Things You’ll Need: • • Inspectors Real Estate Attorneys

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 (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.



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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

approach is to make an offer under the assumption that the seller is highly motivated. If they turn out not to be, quickly move on. When inexperienced buyers believe that sellers are not strongly motivated to sell, they tend to begin negotiations at a higher figure than if the sellers were motivated. They'll also set their actual target purchase price at a higher amount. As such, the unmotivated seller has claimed a victory even before negotiations have begun. Conversely, while as a buyer you want to know the seller's motivation, you don't want a seller to know how motivated you are to buy. If a seller knows you're in love with a property, your bargaining position will automatically be significantly weakened, and all your knowledge of negotiation tactics will become virtually meaningless. Find out what the seller paid for the property In preparing a purchase offer, it helps to know what the seller has invested in the property. If you can discover when the seller acquired the property, you should be able to formulate a fairly good idea of what was paid for it. By talking to neighbors and divulging that you're interested in purchasing in the area, you can lead up to the sellers' property and find out when it was purchased. Neighbors who were living there at the time the property was purchased may even remember what the present owner paid. Also, you may be more likely to uncover the real reason that an owner is selling from a neighbor than from a real estate agent. In talking with neighbors, be sure to ask about any known problems with the particular property and the neighborhood in general. Ask how the price was set When dealing directly with the owners, ask them frankly, "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. 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. Any subsequent negotiations should then be based on discounts from this new price, not the original asking price. This technique is simple, straightforward, and most importantly, it works. If, on the other hand, you're dealing with the seller's agent, ask the agent how the price was set. Request a copy of any competitive market analysis (or CMA) that was prepared. Some agents may feel that the CMA is proprietary, and not allow you access to it. If so, ask the agent to prepare another analysis showing all similar sales in the area within the last six months. This information can typically be readily obtained from computer files. Armed with such data, you'll be able to negotiate from a position of greater strength at the low end of comparable sales, or perhaps even lower. Make your purchase at the right time

There are times and situations when bargains are available in both prices and terms. During a buyer's market (when there are few buyers and many sellers), you as an investor will find the best bargains. There are always some sellers who for one reason or another must sell quickly. While a very low offer in a normal market might be immediately rejected out-of-hand, the same offer in a buyer's market will usually either be accepted or produce a counteroffer. Outright rejections become less likely when few offers are being made. You determine what your offer will be Your offer need only make sense to you. Don't worry that it may be rejected. A rejected offer costs you absolutely nothing, but an offer that doesn't make sense for you and your unique circumstances can cost you a great deal. Problem or distressed properties usually can be purchased at attractive prices, terms, or both. When a property has problems such as vacancies or health or building code violations, any offer may look reasonable to the owner. If a property has developed a negative cash flow and the owner must pay a significant amount each month just to keep it, what would otherwise be an unacceptable offer might be welcomed. So don't be afraid to make too low an offer. Your offer is your decision. Don't worry if the real estate agent says that it won't be accepted; it's your offer. Remember that the primary responsibility of the seller's agent is to get the best possible deal for the seller, not for you. But also keep in mind (and, if necessary, remind the agent also) that he or she has a fiduciary responsibility to present your written offer to the owner. Further, don't ask your friends what you should offer, especially if they aren't in the investment real estate market. You're the one making the offer and the one who will have the responsibility of making the payments. Therefore, while it might be wise to listen to some voices, such as those of your attorney and accountant, the offer must still be your own. Finally, when making an offer, keep in mind that while $199,900 may psychologically seem to you to be a much lower price than $200,000, it will also appear that way to the seller. It could therefore be well worth your while to round off your offer price. The time to use those $199,900 prices is when you sell!

Checklist Making an Offer Since offers can quickly turn into contracts, it’s best to make sure you’ve got your bases covered from the beginning. Use this checklist to make sure you don’t omit any items from the document.

• • • • • •

Proposed selling price (your offer). Any concessions you want the seller to make. Any financing contingencies (for example, subject to you being able to obtain a satisfactory mortgage. You can go as far as to state maximum interest rates, specific terms, etc.) Any home inspection contingencies (for example, subject to an acceptable whole-house inspection report). A clear definition of precisely what is to be included in the sale. (Don’t simply assume that items such as porch swings, fireplace doors and refrigerators are included. Name them in your offer.) The amount of earnest money (your deposit) that is being tendered with the offer. 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, your next step will be to have your Realtor® prepare a written offer to purchase. Making an offer can be both exciting and frightening...there are always nagging doubts about whether you are making a good decision or not. It is a good idea to ask your Realtor® for their opinion regarding offering price and terms, but it is also important to remember that you are the one obligating yourself to this purchase, so don't ever feel pressured to pay more or buy a home you feel uncomfortable with. When you are ready, simply tell your Realtor® that you'd like to make an offer on your favorite home. Ask them to help you determine your total payment, including taxes and insurance, based on the financing approval you have received. There are a number of questions you must address when making an offer to purchase, so that your Realtor® can properly complete the Offer to Purchase. 1. Financing Contingency - you would be released from your contract if you were declined for financing for any reason by the lender. 2. Subject to Appraisal - you would be released from your contract if the appraisal report indicated a value less than your purchase price. 3. Time to respond - a seller must respond by the time you specify...your Realtor may recommend a shorter or longer time, depending on market conditions and individual circumstances. 4. Amount of Earnest Money - an earnest money deposit in your Realtor's escrow account helps signify your level of seriousness and intention...the more, the better as far as a seller is concerned. 5. Closing costs - your lender and Realtor® may recommend that you ask for the seller to pay some or all closing costs, in order to enhance your offer or reduce your total down-payment, or both. Keep in mind that if you are asking the seller to pay your loan closing costs, the effective selling price will mean less money to the ready to adjust accordingly. 6. Home Inspection, Survey, and Pest Inspection - 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. Keep in mind that if you are making a really low offer ("lowball"), you may be more successful in your negotiations if the rest of your offering terms are clean, simple, and uncomplicated. For instance, if you are

offering $20k less than the offering price, 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. They might have had a previous contract that wasn't consummated because the buyers couldn't qualify for financing. Utilize the knowledge and experience of your Realtor®...they are familiar with your market and will help to negotiate on your behalf. If a seller likes every part of your offer except one small detail, their response to you is still a counter-offer, which you may accept or reject, nullifying your previous offer. This information itself can sometimes be useful in negotiating, and usually the most patient party in a buyer's market will come out on top in negotiations. Once you and the seller agree on the price and terms of the agreement, and everyone has signed the agreement, then it becomes a contract. At this point your lender will want a copy of the contract as soon as possible, so they may order the appraisal and begin processing your loan. Making offers on homes and the negotiation process can be stressful for even veteran homebuyers. Try to remain calm and open-minded, even trying to imagine how the seller is feeling is sometimes helpful in completing negotiations. Remember, your Realtor® is more familiar with this process than you are, and by listening to their advice and having confidence in your decisions based on the information they provide, you should be comfortable knowing you are going about this stressful business in the most intelligent and logical way. Happy Hunting!!! Making an Offer

Making an offer on a home is an exciting step - you've found the house you want and you're working towards making it your home. Be sure you're serious about buying before you make an offer. If the seller accepts your offer, it becomes a legal contract after a few days. Details and planning are important. 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. Be specific, and put everything in writing. What are the steps in making an offer?

Negotiate a Sales Price Before you negotiate a sales price, it's important to determine if you or the seller has the stronger position. Knowing this will help you plan your negotiation. The seller may have the stronger position if: • • • The local real estate market is strong and homes are selling quickly. They aren't in a rush to move. Similar houses have sold for close to or above their asking price.

The buyer may have the stronger position if:

• • •

The local real estate market is weak. The seller needs to move quickly. The house has been on the market for a long time.

When negotiating, more information is better. Look at your notes from when you looked at the house. If there's anything in need of repair or replacement, you may include these costs in the negotiation. If you want certain appliances or fixtures to stay, be sure to include them in the negotiation. You may also want to make your offer contingent upon your obtaining financing or the house passing a professional home inspection, especially if it is an older home. There are several steps to negotiating: •
Asking price. This is the price the sellers have originally listed. In a buyer's market, you may be able to successfully offer below the asking price. However, in a seller's market you may want to be prepared to offer more. Before making an offer in a seller's market, know how much above asking price you are willing, and able, to bid in case the seller gets multiple offers. Initial purchase offer. This is your first offer. It may include contingencies (such as a requirement that the home pass a professional inspection or that you receive adequate financing from your lender.) Acceptance of offer or counter-offer. The seller can accept your offer or make a counter-offer of a new price or additional contingencies.

