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How do I finalize my offer to buy a home?

Erik J. MartinThe Mortgage Reports Contributor

Buying a home: the purchase agreement

There are three requirements when you buy a home:

  • The purchase agreement must be in writing
  • There must be an offer and acceptance
  • There must be “consideration,” which is usually an exchange of money for property

To finalize an offer, then, you’ll need to submit an offer or counteroffer which the seller then accepts. Or you may accept a counteroffer from the seller. That gets the ball rolling.

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How do I finalize my offer to buy a home?

When you’re ready to buy a home, you need to make an offer on the property. If accepted, you and the seller will then need to sign a purchase agreement (contract). This will finalize your offer.

Related: Understanding a real estate purchase contract

But it’s important to understand how offers and contracts work. Knowing the steps needed to finalize the buy is crucial, too. Without the right prep, you may regret agreeing to the purchase.

Read the fine print carefully on offers and contracts. Consult closely with your real estate agent and attorney. Know what you’re getting into before signing anything.

Offers vs. purchase agreements

An offer is a written proposal, with conditions, to buy a property. It is drafted with the help of the buyer’s agent and given to the seller’s agent.  It serves as a request to enter into a purchase agreement. If accepted by the seller, the offer becomes legally enforceable.

You can make an oral offer when you buy a home, but it is difficult to enforce and prove. An offer can also be made using a purchase agreement form, but it remains only an offer until it has been signed by both the buyer and seller.

You can also make an offer via a letter of intent. A letter of intent sets forth the terms by which you propose to buy the property. It also states that, if you and the seller agree to the terms, you’ll write up the terms in a purchase agreement.

Related: Beware these pitfalls in your real estate purchase agreement

A purchase agreement is also called a real estate contract. It’s an arrangement between buyer and seller to transact real estate.

The buyer agrees to pay an agreed-upon amount for the property. The seller agrees to convey the deed to the property. A signed purchase agreement spells out the terms of the sale that both parties have agreed to. These terms often include:

  • Price
  • Sales/closing target date
  • Deadline by which the offer expires
  • Earnest money deposit amount
  • Details about who pays for inspections, survey, title insurance, etc.
  • Details about adjusting utilities, property taxes and other fees

More home purchase musts

A home purchase requires more than a simple verbal offer and acceptance. The purchase agreement must be in writing to be legally binding.

“If something goes wrong, you’ll need to sue to enforce your rights under a purchase agreement. Without an agreement in writing, most courts will not enforce it,” says James Dodge, professor of law at Purdue University Global.

Also, there must be “consideration” when you buy a home. This is typically an exchange of property for money.

Related: 10 reasons your home purchase didn’t go through

“Consideration refers to the thing of value that each party brings to the transaction. For the seller, this means real property,” says Dodge. “For the buyer, this means the purchase price being paid. It could be in the form of cash, the proceeds of a loan, or even other real property.”

What’s involved in finalizing a purchase agreement

Per attorney Elizabeth A. Whitman, the following steps are needed to finalize a contract:

  1. The buyer submits an offer to the seller
  2. The seller either accepts the offer or submits a counteroffer. “Frequently, the counteroffer will involve an increased purchase price. But it also might change other terms of the contract,” she says
  3. The buyer accepts the counteroffer. Or the buyer submits another counteroffer
  4. One party accepts the other’s offer or counteroffer
  5. Both parties sign the purchase agreement form

“Finalizing” means that the seller and buyer have reached a “meeting of the minds.” “This happens when the buyer and seller agree on each and every term of the agreement,” says Suzanne Hollander, real estate attorney and instructor at Florida International University.

When a contract isn’t final after all

After a purchase agreement is finalized, one or both parties may want to cancel the contract. Most purchase agreements state if and when a party can back out. It may also state if there are any penalties for doing so; for example, when the buyer must forfeit an earnest money deposit.

Related: How to get out of a real estate contract

“If a buyer backs out, the seller may be able to keep the buyer’s deposit. The seller may also be able to sue the buyer for monetary damages,” says Hollander.

“If the seller backs out, the buyer may be able to sue. The buyer can try to force the seller to sell the property to the buyer. Or, the buyer can file a claim or lien against the property. This will prevent the seller from selling the home to someone else until the dispute is resolved.”

What you can do

For best results, follow these tips:

  • Be sure you have the needed funds to buy the home
  • Get your own real estate agent. “Don’t rely on a seller’s agent to look out for your best interest,” adds Whitman. “Also, find out who is paying your agent. If the seller is paying your agent, it ideally should be in the purchase agreement”

Related: How to fire your real estate agent

  • Hire a real estate attorney. This person can review all the documents and make sure you are legally protected “Your agent is probably not legally permitted to prepare a highly customized purchase agreement,” says Whitman
  • Consider any and all contingencies you want to include in the contract. This can include making the purchase contingent on a satisfactory home inspection
  • Carefully read the purchase agreement before signing it. “Make sure you understand the time periods involved,” Hollander says. “Understand your due diligence period and how to get your deposit back, too”

Unless you are a very seasoned buyer working in a highly-competitive market, you’ll want to include some contingencies, which will allow you to exit the transaction penalty-free. Those include an appraisal contingency, which means you can’t be forced to complete the deal if the property appraises for less than the purchase price.

Verify your new rate (Sep 24th, 2018)