By Hal M. Bundrick, CFP
It might be called a purchase agreement, a formal offer or a sales agreement, but no matter the name, it's the official paperwork that begins the process of buying a house. Although it might feel like it's taken forever to get to this point, some of the most important work is still to come. Here's a checklist to help get you through the offer-making process.
[ ] First, if you haven't done so already, make sure you're preapproved by a lender.
[ ] Determine a justifiable and fair offer price for the home you're interested in. This can be based on comparable sales as well as other market information from your own research or a comparative market analysis provided by your real estate agent.
[ ] Verify that the down payment required by your lender is in the bank and ready to go.
[ ] Make sure you have the necessary funds at hand to cover closing costs (somewhere around 3% of the purchase price).
[ ] Have your good-faith deposit (earnest money) ready as well. That's often between 1% and 3% of the purchase price and might be more in a hot market.
[ ] Verify that the offer agreement details the terms of the earnest money, including its disposition upon the acceptance or rejection of the offer.
[ ] Negotiate for the seller (or even the lender) to pay some of the closing costs or other prepaid items, such as taxes. Some lenders may cap the amount of seller participation in these expenses.
[ ] Determine which contingencies to include in your offer. These might include:
- Final loan approval.
- The home passing a standard inspection.
- Repair, replacement and/or improvement of issues revealed during the inspection.
- Verification of the home's value by a licensed appraiser (lenders will insist on this).
- Whether the transaction is contingent upon the sale of a home you currently own.
- Any other contingencies that your lender or state and local laws may require.
[ ] Establish a time frame in which to receive proper disclosures from the owner regarding improvements and the condition of the property. This can include revealing natural hazards, neighborhood issues, homeowner association obligations and more. Local and state laws might require additional disclosures as well. The sales agreement should also address the number of days you have to review the disclosures, as well as your ability to modify or withdraw your offer based on these disclosures.
[ ] Decide whether to enclose a personal letter to the owner. (It's not required, but some buyers do this to explain the offer's price rationale -- or to make a personal appeal for an offer to be given additional consideration.)
[ ] Establish an expiration time and date for your offer. In hot markets, this can be mere hours -- but in most cases it's one or two days.
[ ] Set a time frame for a loan closing date (often 30 to 60 days).
[ ] Specify the number of days after closing until you may begin occupying the property, allowing ample time for an owner-occupied property to be vacated.
In some states, it's required for a lawyer to prepare, or at least review, the written offer. Even if it's not mandated, it's a good thing to consider. Many purchase agreements are generated with standard, state-approved forms provided by your real estate agent. Boilerplate documents are handy, but be aware that they aren't generated specifically in your best interest. Having an attorney on your side of the transaction may be worth the added cost.
No matter how you generate the formal offer, you want to be sure it complies with prevailing laws in your area. This is too big a purchase to leave out important details or required language that might torpedo your deal.
Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: firstname.lastname@example.org. Twitter: @halmbundrick