“The Contract” or The Offer to Purchase
Whether you are a buyer or a seller, at some point you will be dealing with the Offer to Purchase or “The Contract”. It is a good idea to get a better understanding of this form before you actually have to deal with it AND the information that the other party has entered in the blanks. Here I explain this form from the buyer’s point of view. This blog post would be very long if I went over the entire Offer to Purchase, so this will be a series of blogs going over different sections.
All of the blanks in the offer are terms that are negotiable, but the first that we will go over will be the price. I will provide you will recent sold home listings in the neighborhood to review and will give you a range that I feel the home is worth based on those comps. Most sellers list their home an amount above the market value of the home to allow for negotiation. How much will vary from one listing agent and seller to another. And, the market value of the home can change from when it was initially listed to the date you make an offer on it based on other similar homes that have sold during that time period. The listing agent and seller should have taken into consideration the condition, any needed updates or improvements, and the market changes when giving a value to the home. Sadly, that is not always the case.
The next value to be determined is the earnest money. This is money that shows your good faith in pursuing the purchase of the home during the contract period. This money can be deposited in the Trust Account of the buyers’ agent’s firm or the sellers’ agent’s firm and is credited as part of the purchase price. A copy of the check is included with the offer to show you have written the check and given it to your buyer agent. It is refundable if you terminate within the due diligence period which will discussed in detail later. It can be due with the offer or within 5 days, depending on how the offer is written.
The due diligence fee is a negotiable fee that is payable to the seller to allow a negotiated period of time for the buyer to review everything needed to determine they wish to purchase the home. The buyer is credited for this fee towards the purchase of the home at closing. If the buyer decides to terminate the contract the seller will keep this fee as compensation for having their home off the market during the due diligence period. A copy of this check is included with the offer and it is given to the buyers’ agent as well. Both of these fees are provided most commonly as personal checks, bank checks, or wires. The due diligence fee is due to the seller by the effective date of the contract (date all parties have signed, initialed, and dated all final terms).
If these two fees are not delivered by their due dates or if any of the funds are not honored by the bank or financial institution, the buyer has one business day after receiving written notice of this to deliver cash or immediate funds. If the buyer does not meet these requirements the seller can terminate the contract with written notice. Most buyer agents submit a receipt form with these funds for each party to sign acknowledging they have received these funds. It is important that the seller deposit the due diligence fee right away since the buyers’ lender will be reviewing the buyers’ bank account and both fees will need to show as a deductions from the account.
Since that gets us through page one of twelve pages of the contract, perhaps it is a good time to pause until the next post. This is why it is a good idea to review all of these blanks and scenarios well before you think of making an offer! If you are in the market for a home I am happy to assist you through the process starting with the review of the Offer to Purchase as it pertains to you! Contact me and we’ll get started!