchasers and sellers should note that the form does not give either party the unilateral right to surrender or receive the earnest money as liquidated damages. ¶ 22. 2d 193. open-ended contingencies. and the termination of any existing management contracts. 2 2002 WI App 70. and limited remedies. Thus. Some additional issues to think about. if a term of the form is breached and the breaching party does not agree to surrender the earnest money.By contrast. but which are beyond the scope of this article. if the purchaser breaches the contract.
93-1971-FT.2d 46..g.2d 625 (Cal. the title insurance representative.W. at 92. 291 Wis.See. Pep Boys. 5. Closing agents coordinate the closing by recording closing documents.3d 960 (7th Cir. dispersing funds. Mose v. Reese v. v. 2006 WI 71. 859. No. App. 2d 656.. 620 N.. Nelson. 265.. 598 N.2d 351 . Metropolitan Ventures LLC v.E.Potter Rd.. No. .2d 618.2d 557 (1962).2d __. the home is yours. 161 N. 2000) . Notter. 40 Wis. Baldwin v. Ct. 2008 WI 77. Mattei v.W. 717 N. 252 Wis. Id. Anderson . 309 N. GEA Assocs. 239 Wis. 4 5 Below v. See also Vaisman v.A.W. 2002 WI App 70. 2d __. e. The court held that an attorney review period in a residential real estate transaction contract did not render the contract illusory because the right to cancel was limited in terms of time and because the obligation to seek an attorney review was a form of consideration. e. 1999). 274 Wis.2d 594 (Ct.2d 605 (Ohio Mun.W. 103 Wis. Kailin v. Norton. 330 P.2d 132. 1991) (unpublished limit precedent opinion). Aug. 1994 WL 109994 (Wis. Bank S.2d 397 (Ct. the Wisconsin Court of Appeals recently distinguished Gerruth in a decision filed on May 7. Vogt Inc. 2d 33. They usually include: • • • You. App. 683 N. Once it's complete. P'Ship. See Devine v. 1981). __ Wis. 751 N. 115 N. 2d 676. State Sand & Gravel Co.W. Apr. App. Tedco Equities .W. v. __ N. Van Lare v. the homebuyer The seller of the home The closing agent. 1991 WL 198167 (Wis. 2d 89. Home Value Inc. 12 Wisconsin Lawyer Attend the Closing Meeting Closing (also called settlement) is the final step in buying a home. 11 Galatowitsch v. 2d 631.W. and the escrow agent These can be several different people or one person handling all three issues. Armstrong . Wanat. 2000 WI App 236.2d 58. 1958).W. A number of people attend closing. 2008.W. See also West Allis Sav. Goerich. Hopper. Ct.g. etc. 9 See. Walker. App. 91-0047. 2d 393. __ Wis. Ltd. 660. 6 7 8 Nodolf v. 13. 2004 WI 110. 151 N. 2d 558.2d 553 (1968). 283 (1959-60). 43. 643 N. 2d __. 2008 WI App 87. 1958). 10 Although it did not examine due diligence investigation periods. 43 Marquette L. 17 Wis. 213 F. Rev. 1994) (unpublished limit precedent opinion). 228 Wis. 2d 848.W.
freddiemac. It may be a good idea to have a lawyer review them with you. you'll need a certified or cashier's check http://www. and truth-in-lending statement. There are a number of steps in between. The fees vary according to several factors. Understanding the closing costs Closing costs can include many different things and can add up to a sizeable amount of money. Attending the closing meeting Closing meetings are standard in the home-buying process. Check your state laws (your agent or the closing agent can help) – you may not be allowed to use a personal check for any payments due at the closing meeting. including the type of loan they applied for and the terms of the purchase agreement. although there are a few states where there are no closing meetings. some of the closing costs. Some typical buyer closing costs include: • The down payment . In that case. are required before you get the keys to your new home. including: Conduct a property walk-through Before the closing takes place. are actually paid in advance.com/corporate/buyown/english/purchasing/offer/ • • Closing Costs The bundle of fees associated with the buying or selling of a home are called closing costs. The settlement agent or escrow agent should obtain this documentation on behalf of the lender. Be prepared.• The real estate agent Steps in the Closing Process The time between your offer being accepted and the actual closing meeting can be longer than you think. mortgage note. other costs are either negotiable or dictated by local custom. Make sure the closing date is before your lock-in rate expires. You'll sign documents like the closing statement. Know exactly what's included in your closing costs [PDF 19K] and the total amount you'll be expected to pay at the closing meeting. as well any monies due. Likewise. you should make a final walk-through of the property to ensure it is in the same condition as when you placed the contract on the home. especially those associated with the loan application. Buyer closing costs When a buyer applies for a loan. lenders are required to provide them with a good-faith estimate of their closing costs. Certain fees are automatically assigned to either the buyer or the seller. Understand what you'll be asked to sign before the meeting. • Reviewing the documents Ask for the closing documents before the actual closing and read them carefully. Proof of insurance and inspections. Setting the closing date The closing date is set when your mortgage is approved and you sign a commitment letter with your lender. You also will want to make sure that any mutual agreements such as repairs or appliances conveying have been met.
the sellers will credit the buyers for half the taxes at closing. the escrow officer will contact the seller's lender to verify the amount needed to close out the loan. if a buyer is particularly nervous about the condition of the plumbing. The most common prorations are for property taxes. http://www. and so agree to pay the seller's full asking price in return for the seller paying all the allowable closing costs.com/content/article. just be sure all the terms are written down on the purchase agreement. Before the date of closing. Thus. In this example. certain costs are often prorated (or distributed) between buyer and seller. the original loan will be paid for at the closing before the seller receives any proceeds from the sale. This can be for both major and minor fees. the seller may agree to pay for the house inspection. Likewise. This is because property taxes are typically paid at the end of the year for which they were assessed. Then. Other seller closing costs can include: • • • • • Broker's commission Transfer taxes Documentary Stamps on the Deed Title insurance Property taxes (prorated) Negotiating Closing Costs In addition to the sales price. along with any other fees. the taxes are prorated. buyers and sellers frequently include closing costs in their negotiations. the seller's most important closing cost is satisfying the remaining balance of their loan. the sellers will have lived in the house for half the year. There's no right or wrong way to negotiate closing costs. credit report) Prepaid interest Inspection fees Appraisal Mortgage insurance (typically 1 years premium plus an escrow of 2 months) Hazard insurance (typically 1 years premium plus an escrow of 2 months) Title insurance Documentary stamps on the note Seller closing costs If the seller has not yet paid for the house in full.html/6 . if a house is sold in June. a buyer may want to save on up-front expenditures. For example.• • • • • • • • Loan fees (points. application fee. Prorations At the closing. but the bill for the taxes won't come due until the following year! To make this situation more equitable.jackiepetit.
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