First and foremost, always remember responding or accepting an offer is creating a contract to perform. If accepted, you are now contractually obligated to see through the terms of the contract. So it is very important to take your time when responding to your offer and ensure that you are financially and personally willing to move forward with the property based on your response. There will be contingencies such as an inspection contingency, financing contingency if there is a loan, sale contingencies, and an appraisal contingency that can allow cancellation, but always be prepared to move forward with an offer you are responding to. All contingencies are negotiable, however some may be required by the buyers.
When you do have notice of an incoming offer or receive one, make sure to notify everyone that is currently interested in the home that you do have an offer incoming. This gives notice to all interested parties that you could be under contract soon. You do not need to release the offer terms you are receiving, you can simply state you are asking all parties to present their highest and best.
The first item in an offer is simply the contact information of all parties, parcel number, legal description, and the address. Make sure the parties on your end are listed correctly. You will be able to find the Tax Parcel Number and Legal Description in the tax records. This is what the title company will use to confirm the current property ownership and be able to properly convey title to the new owners.
~The biggest item of note is the purchase price. Keep in mind that purchase price is the initial gross offer, but there may be other items the buyer is asking for. This will be broken down for you in the offer summary, but make sure to look for items such as seller concessions, buyers agent commissions, home warranty or any other concessions asked for from the buyer.
~Next is the earnest money. This will be the deposit the buyer puts down that you will receive if the buyer defaults on the loan. There are contingencies that keep the buyer from losing this earnest money, but if they do not perform outside of the listed contingencies, you will keep this earnest money as “damages.” Industry standard states 1% of the purchase price, however, in some cases have seen $500 or $1000 earnest money deposit. This is common with Va buyers or those with little money down. This is always negotiable, and can be countered if you feel a larger deposit needs to be required. There are many protections for the buyer in these instances since they are offering on a home they have not inspected yet so I don’t personally put a lot of weight in the earnest money deposit. It is of course good to have, but focus on the monetary items in the contract such as purchase price, seller concessions, and closing date. Move forward with a deposit you feel comfortable with but try not to allow that to be the most important aspect of your consideration.
~A closing date is needed to be provided, typically with a loan this is 30 days, and as little as 10 days for cash, but you do want to make sure you select a business day that the county, banks, and title companies are open. So avoid holidays or a weekend. If a day is selected that is not a business day, typically closing will default to the next business day. If the buyer has a lender, it is a good idea to confirm how much time they will need to close on your loan. This date is the date you will need to be out of the property by and have the home ready for move in.
~If there is financing, you’ll want to confirm the lender name and contact information, the type of loan (so FHA, Va, conventional, assumption, or jumbo) the down payment, loan amount, and if they need closing costs assistance. Buyers will have costs beyond their purchase price of the home. This includes loan origination fees, title costs, prepaid interest and more. A good general rule of thumb estimate is 2.5-3% of the purchase price will be additional closing costs. It is always a good idea to contact this lender prior to even responding to an offer to confirm the details of the prequalification letter. Just know that anything they ask for, does reduce the amount of the offer. For example if your offer is $300,000 but they need 3% from the seller, the offer is now going to be seen as $291,000.
~Next item on the list is the items to convey. Do they want the fridge, washer, and dryer? These items usually go with the seller unless specified in the contract. Oven, Microwave, Dishwasher usually stay with the home but if these are important to you, it is not a bad thing to put in the contract to make sure there are no surprises at closing. Same rules apply for ceiling fans, blinds/curtains, chandeliers etc. Typically if an item needs to be removed using a tool, it’s a fixture, but there are many cases where a buyer shows up at a walkthrough and an item they thought was going to stay is gone, so always be sure to over clarify if needed.
~Hoa information should be initially provided by the seller listing such as cost and contact information. Confirm that this information is correct. There will be requests for who will pay for disclosure fees (customarily seller) and for the hoa transfer fees and/or capital improvement fees (customarily buyer). Both are negotiable and are a part of closing costs.
~Confirm who the title or settlement company should be. This is also negotiable but one does need to be listed on the initial offer. The title agent’s name, phone number, and email should be provided as they will be the one that coordinates closing with all parties. You can always counter who you would like the title company to be, however, customarily the buyer does select the title company. We have a list of title companies if one is needed.
~Are they asking for a home warranty and is it to be paid by the seller? This is typically anywhere from $500-$1000. This is again a negotiable item and does take away from the “net offer” if you are paying for one.
~Confirm the following items in the offer are correct:
Septic or Sewer connections?
Well, city water, or private water company? Is there a well transfer fee or inspection fee? If so, who is paying for this? These are customarily buyer closing costs, but are negotiable as well
~The contingencies requested will be listed out specifically. There are inspection contingencies, financing contingencies, appraisal, and sale contingencies. Those are as follows:
Inspection Contingency, this is generally 10 days and will allow the buyer to conduct inspections to ensure they want to move forward with the home and the property is in acceptable condition. During this time the buyer can cancel for any reason and is their time to inspect the property to ensure that it fits their needs.
Financing Contingency, this will confirm that the contract is contingent on approval of a buyers loan, and if denial is received, the contract can be canceled.
Appraisal Contingency is the contingency that protects the lender and buyer in the event the property does not appraise. Lenders will not finance beyond the appraisal price so in the event of a low appraisal, the negotiations open back up. Seller has the option to come down, buyer can come up, or both parties can meet in the middle. If neither party is able to come to an agreement, unfortunately the sale cancels and the earnest money is refunded to the buyer.
Sale Contingency is when the buyer is currently selling their own property. There are two versions of this, this can be after they’ve received an accepted offer or before. When an offer is contingent on closing of their home, that means they’ve received an accepted offer and are waiting to close. This is typical for those that currently own a home and are using the funds for the down payment of your home. If for any reason the sale of that home falls through, the buyer can no longer purchase the home and thus is able to cancel the contract. If the offer is contingent on an accepted offer, this means the buyer does not have an accepted offer yet and needs one in order to move forward with the home. This is a bit more difficult to accept as there are no guarantees that the buyer will even be able to obtain an offer. Many times we recommend for both parties to continue listing their home and if/when they end up receiving an offer, they can formally submit one at that time. Sometimes buyers need an indication that you’d be willing to accept their offer prior to them accepting an offer on their home and this will just be a coordination between both parties. Communication is key here and typically we advise sellers that once an offer has been formed, that is all you need to know there a definitive date and ability to move forward. Both of these will typically be coupled with expiration dates or deadlines that the closing and/or accepted offer should be received by so that you are not locked in for an over extended amount of time in the event the contingent property does fall through.
Lastly there is going to be an expiration timeframe that you need to respond by. This is typically 24 hours. If you do not reply by this timeframe the offer expires. You are more than welcome to counter extending this timeframe, but the buyer is not obligated to accept after the offer has expired.
When you begin to respond to an offer, only proceed when you feel confident and knowledgeable in your offer and if it still feels overwhelming, we always recommend to contact a real estate professional or a real estate attorney to assist with the process.