Buying and selling real estate is a big deal—and it can be a tricky to understand at times. That’s why it’s so important to have a clear understanding of the offer-to-purchase real estate form. This form can be a crucial part of the buying and selling process, and it’s vital to know how to fill it out correctly.
From the seller’s stand point, it is crucial to understand all the terms, especially the real estate contingencies. The meaning of contingencies can sometimes be challenging for a layperson who is not buying and selling real estate all the time.
An offer to purchase real estate is a legally binding contract, so they are essential to understand. In most circumstances, you can’t escape a contract without some consequences.
Let’s look at everything buyers and sellers need to know about an offer in real estate.
What is an offer in real estate?
An offer to purchase real estate is a formal declaration of intent to purchase a property.
An offer to purchase real estate is a contract that lays out the foundation of terms both parties will be agreeing to. Some of the most crucial parts of an offer to purchase include the following:
- The names of the buyer and seller
- The address of the property
- The offer amount
- How long before the offer expires
- The contingencies and how long they are good for
- The closing date
- Signature lines for buyers and sellers
An offer to purchase will almost always contain supporting documents that the buyer is qualified to purchase. When the buyer is procuring financing there will be a mortgage preapproval letter. The preapproval will state how much the buyer is qualified to pay.
If the buyer is paying cash for the property, there will typically be a proof of funds letter. The proof of funds document will come from a buyer’s financial institution or other investment firm.
The real estate contingencies are crucial
One of the great separators from one real estate contract to another are the buyer’s contingencies. The two most common contract contingencies are the home inspection and mortgage contingency clause.
Home inspection contingency
The home inspection contingency clause spells out the buyer’s desire to have the home inspected by a professional engaged in inspecting properties. The clause will state how long the buyer has to complete the inspection. It is usually 7-10 days from the acceptance of the offer.
There will also be a time frame in which the buyer must make any requests of the seller. Typically, the time frame is 24-72 hours from the inspection taking place.
Lastly, there is usually a dollar amount which allows the buyer to escape the contract with their earnest money back if they don’t like the results.
Mortgage financing clause
The mortgage contingency clause lays out how much a buyer will be borrowing from a lending institution in order to purchase the home. There will be a specific dollar amount or a percentage of the purchase price.
There will also be a time frame in which the buyer must procure their financing. The time period is usually anywhere from four to six weeks.
There can be other contingencies as well
While the home inspection and financing are common contingencies, there can be others as well. Sometimes in markets that favors buyers there may be a home sale contingency.
The home sale clause makes the contract subject to the buyer selling their existing home. These clauses become rare in strong seller’s markets. Even in markets that favor buyers they are often rejected because of the risk to the seller.
Depending on the type of real estate market, there could also be an appraisal contingency clause or an appraisal gap clause. The appraisal contingency states that the home must appraise for the purchase price or the buyer can walk from the sale.
The appraisal gap clause is just the opposite and is found in seller’s markets. The clause states a buyer will make up the difference if the appraisal comes in low. In this situation the buyer would come up with additional down payment funds to satisfy the lender.
Markets that favor sellers will often have escalation clauses as well.
The closing date is usually a key term
The closing date is the final term in a real estate offer to purchase that almost always matters greatly to both parties. There often can be negotiations on this before a final agreement is made.
It is essential to never sign an offer to purchase without understanding what you’re signing. Make sure you lean on your agent or real estate attorney for guidance.|
Bill Gassett is a nationally recognized real estate leader who has been helping people buy and sell MetroWest Massachusetts real estate for the past 35 years. Bill is the owner and founder of Maximum Real Estate Exposure. For the past decade, he has been one of the top RE/MAX REALTORS® in New England.