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A Real Estate offer to purchase a property
can become a legally binding contract. Making an offer in a Real Estate
purchase is much different than an offer made in other negotiations
in which you many participate. If you offer to buy a house at a certain
price and with certain terms, and the seller agrees and notifies you
of their acceptance, you have bought a house! The closing and escrow
details may still need to be finalized, but an offer can turn into a
contract in a matter of hours, so it is important that you understand
the potential consequences of an offer. Naturally, not being able to
qualify for a loan to purchase the property will nullify the offer as
will an inspection that falls short of expectations, but don't make
an offer to purchase unless you intend to complete the sale.
When writing an offer to purchase a property, you will generally need to include a personal check, cashier's check or cash (known as earnest money). This represents your sincerity in the attempt to purchase and is totally refundable if the offer is not accepted. An earnest money deposit of at least $1,000-$2,000 is usually required. This money is generally kept in the trust fund account of the real estate company and is not turned over to the seller, or you can make it out to the title company. By law, it will be cashed within 24 hours upon acceptance of the offer.
A Real Estate offer is more than simply an offer of price. All details of the eventual sales contract must be addressed in the offer. Some of the items which may be included are:
Sales price
Any concessions made by the seller
The amount of buyer's "earnest money" or deposit
that accompanies the offer.
Financing contingencies (subject to you securing
an acceptable mortgage)
Inspection contingencies (subject to an inspection report that is
acceptable to you)
Other contingencies (specifically outline any other contingencies. For
example you may state the offer is Contingent on the sale and closing of
your current residence.)
Time and date of settlement and possession
All exclusions and inclusions in the property. It is much better to be specific here rather than assume that an item will be included, only
to have an unhappy surprise on the day of closing. If you expect certain appliances, plants, etc. to be a part of the sale be certain to include them in your offer. In most states anything not attached like a washer
and dryer, microwave, refrigerator are not considered a part of a sale
so you will have to specifically contract for these items. Some states
will not allow these items to be shown on a sales contract for purposes
of lender requirements so a separate agreement could be needed to handle
these types of inclusions.
Any verbal offers, counteroffers, or acceptances
will be virtually impossible to legally enforce, since it would be nothing
more than your word against someone else's. Written offers remove almost
all doubt because they cannot become contracts (and therefore binding)
until seen by, and accepted through signatures of all parties. When
the offer has been submitted to the seller, accepted by the seller,
and you have been notified of its acceptance, it then becomes a contract.
Up until that point it remains only an offer or counteroffer, not an
enforceable contract.
Once the purchase agreement has been accepted
by the seller, a lending institution will be contacted to process a
new loan, if necessary. Your real estate agent will be able to assist
you in determining which reputable lenders offer the most favorable
financing terms at the time of the sale.
The loan officer will assist you in filling
out an application: If applying for a VA loan, please bring a copy of
your DD-214, Discharge Papers, or VA certificate of eligibility. If
you have a pending sale on your present home, bring a copy of the contract,
and estimated proceeds from the sale. Be prepared to account for the
source of funds of your down payment and closing costs.
If rental property is owned, furnish a copy of the lease.
If self-employed, bring federal tax return, profit and loss statements, and
balance sheet for the last two years. Alimony and child support information (divorce decree for verification) may be required. If a relocation form has purchased your home, bring a copy of the contract and equity statement.
The types of services offered by a title
company tend to vary from company to company, but most services will
be standard within your state.
An escrow is an arrangement in which a disinterested third party (title
company) holds legal documents and funds on behalf of buyer and seller,
and distributes them according to the buyer's and seller's instructions.
A homeowner's insurance policy will be necessary prior to closing
escrow.
The escrow agent will provide you with an approximate dollar amount
that you will need prior to the close of escrow.
If you plan to close escrow by mail, please be sure to allow plenty
of time to mail all documents so they arrive at the title company before
escrow is scheduled to close.
Before moving in, be sure all of the utility companys have been notified
and deposits made, if necessary.
Any funds required at the close of escrow (down payment, closing costs,
etc.) should be in the form of a cashier's check. Personal checks will
not be accepted. A wire transfer can be arranged with the escrow agent.
When all the necessary papers have been signed and the monies received,
the documents are recorded. The escrow officer will make the necessary
disbursements and do all the closing papers.
Once documents have been recorded, title to the property (ownership)
has changed hands.
Buyers and sellers routinely sign offers to purchase and sale contracts for real estate without knowing the legal responsibilities they are assuming. These contracts are normally prepared by real estate brokers with none of the parties obtaining legal advice. With the ever growing mounds of paper work required for loans and the various requirements the parties may not suspect before signing contracts, it is imperative to examine these issues early in the process. People are more litigious these days with increasing numbers of suits being filed over alleged breached contracts. Such suits are expensive, time consuming, and can be devastating financially to the participants. They also can tie up the sale or attempted resale of property for months, even years.
Failure of buyers to close on a sale can result in them being sued for the entire amount of the sale price. Thus, a buyer should be extremely careful to read and understand every contract term including addendums added.
Such terms include termite inspections and reports, contractor inspections, fixture/appliance inspections, loan procurement terms, appraisal issues, zoning, surveys, sale price, seller repair issues, etc.
Sellers should be aware they can be sued on many contract provisions and some not in contracts. Failure to disclose known property defects such as water damage, termite history, dangerous property conditions, construction defects can bring forth actions for fraud, breach of contract, warranty violations, and more.
Damages can reach many thousands of dollars plus attorney fees, discovery expenses for expert witnesses, trial costs, and more.
Buyers should be very clear about loan terms
and have investigated financing before signing the contract. Having
a real estate broker as a buyer representative also helps. Sellers and
buyers should consider having attorneys review contracts before signing
to make sure all terms are understood, can be adhered to, and do not
create impossible performance by any party. Know what you are selling,
know what you are buying, and be ready, willing, and able to perform
all of your contract responsibilities. Be informed about circumstances
under which the contract may be voided or not voided, what a breach
or cancellation may mean to you, and the time limits on performance.
Information resources are readily available
to you before signing any contract. They include licensed real estate
agents and brokers, bankers and mortgage brokers, lawyers, contractors,
C.P.A.’s, insurance brokers, investment experts, and government resources
such as the tax office, health department, county building inspectors,
and environmental officers.
Failure to be well educated on the legal
relationship you are about to enter may be a very costly mistake. Knowing
your responsibility as well as the other party’s and being advised as
to pitfalls can make the real estate exchange process pleasant and reduce
the possibility of disaster.
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