Making an Offer to Purchase
Once you find a home to buy it is now time to sit down with your agent and write up an offer or home purchase contract. This is an exciting step toward home ownership.
Once all the details have been outlined in the offer to purchase a home it can then be presented to the seller. Before the purchase offer is presented to the seller you want to make sure you have everything in line and leave no questions unanswered about purchasing a home. Because the offer is the first step in negotiating a purchase and sales contract with the seller, you want to make sure your offer is presented in a way that will allow the seller to feel comfortable in accepting the terms of your offer.
Although the price is an important part of the offer to purchase, it is not the only part. There are deadlines and contingencies or circumstances of the sale that need to be outlined to offer protection to the buyer. While some contingencies are standard and often expected when purchasing a home, there are additional contingencies that are not as desirable to the seller. One such contingency is the need for the buyer to sell a property in order to buy the property they are submitting an offer on. Since the offer is the sellers initial impression of you as a buyer it is helpful to view the offer from the seller’s perspective to get a feel for how they may react to your terms.
Earnest Money Deposit
After you have come up with an offer price, the next step is to determine how large a deposit you want to make with your offer. You want the "earnest money deposit" to be large enough to show the seller you are serious, but not so large you are placing significant funds at risk.
One recommendation is to make sure your deposit is less than two to three percent (depending on your location) of your offered price. The reason for this is that if your deposit is larger than that, the lender will pay particular attention to how you came up with the funds. You might have to provide a copy of a canceled check along with a bank statement showing you had the money to begin with. Normally, this is not a problem, but if you have a short escrow period or are barely coming up with your down payment, it could pose an inconvenience.
Another reason to limit your deposit is "just in case." Although significant problems are the exception and not the rule, they do occur. "Just in case" there is a nasty or prolonged dispute between you and the seller, the less money you have tied up in a deposit, the fewer funds you have placed at risk.
As with practically everything in real estate, there are exceptions to this rule, too. During a hot market there may be multiple offers on the property that interests you. A large deposit may impress a seller enough so they will accept your offer instead of someone else’s, even when your unknown competitor is offering the same price or slightly higher.Since large deposits do impress sellers, you may also find that by making a large deposit you can convince the seller to accept a lower offer. More money up front may save you money later.
There are also times when closing can be delayed by weeks, through no fault of your own. Have back-up plans prepared for such a contingency.
The Closing Date
It is absolutely essential that you include a closing date as part of your offer. This way both you and the seller can make plans for moving, and the seller can make plans for buying his or her next home. Though most transactions actually do close on the right date, do not be so inflexible that a delay creates insurmountable problems.
For example, if you are renting and need to give the landlord notice that you are moving out, you may want to allow a little flexibility. Otherwise, if your purchase closes a few days late you could find yourself staying in a motel with your belongings packed in a moving van somewhere while you pay storage costs.
There are also times when closing can be delayed by weeks, through no fault of your own. Have back-up plans prepared for such a contingency. A tip is to close on your property as close to the end of the month as possible. This will provide some relief in your closing costs by helping you save on pre-paid interest on your home loan. At the closing, mortgage lenders charge home buyers interest from the day of the closing until the last day of the month.
Transfer of Possession
A transaction is considered "closed" once the deeds have been recorded. Then you own the home. However, it is not always possible for you to occupy it immediately. This can happen for several reasons, but the most common is that the seller may be purchasing a home, too. Usually, it is scheduled to close simultaneously with your purchase of their home. It is sort of like being at a red light when it turns green. Although all the cars see the light change at the same time, the guy at the back of the line doesn’t begin moving until all the cars ahead of him have started.
Another common delay in taking possession of the property can occur when the paperwork is not recorded in time. The registry of deeds typically closes at 4pm daily. If the paper work is not delivered to the county clerk before closing the property cannot go "on record" that day. Although the buyer and seller have signed all the necessary paperwork, if the new buyer's deed is not recorded the home is still owned by the seller. In some cases a seller may still allow the buyers to use and occupy the property; however ownership is not official until the deed is recorded. To avoid this many closes take place in the registry of deeds so recording can occur immediately.