If you've made a home inspection part of the contingencies and something serious is found during the inspection, you may want to submit a new counter-offer and discuss the situation with your lender. The process may go back and forth several times before you and the seller reach an offer that is acceptable to you both. Remember that in some instances, your lender may not approve your mortgage if the home has serious deficiencies that could affect its value.

Escalation clauses. If you live in a market where homes are selling quickly and have multiple offers, your contract may need to be offered with something called an escalation clause, which allows the offer to increase by certain dollar increments if another competitive offer is obtained and entertained by the seller.

A word of caution about a "hot" market
If the real estate market where you are looking to buy is "hot", meaning that the houses are selling quickly and often for above the asking price, don't be tempted to bid more than you can afford for a home. You may find that you are outbid on a number of houses but don't be discouraged – the right home is out there. Remember, it is truly only the perfect home for you if you can afford it. If you get caught up in a hot market, you may find yourself with a bigger mortgage than you can comfortably afford.

Make an Offer in Writing
This is the time to think carefully about what you want and what you can afford. If your offer is accepted, it becomes a legally binding contract. Make sure you don't include anything in the offer that you're not totally comfortable with doing. Make sure you put everything in writing. Offers usually include items like:

Proposed purchase price Remember, the seller may counter-offer with a higher purchase price - consider that when you decide on your proposed purchase price. Concessions This includes things you'd like the seller to help pay for, like closing costs. Conveyances This covers any personal property to be included in the sale, like the washer and dryer or the refrigerator. 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. Earnest money is usually held in escrow and applied to your closing costs at settlement. If you fail to meet the terms of your contract, you may lose this deposit. Acceptance This covers how long the seller has to respond to your offer before the offer is no longer binding. Mediation and arbitration These are legal methods for handling contract disagreements between you and the property seller. These methods are not necessarily beneficial to you, and you do not need to agree to them.

• •

• •

• •

When the Offer Becomes a Contract
Once the seller accepts your offer, the offer becomes a contract – you've contracted to buy a house. What's in a contract varies from state to state, 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. It often includes the street address of the property. Selling price and deposit This is the price you and the buyer agreed upon, as well as the amount of earnest money you'll pay when you sign the contract. Mortgage contingency A contingency protects you by stating that the sale depends on a lender approving you for a specific mortgage, rate, and term. 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. 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. Home inspection If you've made the contract contingent on a home inspection, this will set an inspection date and provide an explanation of what will happen if the inspection identifies any problems. Possession date This is the date you can move in. It's usually the closing day or very soon after it.

• • • •

• •

Property insurance This details the home insurance policy that will cover the property until the closing date. This can be the buyer's or seller's policy. Property disclosures This includes legal notification of any required information concerning the property (such as copies of documents from the homeowners' association), issues or problems with the property.

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. B e c a r e f u l n o t t o a c t h a s t i l y. 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. Here are some important steps to follow:

A c t n o w . 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. 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 - - n o w f o l l o w t h r o u g h . I f p o s s i b l e , 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. 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 . 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 , a s w e l l a s p r o p e r t y- 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 ) . 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 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 ) . 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. If during your propert y search you completed the Propert y Comparison form, the CMA is practically complete. The CMA will also i n c l u d e Li s t i n g D a t e , L i s t i n g P r i c e , L i s t i n g E x p i r a t i o n D a t e , S a l e P r i c e , a n d S a l e D a t e , n u m b e r o f D a ys o n t h e M a r k e t . 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, home sold and homes which were listed but didn't sell. P ro t e c t y o u r s e l f . 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 . 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, it's likel y she'll be using a comprehensive form which includes standard text for virtually all normal contingencies. T h i n k a h e a d . 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 . 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, d i s c u s s w i t h y o u r t a x advisor the best time to close. 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. 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 . Pre-paid interest on your new loan will usuall y be less. Coordinate closing with the closing of your current home, or the termination of your lease. P re s e n t y o u r o f f e r . I f yo u ' r e w o r k i n g w i t h a n a g e n t , 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 . 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.

N e g o t i a t e . 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 , prepare to negotiate. 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 . A d d i t i o n a l l y, 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. Local and on-line booksellers will have many books on the subject from which to choose.

The Basics of Making an Offer
A written proposal is the foundation of a real estate transaction. Oral promises are not legally enforceable when it comes to the sale of real estate. Therefore, you need to enter into a written contract, which starts with your written proposal. This proposal not only specifies price, but all the terms and conditions of the purchase. For example, if the sellers said they'd help with $2,000 toward your closing costs, be sure that's included in your written offer and in the final completed contract, or you won't have grounds for collecting it later. REALTORS® usually have a variety of standard forms (including Residential Purchase Agreements) that are kept up to date with the changing laws. When you use a REALTOR® these forms will be available to you. In addition, REALTORS® cover the questions that need to be answered during the process. In many states certain disclosure laws must be complied with by the seller, and the REALTOR® will ensure that this takes place. If you are not working with a REALTOR®, 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. State laws vary, and certain provisions may be required in your area. After the offer is drawn up and signed, it will usually be presented to the seller by your REALTOR®, by the seller's REALTOR® if that's a different agent, or often by the two together. In a few areas, sales contracts are typically drawn up by the parties' lawyers.

What the offer contains
The purchase offer you submit, if accepted as it stands, will become a binding sales contract (known in some areas as a purchase agreement, earnest money agreement or deposit receipt). It's important, therefore, that it contains all the items that will serve as a "blueprint for the final sale." These purchase offer items include such things as: • • • • • • • Address and sometimes a legal description of the property Sale price Terms -- for example, 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, and whether it's a check, cash or promissory note, and how it's to be returned to you if the offer is rejected -- or kept as damages if you later back out for no good reason Method by which real estate taxes, rents, fuel, water bills and utilities are to be adjusted (prorated) between buyer and seller

• • • • • •

Provisions about who will pay for title insurance, survey, termite inspections and the like Type of deed to be given Other requirements specific to your state, which might include a chance for attorney review of the contract, 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, which are an extremely important matter and discussed in detail below

If your offer says "this offer is contingent upon (or subject to) a certain event," you're saying that you will only go through with the purchase if that event occurs. The following are two common contingencies contained in a purchase order: • • The buyer obtaining specific financing from a lending institution. If the loan can't be found, the buyer won't be bound by the contract. A satisfactory report by a home inspector "within 10 days (for example) after acceptance of the offer." The seller must wait 10 days to see if the inspector submits a report that satisfies you. If not, the contract would become void. Again, make sure that all the details are nailed down in the written contract.

Negotiating tips
You're in a strong bargaining position -- meaning, you look particularly welcome to a seller -- if: • • • You're an all-cash buyer; or You're already pre-approved for a mortgage; and You don't have a present house that has to be sold before you can afford to buy.

In those circumstances, you may be able to negotiate some discount from the listed price. On the other hand, in a "hot" seller's market, if the perfect house comes on the market, you may want to offer the list price (or more) to beat out other early offers. It's very helpful to find out why the house is being sold and whether the seller is under pressure. Keep these considerations in mind: • • • Every month a vacant house remains unsold represents considerable extra expense for the seller; If the sellers are divorcing, they may just want out quickly; and Estate sales often yield a bargain in return for a prompt deal.

Earnest money
This is a deposit that you give when making an offer on a house. A seller is understandably suspicious of a written offer that is not accompanied by a cash deposit to show "good faith." A REALTOR® or an attorney usually holds the deposit, the amount of which varies from community to community. This will become part of your down payment.

Buyers: the seller's response to your offer

You will have a binding contract if the seller, upon receiving your written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as you are notified of acceptance. If the offer is rejected, that's that, and the sellers could not later change their minds and hold you to it. If the seller likes everything except the sale price, or the proposed closing date, or the basement pool table you want left with the property, you may receive a written counteroffer, with the changes the seller prefers. You are then free to accept or reject it or to even make your own counteroffer. For example, "We accept the counteroffer with the higher price, except that we still insist on having the pool table." Each time either party makes any change in the terms, the other side is free to accept or reject it, or counter again. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side's proposal.

