Offers and Contracts

Everything related to the purchase of real estate must be in writing. Verbal contracts to purchase real estate cannot be enforced.

A contract is created when there is a "meeting of the minds" on all terms or conditions, and when the buyer and seller have signed the offer forms along with
any counter offers and addenda.  

When someone decides to buy your home, the buyer and his agent will prepare a purchase agreement that will be presented to you through your agent. The offer
will be written on a standard, pre-printed Buy and Sell contract form provided by the Greater Lansing Association of Realtors.

It is important to remember that your response to an offer to purchase real estate can create a legally binding contract. This contract sets forth the terms of the sale and establishes the rights and obligations of all parties involved. It specifies the actions to be taken in order to close the sale and sets a time frame for the completion of all steps.

 

What will be included in the written offer

Purchase price
Of primary importance to you is the amount of money being offered for the property.  Offers made during a seller’s market, or a balanced market, will be very close to the asking price. During a buyer’s market you should not be surprised to see offers that are lower than your expectations.
 

You need to be open minded about all offers, including the seemingly rude “lowball” offers. People negotiate in various ways. Some will simply pay what you’re asking, while other will start at very low price just to see how you will respond.
 

Financing
Buyers rarely pay cash. A buyer who is financing the purchase will need to provide a letter from his lender stating that he has been pre-approved for a loan. Such a letter is provides assurance that the buyer will be able to complete the transaction.
 

Financing arrangements are critical. A buyer with questionable financing is not a good risk. An offer is worthless if the buyer can’t close the deal.

Reserved items and personal property
The buyer may request that certain reserved items, furnishings, or perhaps garden equipment be included in the purchase of the home. 
 

You may have identified the refrigerator and a specific light fixture as excluded from the sale of the property, but this doesn’t mean that the buyer might not ask for them.
 

Closing and Occupancy
The offer will specify the approximate closing date and when the buyer would like to take possession of the property.

The buyer will ask that compensation to be paid to him should you choose to remain in the home for any length of time after ownership has been transferred. This compensation is referred to as “rent back” and is based on the daily amount the buyer is paying for principal and interest on his loan, taxes, and insurance.

These charges are fair. The buyer should not be stuck paying your living expenses while anxiously waiting to move in to his new home. Be prepared to write a check for rent if you plan to remain in the home after closing.
 

Earnest Money Deposit
The buyer is required to include “earnest money” along with his offer. This money is deposited in a trust account with either a Real Estate Broker or a Title company. The amount of the deposit is important. Low amounts may indicate that a buyer lacks funds or is not very serious. Larger deposits indicate a more serious buyer with substantial financial support.


Contingencies in the offer
The contract provides for special conditions or contingencies that will become a part of the contract.
These are the most common:
 

Financing Contingency
This contingency is built in to all Real Estate contracts and is not negotiable. Even though an accepted contract is in place, a buyer can not be forced to purchase a home if they are denied a loan.

Even after a buyer has been approved for a mortgage, circumstance can arise which make it impractical for the lender to finance the loan.

Inspection Contingency
The buyer will have a limited time period during which to examine your property to determine the condition of the structure, plumbing, electrical system, heating and cooling, well and septic. Should the home inspection reveal problems that were not noticed when the buyer made his offer; he can withdraw the offer and walk away from the contract.  A buyer is not required to do an inspection and may wave this contingency.
 

Sale of Current Home
Some buyers must make an offer that is contingent upon the sell of their current home. Such an offer is not very attractive, but might be appealing. Varying market conditions may affect your willingness to accept such an offer.  If it’s necessary for the buyer to sell his current home before closing on your home, he must make this clear in the offer.
 

Your response to the offer
You may respond to an offer in one of these ways:

• Accepted as it is written
  This means that you are satisfied with all aspects of the offer and are willing to accept it without any additional provisions. 
   
• Rejected
  This usually occurs when the offer is completely unacceptable. Many sellers will reject an offer with a very low price or one that contains conditions that too difficult to work with.
    
• Amended by the seller
  You may amend the terms if much of the offer is attractive and you would like to continue negotiation. An amended response is considered to be a counter offer. The buyer can accept your proposed terms, reject them, or write a new offer.
   

Negotiation
All discussions and exchanges of paperwork will be handled through the agents representing each party. You should never receive calls from a potential buyer or his agent. It is inappropriate for a buyer to have direct communication with the seller during the period of negotiation.

This is the most practical way of conducting Real Estate business. Emotions tend to run high during the sale of a home and personality clashes could sour what would otherwise be a very manageable transaction. You may not actually meet the buyer until the day of closing. 

A binding contract is created when both the buyer and seller have agreed to all terms and conditions the offer and subsequent counter offers.