The terms of your bid will be set out in the real estate contract that contains your offer. If your offer is accepted, the same contract will govern the actual purchase of your new home. There are a variety of different forms of real estate purchase contract, but the key terms are the same from version to version:
- Purchase Price: How much you’re offering to pay for the home.
- Financing: How you’ll pay the purchase price. Are you offering all cash, or will you obtain financing? What percent of the purchase price will you pay in cash as a down payment? What are your expected financing terms? Will you be seeking any non-conventional financing, such as an FHA or VA loan?
- Escrow Period / Closing Timing: If your offer is accepted, how soon can you close and complete the purchase? The limiting factor here is often completing your financing approval and loan funding, which typically takes at least 3 weeks.
- Contingencies: Contingencies give you a “way out” of your offer. That is, if a certain specified event happens, you can walk away from the deal without any penalty or liability. There are usually three possible contingencies:
- Inspection: If your offer includes an inspection contingency, you have the right to have an independent third party perform an inspection of the home. If the inspection reveals any issues, you have the right to either force the sellers to fix the problems, or walk away from the deal.
- Financing: If you include a financing contingency, you reserve the right to walk away from the deal if, for any reason, you are unable to secure financing for the balance of the purchase price by the Closing deadline.
- Appraisal: Lenders will require an independent appraisal of the home in order to approve your loan. If the appraisal comes in at less than the price you’ve offered for the home (which is very rare), it may be difficult to secure financing. An appraisal contingency gives you the right to walk away from the deal in this circumstance.
Understandably, sellers are eager to avoid signing up for a deal if the buyer has the right to walk away before closing. Accordingly, you may have heard that in the Bay Area you have to waive all contingencies to even be considered a serious offer. There’s some truth to this, but as with many things in real estate, it isn’t quite that simple. We’ll work together to find the approach to contingencies that’s right for you.
- Move-in / Leaseback: Will you move into the new home right at Closing? Are there any other occupancy conditions relating to the sale, such as any leaseback arrangement that would let the sellers continue to live in the home for a period of time after closing?
- Closing Costs & Other Expenses: How will other closing costs be allocated, such as escrow fees, the cost of title insurance policies, and any applicable city or county transfer taxes? Most counties have conventions for how these costs are allocated, but details can vary from place to place.
Every listing is different, so it’s important to make sure that your offer is tailored to reflect terms and conditions that are right for you. Obviously, your budget and your feelings about the home will inform your offer, but you may also want to consider external factors such as the level of interest in the home while it’s been on the market, the time of year, any issues revealed in the disclosure packet, property taxes and many other considerations. At Unlocked, we’ll always discuss offer strategy in advance to ensure that we’re submitting an offer you’re comfortable with and that puts your best foot forward.