Withdrawing an offer
Can you take back an offer? In most cases the answer is yes, right up until the moment it is accepted, or even in some cases, if you haven't yet been notified of acceptance. If you do want to revoke your offer, be sure to do so only after consulting a lawyer who is experienced in real estate matters. You don't want to lose your earnest money deposit, or find yourself being sued for damages the seller may have suffered by relying on your actions.

For sellers: calculating your net proceeds
When an offer comes in, you can accept it exactly as it stands, refuse it (seldom a useful response), or make a counteroffer to the buyers with the changes you want. In evaluating a purchase offer, you should estimate the amount of cash you'll walk away with when the transaction is complete. For example, when you're presented with two offers at once, 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. Once you have a specific proposal before you, calculating net proceeds becomes simple. From the proposed purchase price you can subtract: • • • • • • • Payoff amount on present mortgage; Any other liens (equity loan, judgments); Broker's commission; Legal costs of selling (attorney, escrow agent); Transfer taxes; Unpaid property taxes and water bills; If required by the contract: cost of survey, termite inspection, buyer's closing costs, repairs, etc.

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. In that case, remember that you will receive a refund of money left in that account, which will add to your proceeds.

For sellers: counteroffers
When you receive a purchase offer from a would-be buyer, remember that unless you accept it exactly as it stands, unconditionally, the buyer will be free to walk away. Any change you make in a counteroffer puts you at risk of losing that chance to sell. Who pays for what items is often determined by local custom. You can, however, arrive at any agreement you and the buyers want about who pays for: • • Termite inspection; Survey;

• • • • •

Buyer's closing costs; Points to the buyer's lender; Buyer's broker; Repairs required by the lender; and Home Protection Policy.

You may feel some of these costs are none of your business, but many buyers -- particularly first-timers -are short of cash. Helping them may be the best way to get your home sold. More articles: How to choose a neighborhood How to choose a home Home comparison chart Wait! Are you buying the right house?

Making an Offer on a House
How to make the offer that wins, including setting the price, adding contingencies, and developing your strategy for competitive housing markets. Once you've found a house you like, you must make a written offer to buy it. What form that offer takes depends on what state you live in. In some states, the offer is a bare-bones statement that "I'll take the house for $X," after which the seller writes up a draft contract. In other states your offer must be so complete that the seller could sign it and you'd have a contract right there. The seller will either accept your offer, make a counteroffer with one or more changes, or reject it outright. Deciding How Much to Offer The advertised price of a house is just a starting point. It's up to you to decide how much the house is really worth, 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 prices are going up) or cold (prices are dropping) the seller's needs, 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, for example if you need an in-law unit or art studio, and what you can afford, after a careful examination of your budget.

Adding Contingencies to Your Offer Real estate offers almost always contain contingencies -- events that must happen within a certain amount of time (such as 30 days) or else the deal won't become final. For example, you may want to make your offer contingent on your qualifying for financing, the house's passing certain physical inspections (see Get a House Inspection Before You Buy), or your ability to sell your existing house first. For more information, see Contingencies to Include in Your House Purchase Contract.

Counteroffers Whether it's the only offer, or the first of many, a seller usually doesn't have to accept any particular offer. If a bid is way out of line pricewise, the seller is likely to reject it on the spot. But even with very attractive offers, the seller is likely to respond with a written counteroffer accepting some or most of the terms, but proposing changes to the: • • • price -- if the seller wants more money than offered closing date or occupancy date -- if the seller needs more time to move out contract contingenies -- if the seller doesn't want to wait for you to succeed in selling your current house, or wants you to schedule the inspections more quickly.

You can accept the seller's counteroffer, reject it, or present a "counter counteroffer." Then, the negotiations will continue until either a deal or an impasse is reached. 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. For a more detailed analysis of how to decide the right price for a house, craft an offer tailormade to your and the seller's needs and interests, and negotiate the final contract, see Nolo's Essential Guide to Buying Your First Home, by Ilona Bray, Alayna Schroeder and Marcia Stewart. Making the Offer Good real estate agents are invaluable when it comes time to make an offer on a house. Invariably the agent will provide you with a preprinted form of a purchase contract, which together you rework to fit your needs. The contract begins by identifying the focal points, buyer, seller, property location, brokers, etc., then quickly moves to the crux of the matter: the purchase price offered, the down payment, the loan amount, and the deposit. Time limits are set for a response to the offer, for obtaining financing, for closing on the home, and for moving in. In addition, contingencies or terms are outlined, such as the offer being conditional on an inspector's report. In The Complete Idiot's Guide to Buying and Selling a Home, Shelley O' Hara and Nancy D. Warner define the offer process as "a combination of price and terms. If you give something up on price, you can expect to take something on terms. Everything is negotiable - the price, the terms, the occupancy date, what personal property is included, everything. You can ask for what you want. You may not get it, but you can ask. Unless you are in a very competitive seller's market, don't offer your best price first. Leave room for negotiating." Price A buyer should understand with confidence what comparable properties in the neighborhood are selling for. Assuming your agent is a busy local player, he or she should know very well what a fair price is for the house of your choice. 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. Experts estimate that most homes sell for about 6 percent less than asking price, but that's just an average and it varies widely from market to market. While no buyer should be afraid to offer below asking price, it's not

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. Certain indicators can clue you in to the seller's motivation to sell quickly. Find out how long the house has been on the market. Has the price already been reduced? If yes, and more than once, you may be dealing with a highly motivated seller. When did the seller originally buy the home and for how much? If you can't ask directly what their equity is, your agent may be able to come up with a ballpark estimate, not to mention other valuable information such as whether the seller is going through a job transfer, or has already purchased a new home. If either is true, 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, so if you're offering full or close to asking price you may have an opportunity to improve your terms. There are many reasonable requests you might make with an offer. For instance, you may ask the seller to contribute to closing costs, or to provide a home warranty in case something wrong is not detected during escrow or goes wrong in the following year. Ask that the seller check the boxes warranting that all appliances are working. Then, if you find something not working during escrow, the seller will have to fix it. Most offers will be contingent upon the buyer getting financing and on a professional inspection and lender appraisal. Even here you have an opportunity to play with the terms. You could ask for 60 days to secure financing and then set a date for the seller to be out of the property. You may also ask for assistance on the prorating of taxes, club dues, homeowner's association fees, and so on. House inspection A thorough, professional property, roof, and termite inspection should be completed during escrow. This should not replace a buyer's own inspection, trying every appliance, inspecting faucets and sinks for leaks, etc. 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. This should divulge material facts that could affect the property's value, such as noisy neighbors or a spate of recent home burglaries. If you want the offer to become null and void if an inspection turns up major structural damage, make sure that is a clear contingency in the purchase contract. Check to see what sort of permits have been issued for the property. This is easy since the city usually keeps them all in one file. These permits can tell a lot about the work that was necessary on a property, which gives you an opportunity to double-check if the problem was repaired properly or just executed as a stopgap measure. Money A fairly complete financial portrait of the buyer is revealed in a purchase contract, which works to both parties' advantage. An offer is far more attractive to a seller if the buyer is preapproved for a loan. Preapproval is not to be confused with prequalification. Prequalification is merely the result of a loan officer asking a few questions and typing up a superficial letter. Preapproval from a lender is far more meaningful because the mortgage company has done the same due diligence necessary for full approval. The only thing missing is the appraisal and title search on the house. Being preapproved turns a buyer into someone akin to a cash buyer, which resonates much better with the seller. A buyer could save thousands of dollars having this advantage in the negotiations. Many mortgage companies will preapprove at little or no cost if they can check your credit and verify your income and assets.

