The Basics of Making an Offer

Once we find the right home, it is time to make an offer to purchase and we'll do this through a written contract. A written contract is the foundation of the real estate transaction. Oral contracts are not legally enforceable in Illinois when it comes to the sale of real estate. Therefore, you'll need to enter into a written agreement. This agreement not only specifies price, but also all the terms and conditions of the purchase. I have standard purchase agreements at my disposal and will help you put together a written, legally binding offer that reflects the price as well as terms and conditions that are right for you. I will also guide you through the offer, counteroffer, negotiating, and closing processes. 

What is in an Offer?

The purchase offer we 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). So it's important that the purchase offer contains all the items that will serve as a "blueprint for the final sale." The purchase offer includes items such as:

• address and the legal description of the property
• sale price
• terms: for example, all cash or subject to you 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, 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 payments are to be adjusted (prorated) between buyer and seller
• provisions about who will pay for title insurance, survey, termite inspections, etc.
• type of deed to be given
• other requirements specific to your state, which might include a chance for an attorney to review the contract, disclosure of specific environmental hazards or other state-specific clauses
• a provision that the buyer may make a last-minute walkthrough 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 that are discussed in detail below

Contingencies - “Subject to” Clauses

If your offer says "this offer is contingent upon (or subject to) a certain event," you're saying that will only go through with the purchase if that event occurs. Here are two common contingencies contained in a purchase offer:

• 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: for example, "within 14 days after acceptance of the offer." The seller must wait 14 days to see if the inspector submits a report that satisfies the buyer. If not, the contract could become void. Again, make sure that all the details are explicitly stated in the written contract.

Negotiating Tip: Become a Strong Buyer

You're in a strong bargaining position, that is, you look particularly welcome to a seller, if:

• you're an all-cash buyer or:
• you already have a pre-approved mortgage and you don't have a present house that has to be sold before you can afford to buy
• you’re able to close and take possession at a time that is especially convenient for the seller

In these circumstances, you may be able to negotiate some discount from the listed price.

On the other hand, in a 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 any pressure to sell. Keep the following considerations in mind:

• every month a vacant house remains unsold represents considerable extra expense for the seller
• if the sellers are divorcing, they may want to sell quickly

Earnest Money

This is a deposit that you will 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." The agency or lawyer representing the seller usually holds the deposit until closing, the amount of which varies from offer to offer. This will become part of your down payment.

As a general rule of thumb in our market, for homes under $100,000 I recommend $1,000 earnest money when making an offer. For homes above that price, 1% of the offered purchase price will do. Keep in mind; the greater the earnest money deposit, the stronger the offer appears to the seller.

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 - 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 including the changes the seller prefers. You are then free to accept it, reject it or 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, reject or counter again. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side's proposal.

Buyers: 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.