Making an Offer

Now that you’ve found the home that is right for you, it’s time to go ahead and pull the trigger and make an offer. This is a time when your Real Estate Agent will be a great resource in counseling you regarding structuring your offer and getting the best possible deal. Making an offer and negotiating is a combination of processing facts, dealing with the market and circumstances – and throw in understanding human nature.

How do I determine value and price?

Although value and price are related, they are not the same. When trying to determine the value of a property, the normal method is to check for comparable properties (comps) that are either active listings or have sold in recent months. In addition to checking for units in comparable locations, quality of buildings, square footage, bedrooms and bathrooms – it’s also necessary to factor in any special considerations that would either increase or reduce the value. A negative factor might be noise levels due to proximity to a busy street or highway. A positive factor might include especially good views.

Once your Agent has completed this process, you will have a good idea of what comparable homes are selling for. The asking price may be higher or lower. What you are willing to pay may be higher or lower. For example, a very desirable unit in a very hot Minneapolis market may sell for more than the asking price because of multiple offers. Your Agent will provide insights into the market and the individual property that will be useful in preparing a good offer.

What's in the offer?

An offer is made using a legal document called a purchase agreement. The purchase agreement is a contract that includes a lot of standard terms and conditions along with blanks that need to be filled in with the details of the offer. The offer will include:

  • Names of Buyers and Sellers
  • Address and 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
  • Target date for closing
  • 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, water bills and utilities are to be adjusted between Buyer and Seller
  • Provisions about who will pay for title insurance, surveys and inspections
  • Type of deed to be given
  • Other requirements which might include a chance for attorney review of the contract and/or disclosure of specific environmental hazards
  • A provision that the Buyer may make a walk through inspection of the property just before the closing
  • A time limit after which the offer will expire
  • Contingencies, which are an extremely important matter and discussed in detail below

Contingencies

If you make an offer that includes contingencies, that means that your offer is only good if certain events take place. There can be many types of contingencies, but the most common are:

Financing contingency. If the Buyer cannot obtain the necessary financing, then the Buyer would be released from the contract.
Home inspection contingency. The Buyer would have a specified number of days to have an inspection performed. If the inspection turns up any problems or issues, the Buyer could request repairs or withdraw the offer.
Sale of home contingency. The Buyer would make an offer contingent on the sale of their existing home prior to closing on the new home.

While home inspection and financing contingencies are fairly standard, sale of home contingencies may be problematic or fatal to having your offer accepted. The Seller will want a firm offer that they can count on before taking their home off the market. If you want the home, it is best to remove any contingencies that could result in the cancellation of your offer.