When you write up a purchase contract, define the maximum interest rate at which you are prepared to finance. This is to protect yourself against volatile, escalating interest rates, which could land you with a much higher mortgage payment than you had anticipated. At the same time, the seller will probably want to see that you have some flexibility in the financing terms you are willing to accept. 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, the time will come when you find a house that you'd like to call home. But first, you'll need to make an offer. The offer is the first step in the negotiation process. A good basic offer includes the price you're willing to pay for the house, your financing terms, and contingencies, such as specifying what will happen if negative findings come up during the inspection. Purchase contracts vary from state to state. Regardless of where you live, if you're making an offer, you want it to be carefully worded and well thought out. In the book "Home Buying for Dummies (Hungry Minds Inc., 2001)," authors Eric Tyson and Ray Brown say there are three key elements to a good offer. Begin, they say, with a realistic offering price. Your agent will help you with this, but basically you want to come up with a price based on similar houses sold in the neighborhood in the past six months. You'll also want to keep the local conditions in mind. In other words, if houses are selling quickly and many houses are receiving multiple offers, you'll need to bid competitively. That would be the case in some regions of the country, including Pennsylvania. "The market is strong for sellers," said Maureen Clay, a Carlisle, Pennsylvania Realtor. "Homes that are being placed on the market are selling quick with multiple offers being presented. There is a high demand for homes up to $220,000. With supply low and demand high, buyers are being caught in a bidding war." But if you're in a market in which houses are on the market longer, like Denver, Colo., then you can be proceed a bit more cautiously with a bit more wiggle room for negotiation. "In past years, 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," said Denver Realtor Laurie Erb. "The economy was hot, high tech jobs were plentiful and, as a result, homeowners got top dollar and plenty of offers. Not any more. Like the jobs that fuel home buying, the days of easy sales are gone." The second element to include in your offer is realistic financing terms. If you're pre-approved for a loan, be sure to include that in the offer so the seller knows you're serious. It will also give you an edge over any other offers that don't have a pre-approved loan. And finally, include a property inspection clause. What if it's determined the roof needs to be replaced, or the heating and cooling system is faulty and it will take $3,000 to fix it?

"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," the homebuying Dummies book says. Meanwhile, Freddie Mac says there are additional items that should be covered in the offer: Any concessions you'd like the seller to make, like paying part of the closing costs or providing an allowance to get worn carpet replaced. Financing contingencies. If you're in a hot seller's market, your loan should already be approved. But if it's not, you may choose to make the offer contingent on approval of a mortgage with a specific rate and terms. Conveyances. This includes what is included in the sale. For instance, a refrigerator. The amount of your deposit. Also, most offers include a deadline for a response, perhaps three days. Finally, put everything in writing. Don't rely on verbal agreements. 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, then you may not get the money - and be stuck with green carpet.

Making an Offer on a House
How to make the offer that wins, including setting the price, adding contingencies, and developing your strategy for competitive housing markets. Once you've found a house you like, you must make a written offer to buy it. The seller will either accept your offer without changing it, make a counteroffer with one or more changes, or reject it outright. Deciding How Much to Offer Offer too little, and other bidders will beat you, or the owners will wait to receive higher offers. Offer too much, and you might be wasting your money. Consider the following factors when deciding how much to offer: The advertised price of the house. Treat the asking price as only a rough estimate of what the seller would like to receive, and recognize that different sellers price houses differently. Some sellers deliberately overprice, others ask for pretty close to what they hope to get, and a few underprice their houses in the hope of attracting a flood of potential buyers who will compete and overbid. The seller has no obligation to sell to you or anyone at the advertised price. What you can afford. 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. When figuring out the cost of the house, be sure to factor in your share of the closing costs, which will be about 2%-5% of the purchase price. Prices for comparable houses. Before making an offer to purchase, you should know the selling prices of nearby houses similar to the one you're interested in buying. For reliable comparable prices (called "comps" in the real estate trade), keep the following guidelines in mind: • A comparable sale should have occurred within the last three to six months (the more recent, however, the better). In a market where prices fluctuate fairly fast, comps should be houses that sold in the last month or so.

A comparable sale should be for a house quite similar to the one you're interested in -- in terms of age, size, and type and number of rooms.

A comparable sale should be within six to ten blocks of the house you want to buy -- or less, if a freeway or other dividing line splits the neighborhood. Local real estate brokers will have good comparable sales data, and you can also find useful information online.

Comparing Sales Prices Online For a modest fee, details on houses -- including neighborhood information, sales history, address, number of bedrooms and baths, square footage, and property tax information -- are available from SmartHomeBuy at Less detailed information (purchase price, sales date, and address) is available for free from sites including Simply enter your prospective new home's address or zip code.

Whether the local real estate market is hot (prices are going up) or cold (prices are dropping). In competitive areas, you'll have to offer the asking price or more, and expect bidding wars to erupt among frenzied buyers. Homes often sell for 10%, 30%, or more above the asking price in hot markets. You'll want to arrive at a bid amount that will beat out the competition -- but only just. Some buyers, however, deliberately bid sky-high in order to stop the madness and find a home as soon as possible, especially if they have been outbid on properties two or three times already. In a cold market, you'll have more room to negotiate with the seller, and you may get a bargain. The seller's needs. Remember that price alone is not the only consideration for sellers. Your ability to close the deal quickly -- for example, by having your loan preapproved, or by not including a contingency saying that you have to sell your existing house first -- is often crucial, especially in hot markets. Finally, your flexibility and sensitivity to the seller's needs -- whether it's extending the closing date for a seller who can't move for a few months or making the offer "as is," meaning that you pay for needed repairs -- may make or break your offer. Whether the house is uniquely valuable to you. A modest house listed at a reasonable price may be a bargain if you have three kids, the house is in an excellent school district, and the lot is large enough to add on a few rooms. The same house may be overpriced, however, for a couple not planning to have children. Don't get so carried away with judging objective market considerations that you forget your personal needs.

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, with home prices rising by the minute, it's crucial to develop a bidding strategy.

For example, you might bid on several houses at once. Legally, this isn't a problem as long as you don't find yourself with two offers outstanding simultaneously and neither hedged with significant contingencies. If you have two offers accepted at once, you'll need to formally revoke the one you don't want. Another option is to prepare several bids at different prices. If you're lucky, you'll know beforehand how many people will be bidding on a particular house. If so, prepare your bid accordingly. Present the lowest bid if you're the only one making an offer, the next highest if there are only one or two other people making an offer, and your highest price if there are three or more bidders. Think twice before you get caught in a bidding war. If you decide that a house is so attractively priced that you want to try to preempt other bidders by making the highest offer, it's crucial that you set a limit for yourself -- for example, $50,000 over the asking price and not a penny more. You might also write a cover letter to accompany your offer, telling the seller about yourself, your desire and ability to take good care of the house and garden, and your interest in being flexible in order to make the deal go through. Remember that price alone is not the only consideration for sellers.

Adding Contingencies to Your Offer
Real estate offers almost always contain contingencies -- events that must happen within a certain amount of time (such as 30 days) or else the deal won't become final. For example, you may want to make your offer contingent on your qualifying for financing, the house passing certain physical inspections, or your ability to sell your existing house first. Be aware, however, that the more contingencies you place in an offer, the less likely the seller is to accept it. In the hottest markets, sometimes the successful bidder will have taken a calculated risk and made an offer with no contingencies.

Whether it's the only offer, or the first of many, a seller usually does not have to accept any particular offer. If a bid is way out of line pricewise, the seller is likely to reject the offer on the spot. But even very attractive offers are rarely accepted as written. More typically, the seller will respond with a written counteroffer accepting some or most of the offer terms, but proposing certain changes. Most counteroffers propose changes in these areas: • • • • price -- the seller wants more money than offered closing date or occupancy date -- the seller needs more time to move out contingency on buyer's sale of current house -- the seller doesn't want to wait for this to occur inspection contingency -- the seller wants the buyer to schedule the inspections more quickly.

You can accept the seller's counteroffer, reject it, or present a "counter counteroffer." Then, the negotiations will continue until either a deal or an impasse is reached. 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 buyer's first offer can create a contract only if the seller accepts it with no changes.

Your First Offer to Buy a Home
Overview: Your initial offer on a home is not necessarily final. Remember that there is always room for negotiation. Once you're serious about buying the home, you need to make an earnest money deposit as a show of good faith. Always get a home inspection before you buy to make sure the home is structurally sound and in good condition. Alright, you've found the home of your dreams, or at least the one you like most that you can afford. Now you're ready to buy the home. So the next step is to make an offer on the home. What's a Reasonable Offer? If you've never bought a house before, you probably don't even know where to start in terms of making an offer. Most sellers will price their homes a little high, knowing there will be some bargaining involved. Generally, a good place to start is at five percent below the asking price. You can also get a comparable home sales report from your agent. That will tell you what similar homes actually sold for and will give you a good ballpark where to start. If the housing market in your area is hot, you may have to make an offer that's close to the asking price. Contingencies A contingency is nothing more than saying that you will purchase the home as long as certain things are done. 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.

