Verbal contracts or offers are not legally enforceable when it comes to the sale of real estate. Therefore, you need to enter into a written contract, which starts with your written proposal. This proposal not only specifies price, but all the terms and conditions of the purchase.
REALTORS® in California use forms that are approved by the California Department of Real Estate. These are the only forms that real estate agents are allowed to use. We have a variety of standard forms (including Residential Purchase Agreements) that are kept up to date with the changing laws. In addition, REALTORS® cover the questions that need to be answered during the process. There are certain disclosure laws that must be complied with by the seller, and the REALTOR® will ensure that this takes place.
After the offer is drawn up and signed, it will be presented to the seller of the property.
What the Offer Contains
The purchase offer you submit, if accepted as it stands, will become a binding sales contract (also known as a purchase agreement, earnest money agreement or deposit receipt). It’s important, therefore, that it contains all the items that will serve as a “blueprint for the final sale.” These purchase offer items include such things as:
- Address of the property
- Sale price
- Terms — for example, all cash or subject to your obtaining a mortgage for a given amount
- Seller’s promise to provide clear title (ownership)
- Target date for closing (the actual date title is transferred to you)
- Amount of earnest money deposit accompanying the offer, and whether it’s a check, cash or wire transfer
- A method by which real estate taxes, rents, fuel, water bills and utilities are to be adjusted (prorated) between buyer and seller
- Provisions about who will pay for title insurance, termite inspections and the like
- Other requirements, including disclosure of specific environmental hazards
- A provision that the buyer may make a last-minute walk-through inspection of the property just before the closing
- A time limit (preferably short) after which the offer will expire
- Contingencies, which are an extremely important matter and discussed in detail below
Contingencies
If your offer says, “This offer is contingent upon (or subject to) [a certain event],” then you’re saying that you will only go through with the purchase if that event occurs. The following are common contingencies contained in a purchase order:
- The buyer obtaining specific financing from a lending institution. If the loan can’t be found, the buyer won’t be bound by the contract.
- A satisfactory report by a home inspector “within 10 days (for example) after acceptance of the offer.” The seller must wait 10 days to see if the inspector submits a report that satisfies you. If not, the contract would become void. Again, make sure that all the details are nailed down in the written contract.
- There are also contingencies provided by the form we use which cover your approval of the title report, leases (if the property is rented), and city records.
Earnest Money
This is a deposit that you give when making an offer on a house. A seller is understandably suspicious of a written offer that is not accompanied by a deposit to show “good faith.” In the Bay Area, this is usually $5,000 to $15,000. We usually write into the offer that you will wire the initial deposit to the escrow company if the offer is accepted. Once you remove your inspection contingency there is usually an additional deposit made. This deposit brings the total of the deposit to 3% of the purchase price. This deposit will become part of your down payment.
What is Escrow?
Escrow is a process that provides for a fair and equitable transfer of property from one person to another. Escrow opens when the buyer and seller sign a sales contract, commonly called a “real estate purchase agreement and receipt of deposit.” The contract, along with any additional instructions, serves as instructions for the escrow officer.
Escrow assures that the lender releases the home purchase funds at or about the same time that the deed is recorded to reflect new ownership. Escrow includes depositing with a neutral third party the funds, documents and instructions necessary to complete the transfer. In California, the escrow company will also provide an insurance policy on the title, which guarantees that the seller can transfer the title to you.
Closing escrow is usually a 3-day process. The first day you sign the documents, the next day the lender funds the loan (sends the loan funds to the escrow company) and on the 3rd day, the deed is recorded with the county. This is the date that you officially become the owner.
Offer Checklist
- You must be preapproved for the purchase loan before we make an offer. The lender who preapproved you will provide us with a letter. We include a copy of the letter with the offer.
- You will need to provide proof of funds to close. This is usually a copy of your bank statement or brokerage statement.
- You need to decide how much you will offer for the property.
- You need to decide the terms of your loan.
- Are you going to have a financing contingency? If so, how long does your lender need to complete the processing of your loan and give you a loan commitment?
- Are you going to have the property inspected? I advise you to have any and all inspections you deem necessary on the property. It is common that the seller will provide you with copies of recent inspections on the property. In our competitive market, buyers often accept these reports and do not have an inspection contingency. This is a decision you must make, I cannot advise you.
- When do you want to close escrow (own the home)? Your lender will tell you how long it will take them to process your loan and prepare the loan documents. Usually, to be competitive, the close of escrow should be as soon as possible. This can be 7 days for a cash transaction or up to 30 days or more for a transaction where financing is used. It is fairly common that a transaction close within 21 to 30 days with or without financing.
The Entire Process
- Together we compile all of the information that needs to be in the offer.
- Once the offer is written, the forms will be emailed to you for e-signatures.
- There will also be disclosures that will accompany the offer. You will need to acknowledge receipt of these.
- I will present the offer and disclosures to the REALTOR® representing the seller. It is common that an offer date is set. This means your offer will be competing with other offers.
- The seller may reject your offer, counter the offer or accept it.
- When your offer is accepted we will open escrow.
- You will wire your initial deposit.
- You will contact your lender and get the loan process finished up.
- Together we will schedule any inspections that you decide to have.
- Once all of your contingencies are removed, we will set a time and date for you to sign the loan documents.
- Closing escrow is usually a 3-day process. The first day you sign the documents, the next day the lender funds the loan (sends the loan funds to the escrow company) and on the 3rd day the deed is recorded with the county. This is the date that you officially become the owner.