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Steps for making an offer
January 31,2020 | Posted By Flavia Brown in Real Estate
Steps for making an offer on a residential or income property
Before presenting the offer:
Have two items ready to accompany the offer: a
from the buyer’s lender and
proof of funds
that will cover the down payment and closing costs. The proof of funds can be a bank statement or a letter from a bank officer. Some sellers and listing agents ask for fico scores. To read reasons to provide these two items with the offer rather than waiting for the contract's defaulted three days deadline, see the last section of this letter (
How to make a strong offer
Have two money items ready to enter in the offer form (contract, or purchase agreement): The
earnest money deposit
(EMD) and the
. The EMD can be any amount up to 3% of the offered amount (the limit set by state law (liquidated damages).
The EMD isn't due until three days after the offer is accepted and ratified. However, most buyers offer 3% to make the offer stronger. The EMD is usually wired to the escrow company and put in the buyer's escrow account. The EMD becomes part of the down payment, which isn't due until a day or two before close of escrow. The down payment for residential property is usually 3.5%-20% of the offered amount, and for income property 20%-25% is usually required by the lender. The more down payment the stronger the offer.
Buyer and agent go over the contract so the buyer will understand the terms and the most important of the 108 paragraphs and sub-paragraphs.
Buyer’s agent (called a selling agent) studies and analyzes the
(nearby recently sold properties and active listings). The analysis will determine the true and fair market value of the property and will reveal if the list price is accurate. It will also determine what price to offer. Buyer and agent discuss the offered amount. Only the buyer can establish the offered price.
The agent can only provide information and make suggestions.
Presenting the offer:
1. Buyer and agent complete the contract form.
The contract is usually emailed to the listing agent, who presents it to the seller. The seller has three choices: accept, counter, or reject. The deadline for the seller to respond is three days. That’s the default in the contract. The buyer can enter in the contract more or less time for the seller to respond.
After the offer is accepted and ratified:
The buyer’s bank wires the EMD to the escrow company within three days after the offer is accepted (called Acceptance date). The escrow company gives wiring instructions to the buyer, who relays the instructions to the buyer’s bank. The funds are placed in the buyer’s escrow account.
During the next 17 calendar days after Acceptance the buyer investigates the property. First thing is to order a professional property inspection. Next, the buyer reviews the seller’s required disclosures (several are state-mandated), the property inspection report, and any other reports. By the end of the 17 days the buyer negotiates any repairs with the seller and either reach an agreement, accepts the condition of the property, or cancels the contract.
If the contract is canceled, the entire EMD is returned to the buyer.
f the buyer and seller reach an agreement the seller removes three contingencies and proceeds with the transaction. If there is no mutual agreement the buyer either moves toward close of escrow or cancels the contract. The three contingencies are property condition, loan, and appraisal.
How to make a strong offer:
In addition to making an offer at or higher than the list price (which in most cases won’t be necessary, but depending mostly on whether we are in buyer’s or seller’s market), include three items with the offer: the EMD (preferably 3%), pre-approval letter, and proof of funds. Reasons for including these items when presenting an offer: 1) the seller will see you as a serious buyer; 2) you might be competing with one or more other buyers, and they will probably include these items with their offers; 3) and it will make your offer stronger, especially important if your offer is lower than the list price.
Flavia Brown, Realtor
® -- Cal DRE #01729313
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