Set a time limit on how long it should take for the contingencies to be met. If the seller receives another attractive offer, be prepared to remove certain contingencies. At that point, you could make a higher offer, firm your offer or drop out. The Offer and Counteroffer You'll need to include an expiration date for your offer. Usually 48 hours or so, depending on your circumstances. You'll also want to set a target date for the closing, perhaps four to eight weeks from the date you sign the purchase agreement. That should be enough time to get your mortgage application processed and get all the contingencies removed from the purchase agreement. Once you make an offer, the seller has the right to review it at their leisure, but must respond within the time limit that has been set. If there has been no response, you can assume that deal has been rejected. The seller can make a counteroffer, but understand that you are not obligated to accept it. In fact you can make a counteroffer to the seller's counteroffer and at that point, it may be wise to split the difference, otherwise you may risk losing the house and the deal.

Also, when making an offer, consider asking about seller concessions - fees and costs which the seller agrees to pay for on your behalf at the closing. These costs may include attorney fees, title insurance, discount points, origination fees, appraisal fees, inspection fees, and processing fees, among others. 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. Seller concessions are limited to between two and nine percent of the home's purchase price or appraised value; the amount varies by the type of mortgage you get, your loan amount and how you plan to occupy the home. A Show of Good Faith An earnest money deposit is made to show good faith, that you're serious about making an offer on the house. The money goes in escrow - a neutral, third party account - and goes towards your closing costs. The amount of the earnest money deposit is really up to you, but it should be enough to let the seller know you're serious. Remember that if you back out of the deal, the money may be kept by the seller. Once you and the seller both sign the purchase agreement, you are entering into a binding contract. As with anything you sign, be sure to read it carefully and in its entirety so that you know exactly what you're getting into. Your real estate agent can help you understand anything you may still be confused by. 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. An inspector examines everything from the roof to the foundation and everything in-between - plumbing, electrical systems, septic or sewer systems, heating and air conditioning units, insulation, etc. Home inspections do pose an extra expense, but it's not a corner that should be cut. 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. A good place to find a home inspector is by visiting, the American Society of Home Inspectors (ASHI) Web site. Other Tips to Remember: • • • Always get title insurance to ensure that the title is free and clear. Make sure you get home insurance - it's required by the lender in order to close your loan. It may be wise to hire a lawyer to help you review all documents and to protect your interests.

It's natural that making an offer on a home may be nerve-wracking, but your real estate agent and your mortgage banker should be able to answer any questions you have and put your mind at ease.

Making an Offer on a House
Once you've found a house you like, you must make a written offer to buy it. What form that offer takes depends on what state you live in. In some states, the offer is a bare-bones statement that "I'll take the house for $X," after which the seller writes up a draft contract. In other states your offer must be so complete that the seller could sign it and you'd have a contract right there. The seller will either accept your offer, make a counteroffer with one or more changes, or reject it outright.

Deciding How Much to Offer The advertised price of a house is just a starting point. It's up to you to decide how much the house is really worth, 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 prices are going up) or cold (prices are dropping) the seller's needs, 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, for example if you need an in-law unit or art studio, and what you can afford, after a careful examination of your budget.

Adding Contingencies to Your Offer Real estate offers almost always contain contingencies -- events that must happen within a certain amount of time (such as 30 days) or else the deal won't become final. For example, you may want to make your offer contingent on your qualifying for financing, the house's passing certain physical inspections , or your ability to sell your existing house first. For more information, see Contingencies to Include in Your House Purchase Contract. Counteroffers Whether it's the only offer, or the first of many, a seller usually doesn't have to accept any particular offer. If a bid is way out of line pricewise, the seller is likely to reject it on the spot. But even with very attractive offers, the seller is likely to respond with a written counteroffer accepting some or most of the terms, but proposing changes to the: • • • price -- if the seller wants more money than offered closing date or occupancy date -- if the seller needs more time to move out contract contingenies -- if the seller doesn't want to wait for you to succeed in selling your current house, or wants you to schedule the inspections more quickly.

You can accept the seller's counteroffer, reject it, or present a "counter counteroffer." Then, the negotiations will continue until either a deal or an impasse is reached. 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.

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; however, the quality of your offer is almost as important as the price you offer to buy that home. Listings agents should not be placed in the position of having to educate selling agents on how to write an offer. Poorly written offers reflect badly on everybody and lessen your chances as a buyer to get your offer accepted. Here are 10 basic tips to guide you.

1. Use the Correct Form
While this may seem elementary to you, there are a lot of purchase contracts available. Each state has its own laws. Realtor associations publish purchase contracts. In California, for example, 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, either.

2. Determine Price
Some courts have ruled that offers containing acceleration clauses such as "I will pay $1,000 more than your best offer," do not constitute a bonafide offer. You have a price in mind. Put it in writing. Barring extreme buyers' markets or sizzling sellers' markets, you will probably want to offer a bit less than you expect to pay. You can ask for guidance, but don't expect your real estate agent to name a price for you. Picking buyer's prices is not an agent's job.

3. Make an Initial Deposit
In most states, to have a binding offer, you need to make a good faith deposit. It could be cash, personal check, cashier's check or other modes such as personal property, real property, mortgages or unsecured promissory notes. Spell out who will hold the deposit -- almost anybody but the seller! If your state has "liquidated damages," the seller could be entitled to retain your deposit if you default under the contract.

4. Disclose your Down Payment
Your down payment could be cash, promissory notes, stocks, real estate or other assets. Generally, it is readily available cash. Some states require verification of your down payment within a certain time period. If you are selling an asset such as liquidation of a mutual fund to receive cash, that action could be considered a contingency of the transaction and, if so, you should disclose it.

5. Name Financing Terms
Please remember that your deposit, when added to your down payment and financing should equal the total consideration paid. • • • Some contracts allow you to specify a maximum interest rate, giving you a way to cancel the deal if your interest rate comes in higher. Disclose the type of financing you hope to obtain: conventional, FHA, VA, contract of sale, assumption or other. Include maximum points, especially if you are asking the seller to pay them.

6. Include Contingencies

California Association of Realtors (CAR) purchase contracts in California give the buyer by default 17 days to do inspections. Other states are similar. Federal law gives all buyers 10 days to inspect for lead paint, unless waived in writing. Many contracts carry provisions for such contingencies as: • • • • Appraisal Loan Funding Physical Inspections. Depending on your state law, if you do not remove your contingencies in writing, they may still be in effect, all the way to closing!

7. Address Possession Succinctly
My experience shows more battles are fought over possession than are ever necessary. Some deals fall out because sellers and buyers have unreasonable expectations about possession. • • • Spell out the possession date. It is on closing? A day after closing? If possession is prior to closing, to protect all parties, execute a rental agreement. If possession is more than two or three days after closing, execute a rental agreement to protect the buyer.

8. Spell Out Who Pays the Fees
Although most contracts call for fees to be negotiable, some fees, depending on your locale, are customarily paid by one party. If you don't know custom, you may be unintentionally inviting a counter offer. Call the listing agent before you write the offer and ask. Sometimes fees for title, escrow, county or city transfer taxes can equal one to two percent of the sales price. For example, if the seller is paying for title and it's customary for the seller to choose, let her choose.

9. Request Special Reports
If you are concerned about a specific inspection, request a report. 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. Sellers feel duped. Buyers feel mislead. Address the issues you want discovered. Some states allow the buyer to conduct all inspections before writing the offer just to alleviate this type of miscommunication. If it's customary for a seller to provide certain reports, ask for them.

10. Clearly State Expiration of Offer
• • • Deals sometimes fall through because buyers did not allot enough time for a seller to respond to the offer. If you are unsure, call the listing agent and ask how much time is required. Sellers can be out of town or have emergencies. Clarify to whom the accepted offer should be delivered. If it's the buyer, and the buyer is unavailable to accept delivery, the buyer could lose the transaction if another buyer popped up out of nowhere. Read your state contract laws regarding offer expiration.

Closing on a Home
Closing on a home involves a number of important steps. Make sure to pay the same level of attention to these steps as you did when you were house hunting.

What do you need to know during the closing process? • • • Learn why hiring a professional home inspector is so important. Know what to look for when shopping for homeowner's insurance. Understand what to expect when you attend closing (the actual settlement meeting).

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. An independent authorized inspector can uncover defects with the house that could cost you a lot of money down the road. If the home inspector finds a serious problem, like the roof needing to be replaced, you'll know up front and can negotiate with the seller for the cost of the repair or replacement. If you don't find out until after you own the house, the problem (and cost) are yours alone. When getting a home professionally inspected, you may also want to think about testing for environmental hazards like lead paint, asbestos, and radon. Again, your real estate agent can be a good reference for a home inspector. Older Homes Older homes can be charming, but you should be aware of special issues with them so you're not surprised once you own the home. Foundation problems, overloaded electrical systems and lead paint are not unusual in many older homes. 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, potentially saving you thousands of dollars down the road. 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. Every house needs an inspection. Even if it seems like it's in great shape, a professional home inspection protects you from unpleasant surprises in the future. No home can "fail" a home inspection, but certain problems can be brought to light. Make sure you factor in any potential problems and the costs to fix them when looking at your housing budget and making your offer.

Resources • The American Society of Home Inspectors (ASHI) can be a source of information about home inspections.

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?

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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, including: • Casualty Insurance covers most types of damage to the structure of your house like fire, wind, or hail. In areas prone to wildfires, floods or earthquakes, you'll probably need an additional policy to protect you from damage from specific natural disasters. Liability Insurance provides protection in case a visitor is injured in your home. Theft or damage to personal property Insurance covers things like your furniture, clothes, and appliances.

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Disaster Insurance Most home insurance policies do not cover flooding or damage due to earthquake. Flood insurance can be purchased through your insurance agent, and is also available through the National Flood Insurance Program for areas at high-risk for flooding. Earthquake coverage is also a separate policy or sometimes an endorsement to your existing policy, usually available through your insurance agent. In California, earthquake insurance can also be purchased through the California Earthquake Authority. Be sure to understand exactly what disasters your insurance covers and what it does not. For a guide to disaster coverage, visit The Insurance Information Institute. 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, minus a depreciation allowance. Replacement cost This insurance covers the cost of replacing damaged property without a depreciation deduction, but with a maximum dollar amount. Extended replacement cost This insurance covers the cost of replacing your home up to a stated percent (usually 20-30%) over the amount insured. Guaranteed replacement cost This insurance covers the cost of replacing damaged property without a depreciation deduction or a maximum dollar amount.

The terms can be a little confusing. Be sure to ask an insurance professional to give you real-life examples so you can understand the differences. Saving Money on Insurance You can save money on your homeowner's insurance by doing your research. Shop around and compare different services and prices. Your family and friends can be good resources. You can also check with the federal government's Citizen Information Center, or AM Best. Other ways to save some money include: • Increasing your deductible The higher the deductible, the less expensive the insurance premium. But don't forget that, in the event of a loss, you'll have to pay the amount of your deductible from your own money before your insurance pays for any damages. Don't take a deductible that will be too much for you to pay in the event of a loss. Consolidating your insurance If you buy homeowner's and auto insurance with the same company, you may be able to get a discount. Looking at the age and construction of your home Insurance costs tend to be lower in newer homes with new equipment. Construction designed to be particularly resistant to wind and earthquake damage may also lower your rates. Only insuring the value of the structure and its contents While your home and its contents are at risk from fire, theft, etc., the land your home sits on is not. Being safe! Install smoke detectors, security systems, deadbolts and other safety devices. Safety features can lower insurance rates. Quitting smoking Some companies offer reduced rates for nonsmokers. Flaunting your age If you're over 55, let the insurance company know. You can probably get discounts. Getting group coverage Your college, credit union, or business associations may qualify you for special rebates. Staying with your insurance company Some companies reward loyal clients with reduced premiums.

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• • • •

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. For a small additional fee, the title insurance company will issue a homeowner's policy that gives you the same protection. Your policy will protect you as long as you own the home, even if you refinance or pay off your loan. You should ask your lender for information about a homeowner's title policy.

Wisconsin Lawyer Vol. 81, No. 8, August 2008

Using Wisconsin's Commercial Offer to Purchase Form
Generally speaking, the terms and provisions of the standardized commercial offer to purchase form create a contract with broad representations, limited contingencies, and unlimited remedies. By contrast, many commercial real estate sale agreements contain narrow representations, open-ended contingencies, and limited remedies. Here are some of the issues parties should consider when using the commercial offer to purchase form.

by Douglas S. Buck & Katherine R. 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). The Wisconsin Department of Regulation and Licensing (DRL) developed the form, which was last updated in 2000. 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, including apartment, industrial, retail, and office buildings. This article lists important issues for purchasers, sellers, brokers, and attorneys to consider when using the form.

Wisconsin law forbids all persons, including licensed real estate brokers, from practicing law without a law license Therefore, to assist brokers in carrying out their duties without violating the law, the DRL adopted an extensive set of preprinted and preapproved forms, such as the WB-15, which may be used by brokers. In accordance with chapter RL 16 of the Wisconsin Administrative Code, brokers who use and fill out these forms are not considered to be practicing law.

One of the major benefits of standardized forms such as the WB-15 is that, through regular use, attorneys and brokers can become familiar with the forms' terms and provisions. This familiarity allows attorneys and brokers to quickly spot issues or concerns related to a particular type of transaction. However, perhaps the biggest downside to the form is that purchasers, sellers, and brokers sometimes mistakenly believe that the form adequately covers all the issues that might arise in connection with their transactions. 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. The form thus represents a starting place for the parties to begin their

negotiations and should be used only after a careful examination of how the form addresses the various issues involved in a transaction. In fact, in a complex or major real estate transaction, the use of the WB-15 usually is not appropriate. That said, many brokers, purchasers, and sellers feel more comfortable using the form as a starting point. In addition to examining the issues that the form addresses, it also is important to consider the issues that the form overlooks. 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. Some key topics for attorneys, brokers, sellers, and purchasers to consider when using the form include representations and warranties, rent rolls, estoppels, title, surveys, investigation periods and contingencies, earnest money, and default. This list is by no means exhaustive, but the discussion below of these items should provide a better understanding of the form's terms and provisions. Even when electing not to use the form, the parties to a commercial real estate contract should consider many of the issues discussed in this article.
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). A "condition affecting the Property" is defined by the WB-15 broadly to include a wide range of matters (lines 57-75). A seller's counsel should review these representations with the client to ensure their veracity, and a purchaser's counsel should consider whether these representations are broad enough. When electing to simply use the WB-15 language, sellers should carefully examine the precise language of the form. For instance, 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." This is a vague provision, and at least one Wisconsin court has interpreted it to include a wide range of matters that the parties might not contemplate. In Kailin v. Armstrong, the plaintiff-purchaser sued the defendant-seller for a breach of this clause, 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. In ruling in favor of the purchaser and allowing the case to go to trial, 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, but that a buyer would want to know about because of their effect on the value of the property."
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From the purchaser's perspective, even if the seller agrees to make the representations contained in the WB-15, the purchaser might actually want to broaden the representations by eliminating the "materiality" qualifiers that the form attaches to several of the representations. For example, one of the condition-affecting-the-property clauses in the

WB-15 is any "material violations of environmental laws or other laws or agreements regulating the use of the Property" (line 67). A purchaser, its investors, lenders, 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, even if the seller believes they are not "material." A purchaser also might want to specify that the form's representations are made not only "as of the date of acceptance," as provided in line 52 of WB-15, but also as of the time of closing.

Douglas S. Buck, U.W. 1993, is a partner at Foley & Lardner LLP, Madison, focusing on commercial real estate, zoning, and lending. Katherine R. Rist, U.W. 2005, is an associate at Foley & Lardner LLP, Madison, focusing on commercial real estate law. In addition to the representation on conditions affecting the property, the form also contemplates that the seller will fill out and deliver to the purchaser a real estate condition report. Such a report is prescribed by Wis. Stat. chapter 709. However, it should be noted that under chapter 709, a real estate condition report is required only when transferring residential property (such as an apartment building) with one to four units. In other words, a real estate condition report is not required in a commercial transaction, unless the transaction involves an apartment building with fewer than five units. Accordingly, it is not uncommon for parties to strike the provisions requiring the seller to deliver a real estate condition report. Sellers often add three other terms and provisions to the representation sections of commercial real estate contracts. First, sellers' attorneys will frequently add extensive "as is, where is" and release language to their contracts. Typically such provisions note, among other things, that the seller and its principals, employees, and brokers have not made any representations or warranties - except as expressly contained in the agreement on which the purchaser is relying. Second, large institutional sellers often seek to include language whereby purchasers agree to place a cap, or limit, on the damages that the purchasers can recover from the sellers for a breach of the representations and warranties after a transaction has closed. Third, 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. All these provisions can have a material impact on the transaction, including potentially the purchase price, and purchasers should weigh the benefits and potential consequences of such provisions before agreeing to them. Some purchasers agree to such provisions on the assumption that, regardless of the limits on damages or time periods that they agreed to in the contract, they can later sue

unscrupulous sellers in tort for fraud or misrepresentation. However, given the increasing use of the economic loss doctrine in Wisconsin, this assumption may not be correct. A judicially created rule, 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. Courts have since applied this doctrine to real estate transaction and have thereby barred parties from bringing general tort claims, such as intentional or negligent misrepresentation, against the other party after a purchase contract has been executed. For example, in a decision issued by the Wisconsin Supreme Court in July 2008, the court ruled that the economic loss doctrine bars common-law claims for intentional misrepresentation even in the context of residential transactions
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Without the ability to bring an action in tort for misrepresentation, purchasers are left with claims for breaches of the express misrepresentations and warranties contained in the contract itself. 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.
Rent Roll and Estoppels

From a real estate investor's perspective, one significant omission in the form is the lack of any representation related to the property's leases (if any). Typically, a seller or its broker will deliver a rent roll to the purchaser setting forth the amount of rent, security deposits, lease expiration dates, and other key facts, such as delinquencies, related to the property's leases. Such facts often play a large role in helping the purchaser determine the purchase price and, thus, are essential to the purchaser's interest in a property. A purchaser therefore should consider having the content of the rent roll incorporated into the seller's representations in the contract. In addition, real estate investors often want assurances that the rental income to be acquired arises from valid and binding leases. As a result, 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). In an estoppel letter, a tenant certifies and confirms to the purchaser various facts, such as the rental amounts, security deposits, expiration dates, and, importantly, that the lease is without default. Once signed, 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. 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, at a minimum, be contemplated by the parties before signing a contract.

Title is a key component to any real estate acquisition. However, with respect to title, the form contains two major drawbacks. First and foremost, the form does not allow enough time for the parties to review the title. Under the WB-15, the seller is not required to

provide a title commitment (a report on the status of title) until three business days before closing (line 195). This leaves the parties with very little time to review title and any underlying documents associated with it. This short period to review title is an issue for both sellers and purchasers. Purchasers often want to review the title to a property promptly after signing the contract. That way, the purchaser can spot any issues before making financial commitments to its lenders, appraisers, and other consultants. From a seller's perspective, it may be helpful to know about title issues well before the scheduled closing date so that the seller, if it so desires, has time to cure any title problems, especially if the seller needs funds from the sale to meet other financial obligations. 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, line 196). The term "merchantable" is synonymous with "marketable." Both terms, however, are amorphous. The courts have attempted to provide some clarity by defining these terms, but their decisions have not yielded much precision. WB-15 provides that the following constitutes merchantable title: a title "free and clear of all liens and encumbrances, except: municipal and zoning ordinances and agreements entered under them, recorded easements for the distribution of utility and municipal services, recorded building and use restrictions and covenants" (lines 181-85).

Many title matters defined as merchantable by the WB-15 could be considered unacceptable to a purchaser. For example, consider the situation in which the title commitment for a neighborhood retail center reveals a use restriction, or protective covenant, in favor of a neighboring property that forbids restaurants from being operated within the center. Under the WB-15's language, 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, such a use restriction may have a material adverse effect on the value of property to a purchaser, especially if the purchaser was considering bringing in one or more new restaurant tenants. From the purchaser's perspective, a real estate contract should not try to define merchantable title, as the form does, but instead should give the purchaser a reasonable period of time in which to object to any unsatisfactory title matters. Under this type of provision, if the seller is unable or unwilling to cure a title defect identified by the purchaser well before closing, the purchaser may terminate the agreement and receive a return of its earnest money. It should be noted, however, that there is some concern that such an open-ended title provision, which relies on the purchaser's "satisfaction" for its fulfillment, may render the agreement void under Wisconsin law (see the discussion below of Investigation Periods and Contingencies). From a seller's perspective, the form's merchantable title language is favorable. The seller has no affirmative obligation to deliver merchantable title. Thus, if the seller cannot cure a title defect, and the purchaser will not waive its objections, the contract is simply

declared null and void (WB-15, lines 203-04). The purchaser, who may have expended significant sums on due diligence and loan commitments for the property, is potentially left with no recourse against a seller that is unwilling or unable to cure title defects.

In a commercial real estate transaction, title and survey contingencies often go hand in hand. As the cliché goes, a picture is worth a thousand words. A detailed survey of a property, which shows the location of all improvements and easements, may reveal significant matters regarding access to the property, zoning violations, encroachments, adverse possession claims, or unrecorded easements that otherwise would go undiscovered by the purchaser. 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. The form does not require the delivery of a survey and, furthermore, contains no express contingency granting the purchaser the right to object to matters disclosed by a survey. Purchasers, therefore, should consider adding a survey contingency and retaining some right to object to matters revealed by the survey. Another important consideration for purchasers is that, without a recent survey and an owner's affidavit, a title company in Wisconsin normally will not issue a title policy with "extended coverage" over the general exceptions to the title policy. Since a large number of title claims relate to matters excluded from coverage by the general exceptions to a title policy, obtaining a survey and removing the general exceptions by an endorsement to the title policy can be valuable to a purchaser.
Investigation Periods and Contingencies

As the form is written, the purchaser's obligation to close on a property's acquisition is contingent on only a few express contingencies. The purchaser must affirmatively elect these contingencies by checking the appropriate boxes and filling in certain information. The enumerated contingencies in the WB-15, any number of which a purchaser may elect, are: 1) financing; 2) a document review, covering the seller's authority to sell the property, a list of personal property, and a Uniform Commercial Code search; 3) a phase-I environmental site assessment; and 4) a physical inspection. The form's express contingencies are much more limited than what is normally found in a typical commercial real estate contract and, consequently, purchasers should consider adding additional contingencies. Additional contingencies could include items such as a zoning review, estoppel letters, surveys, and a statement that all the seller's representations and warranties will be true as of the closing. When electing to use the form's contingencies, a purchaser should carefully deal with the precise language used in, and the limitations placed on, the contingencies. For instance, the financing contingency is very favorable to the seller. It allows the seller to bind the purchaser to the contract, even if the purchaser's lenders deny its requested loans.

Specifically, lines 169-74 of the WB-15 provide that, if a purchaser is denied financing by a lender or another third party, the seller itself can elect to provide such financing to the purchaser. Other provisions the parties might want to modify are the environmental and physical inspection contingencies. The environmental contingency limits a purchaser to conducting a phase-I environmental site assessment by explicitly forbidding the purchaser from undertaking testing (WB-15, lines 86-89). Furthermore, the WB-15 defines a physical defect as, among other things, "structural, mechanical or other condition[s] that would have a significant adverse effect on the value of the Property" (line 286, emphasis added). 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. The form, with its narrowly enumerated and defined contingencies, differs significantly from many commercial real estate contracts that, by contrast, 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. Under this latter form of contract, the purchaser often is expressly required to act reasonably in making such a determination, 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. As mentioned above, courts in Wisconsin have on occasion voided contracts that allow one party to determine, without limitation and in a subjective manner, the meaning of an ambiguous term. For example, in Gerruth Realty Co. v. Pire the parties' contract stated that the transaction was generally "contingent upon the purchaser obtaining the proper amount of financing." In Gerruth, the Wisconsin Supreme Court ruled that such a phrase was so vague as to make the contract void for indefiniteness: "[A]ny interpretation, which allows one party to a contract to determine without limitation and in a subjective manner the meaning of an ambiguous term, comes dangerously close to an illusory or aleatory contract."
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Following the Gerruth precedent, 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." Cases such as Gerruth and its progeny are the reason why the form's language seeks to precisely define the contingencies it contains, thereby limiting the purchaser's ability to unilaterally determine if the contingency is satisfied.

Courts in many other jurisdictions, however, allow parties to freely negotiate contracts whereby one party can elect, in its sole and absolute discretion, to terminate the agreement if its investigations are unsatisfactory These courts reason that a purchaser, who may spend substantial sums of money in negotiating a contract, obtaining a survey

and environmental report, seeking financing, and perhaps paying a commitment fee to a lender, should be able to rely on the validity of its termination rights during the inspection period, even if these rights are unilateral Unilateral contingencies, while certainly not appropriate in a preprinted form, 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.

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 this regard, 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.
Earnest Money

Although the form provides for the payment of earnest money by the purchaser, 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. Instead, the WB-15 states that "[i]f this Offer does not close, the earnest money shall be disbursed according to a written disbursement agreement" (lines 243-44). In practice, parties generally do not execute written disbursement agreements specifying the terms under which the earnest money will be released. Under such circumstances, the parties to the form are left to agree, or potentially disagree, first as to whether the contingency has been met and then, if the contingency has not been satisfied, who gets the earnest money. The form sets forth a basic dispute resolution process for parties to use if they do not agree on these questions. If that dispute resolution process is not successful, the form states that the parties may apply to a court of law to resolve their disagreement. 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, the earnest money will be returned to the purchaser. This is typically the implied understanding of most sellers and purchasers, but the form does not explicitly provide that the purchaser is entitled to receive a return of its earnest money if, for example, the environmental contingency has clearly failed.

Finally, what happens under the terms of the form if one party defaults? The form does not mandate any remedies. Instead, it lists a number of remedies available to the parties and then states that, "[i]n addition, the Parties may seek any other remedies available in law or equity" (line 228). The WB-15 also discusses the fact that the parties can seek nonjudicial dispute resolution, including binding arbitration (lines 230-32). In a sense, the form's default section is a disclosure provision, which reviews the broad range of options open to the parties but fails to mandate any specific remedies.

By contrast, in a vast majority of commercial real estate contracts, if the purchaser breaches the contract, the purchaser's earnest money is surrendered automatically to the seller as liquidated damages and as the seller's sole and exclusive remedy. This type of provision benefits both sellers and purchasers by allowing the parties to avoid potentially costly litigation. 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. Instead the WB-15 states the seller may "request the earnest money as liquidated damages" (lines 223-24, emphasis added). Thus, if a term of the form is breached and the breaching party does not agree to surrender the earnest money, the nonbreaching party may bring a suit for, among other things, specific performance or for damages

As a result, if the parties wish to create a binding liquidated damages clause, under which the seller's remedies are limited to retaining the earnest money, they must modify the form. 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.

Parties have many issues to consider when using the commercial offer to purchase form. Generally speaking, the form's terms and provisions create a contract with broad representations, limited contingencies, and unlimited remedies. By contrast, many commercial real estate sale agreements contain narrow representations, open-ended contingencies, and limited remedies. Some additional issues to think about, but which are beyond the scope of this article, include provisions regarding broker fees, closing documents, cross indemnities, delinquent rent prorations, and the termination of any existing management contracts. An in-depth analysis of the form's terms and provisions, as well as many of the other DRL forms, can be found in the publication Real Estate Transaction Systems, available from the State Bar of Wisconsin. Another excellent reference when using the WB-15 is Wisconsin Real Estate Clauses and Other Standard Provisions, by Scott C. Minter and Richard J. Staff.

See Wis. Stat. § 757.30; State ex rel. Reynolds v. Dinger, 14 Wis. 2d 193, 109 N.W.2d 685 (1961).


2002 WI App 70, 252 Wis. 2d 676, 643 N.W.2d 132. Id. ¶ 22.


See, e.g., Van Lare v. Vogt Inc., 2004 WI 110, 274 Wis. 2d 631, 683 N.W.2d 46; Mose v. Tedco Equities - Potter Rd. Ltd. P'Ship, 228 Wis. 2d 848, 859, 598 N.W.2d 594 (Ct. App. 1999); Kailin v. Armstrong , 2002 WI App 70, 252 Wis. 2d 676, 643 N.W.2d 132.
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Below v. Norton, 2008 WI 77, __ Wis. 2d __, 751 N.W.2d 351 . Baldwin v. Anderson , 40 Wis. 2d 33, 43, 161 N.W.2d 553 (1968). 17 Wis. 2d 89, 115 N.W.2d 557 (1962). Id. at 92.




Nodolf v. Nelson, 103 Wis. 2d 656, 660, 309 N.W.2d 397 (Ct. App. 1981). See also Vaisman v. Goerich, No. 91-0047, 1991 WL 198167 (Wis. Ct. App. Aug. 13, 1991) (unpublished limit precedent opinion); Metropolitan Ventures LLC v. GEA Assocs., 2006 WI 71, 291 Wis. 2d 393, 717 N.W.2d 58.

See, e.g., Mattei v. Hopper, 330 P.2d 625 (Cal. 1958); Reese v. Walker, 151 N.E.2d 605 (Ohio Mun. 1958); 43 Marquette L. Rev. 265, 283 (1959-60). See also West Allis Sav. Bank S.A. v. State Sand & Gravel Co., No. 93-1971-FT, 1994 WL 109994 (Wis. Ct. App. Apr. 5, 1994) (unpublished limit precedent opinion).

Although it did not examine due diligence investigation periods, the Wisconsin Court of Appeals recently distinguished Gerruth in a decision filed on May 7, 2008. 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. See Devine v. Notter, 2008 WI App 87, __ Wis. 2d __, __ N.W.2d __.

Galatowitsch v. Wanat, 2000 WI App 236, 239 Wis. 2d 558, 620 N.W.2d 618; Home Value Inc. v. Pep Boys, 213 F.3d 960 (7th Cir. 2000) .

Wisconsin Lawyer

Attend the Closing Meeting
Closing (also called settlement) is the final step in buying a home. Once it's complete, the home is yours. A number of people attend closing. They usually include: • • • You, the homebuyer The seller of the home The closing agent, the title insurance representative, and the escrow agent These can be several different people or one person handling all three issues. Closing agents coordinate the closing by recording closing documents, dispersing funds, etc.

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. There are a number of steps in between, including: Conduct a property walk-through Before the closing takes place, 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. You also will want to make sure that any mutual agreements such as repairs or appliances conveying have been met. Setting the closing date The closing date is set when your mortgage is approved and you sign a commitment letter with your lender. Make sure the closing date is before your lock-in rate expires. • Reviewing the documents Ask for the closing documents before the actual closing and read them carefully. It may be a good idea to have a lawyer review them with you. Understand what you'll be asked to sign before the meeting. Understanding the closing costs Closing costs can include many different things and can add up to a sizeable amount of money. Be prepared. 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. Attending the closing meeting Closing meetings are standard in the home-buying process, although there are a few states where there are no closing meetings. You'll sign documents like the closing statement, mortgage note, and truth-in-lending statement. Proof of insurance and inspections, as well any monies due, are required before you get the keys to your new home. The settlement agent or escrow agent should obtain this documentation on behalf of the lender. 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. In that case, you'll need a certified or cashier's check

Closing Costs
The bundle of fees associated with the buying or selling of a home are called closing costs. Certain fees are automatically assigned to either the buyer or the seller; other costs are either negotiable or dictated by local custom. 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. The fees vary according to several factors, including the type of loan they applied for and the terms of the purchase agreement. Likewise, some of the closing costs, especially those associated with the loan application, are actually paid in advance. Some typical buyer closing costs include: • The down payment

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Loan fees (points, application fee, 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, the seller's most important closing cost is satisfying the remaining balance of their loan. Before the date of closing, the escrow officer will contact the seller's lender to verify the amount needed to close out the loan. Then, along with any other fees, the original loan will be paid for at the closing before the seller receives any proceeds from the sale. 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, buyers and sellers frequently include closing costs in their negotiations. This can be for both major and minor fees. For example, if a buyer is particularly nervous about the condition of the plumbing, the seller may agree to pay for the house inspection. Likewise, a buyer may want to save on up-front expenditures, and so agree to pay the seller's full asking price in return for the seller paying all the allowable closing costs. There's no right or wrong way to negotiate closing costs; just be sure all the terms are written down on the purchase agreement. Prorations At the closing, certain costs are often prorated (or distributed) between buyer and seller. The most common prorations are for property taxes. This is because property taxes are typically paid at the end of the year for which they were assessed. Thus, if a house is sold in June, the sellers will have lived in the house for half the year, but the bill for the taxes won't come due until the following year! To make this situation more equitable, the taxes are prorated. In this example, the sellers will credit the buyers for half the taxes at closing.

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