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How to Make an Offer
First, you should determine what the home is worth. The seller’s asking price is what they want to sell for and not necessarily the fair price for the home.
Your real estate agent completes a CMA (comparative market analysis) to determine what the property should be approximately worth.
Step 2 – Underpriced
If the house is underpriced, but there are not any other offers, you may want to make a full price offer before the home attracts additional offers. Alternatively, you could consider coming off the price $5000 or so, to see what wiggle room there may be.
Step 2 – Multiple Offers
If the house has multiple offers, you will likely want to offer the full market value that your agent came up with, even if over asking. If the home is very important to you, you might even offer a little over the market value.
Step 2 – Overpriced
If the home is overpriced, I recommend offering at the fair market value that your agent determines, even if the seller thinks it is a “low ball offer“. Your agent can even share the market analysis with the seller to show that you are not trying to low ball them, but that this is simply the price that is fair in the market.
Write the offer with your agent. For most contracts, you can likely DocuSign them electronically and conveniently.
Negotiate the offer with the seller. The seller can accept, counter, reject, or ignore your offer.
Once agreed, if you haven’t already, rewrite the offer and execute it once both buyer and seller have signed. Once executed, you are off to the races!
A seller will likely counter your original offer unless there are multiple offers in which case they will often accept the best one.
How hard a seller negotiates probably depends on several factors:
- Their motivation level. If the seller still lives in the home and is just contemplating moving if they find the right offer, they may not be interested in selling. Meanwhile, a vacant home that the seller is making mortgage payments on might be a slightly more motivated seller.
- Their mortgage amount. Many Fort Hood sellers may not have very much equity in their home, and therefore might have the home priced not at a reasonable price by a high enough price to pay off their mortgage. Even though overpriced, they may not have much wiggle room or else they will end up paying money to sell.
- Their personality. Some folks have a number in their head that they refuse to walk away from. Others just want to sell and are agreeable by nature. There is no guessing what you have with a seller, so make an offer and good luck!
- Their agent. Often, sellers take the advice of their agents. Some agents are more hard-nosed negotiators than others. It can also depend on their agent’s experience and local knowledge. A San Antonio agent who doesn’t understand the Fort Hood market might lead their seller astray with incorrect expectations.
- The price. My own listing strategy generally calls for listing the home at a fair price, but sticking hard to that price. If the home is clearly overpriced, they may be flexible. But if it is clearly well priced, they may (and should) be less flexible.
What You Need with an Offer
- Preapproval (if using a lender)
- Proof of Funds (if paying cash)
- Personal information (mailing address, full legal or business names, basic contact information. Some offers like those for HUD foreclosures even require your social security.
The Texas Purchase Contract
If you are buying a pre-owned home in Texas, you are most likely using the Texas Association of Realtors 1-4 Family Residential Contract, a copy of the Texas Real Estate Commission (TREC) contract by the same name. Open it here to follow along!
Note: Read the full contract. I am not a lawyer. Nothing herein is meant to be construed as legal advice.
Who is the buyer and who is the seller? Generally, the name should match how it reads on the lender’s preapproval letter.
This is the legal description of the property (verify this in the local appraisal district!). It also notes what counts as being part of the property, including a partial list. Essentially, anything “permanently installed and built-in items”. That includes water softeners, the landscaping, mounted televisions, curtains and curtain rods, and even movable “accessories” like fireplace screens and garage door openers. If there is something that the seller wants to take with them that would normally convey with the property, they need to note that in Paragraph 2D: Exclusions.
3. Sales Price
Pretty straightforward – this is the price! Check the appropriate box if you are using financing, and note what portion of the offered price is the down payment.
4. License Holder Disclosure
Either the seller or buyer must disclose if they are a licensed real estate agent.
5. Earnest Money
The earnest money is a major part of the contract, due within three days of the contract’s execution to the title company. In the Fort Hood area, $500-$1000 often is an acceptable amount. In hot markets like Austin, $3000-$5000+ is not uncommon. The earnest money is returned or credited back to the buyer at closing, or if the buyer walks away during the contract for a legitimate reason. It is separate from the option fee which we will talk about later. The earnest money shows the seller that you have a stake in the game and are “earnest” about buying the property.
This paragraph is also where you specify the title company that closing will be handled with.
6. Title Policy and Survey
The title policy is insurance on the ownership of the home. It protects you, the buyer, in case the seller did not have the absolute right to sell the home to you in the first place, a rare but serious problem. The title company producing the title policy does not have to be the same as the title company closing the deal but is in probably more than 99% of transactions. There are limitations to what a title policy will cover, some of which are specified here, and again in detail in the title commitment that the buyer and seller will get approximately a week into the contract.
The “shortages in area” coverage is an additional coverage for a small fee if you have a survey with the transaction, that adds extra protection to the title policy.
When the buyer gets a copy of the title commitment from the title company, they have a set number of days specified in Paragraph 6D to object if there are any issues (for example, there may be deed restrictions disallowing horses, or a zoning issue, or other items). 3 to 5 days is common. They can also specify which activity they specifically need to use the property for. “Single-family residence” is a common entry. Alternatively, you could put “keep # horses”, or “build a pool”, if those are important aspects of the home.
This paragraph also covers the survey, and whether or not you want a new one, will use an existing one, and who pays if a new one is ordered. It is common for the seller to pay for a survey in the Fort Hood area if one is required.
The rest of the paragraph is a smattering of different warnings. Talk to your agent if you have questions about any.
7. Property Condition
This paragraph gives the buyer the right to inspect the property and also requires that the seller keep the utilities on.
A sellers disclosure is required in Texas for single-family homes.
This paragraph also specifies whether the property is “as-is” or if there are specific repairs the buyer wants the seller to make. Checking “as-is” does not mean that a buyer cannot renegotiate repairs after the inspection. In fact, “as-is” is probably the most common way to start a contract, understanding that the buyer will likely ask for repairs after the inspection.
Lastly, this is also the paragraph that the buyer can request the seller to pay for the first year of a home warranty, which gives the buyer extra protection in case things break in the home that are not covered by property insurance.
8. Brokers Fees
The agent compensation isn’t addressed in the contract. Instead, it is dealt with in the seller’s listing agreement and the MLS. If you have questions about the commission, ask your Realtor.
This is where you specify a tentative closing date. There is nothing keeping you from closing earlier if both parties agree. It specifies how the closing will be handled and requires the seller to clear up any issues with the title before closing is completed. It also requires that the seller turn over security deposits to the buyer after closing.
Closing timelines don’t always align exactly with a buyer or seller’s timeline. It is possible to do a temporary lease either for the buyer, who moves in before closing, or a seller, who stays in the home after closing. It is best to avoid a lease if possible because they complicate the transaction. But it can also be a huge help if the need is there and both buyer and seller agree. Doing a lease involves paying rent and a security deposit, just like any other lease.
Most buyers take possession at closing.
11. Special Provisions
If there is anything not covered in the lease that the buyer or seller want to agree to, it can be written out here.
12. Settlement and Other Expenses
This is the section in which the buyer requests any seller paid closing costs, often 3% or even more of the sales price. Seller paid closing costs are a common concession in the Fort Hood area at the moment. The paragraph goes on to specify what closing costs those settlement expenses can be applied to. Keep in mind, this is separate from expenses like the survey and title policy, which are also seller concessions and forms of closing costs.
Taxes are paid once a year. Depending on whether they were already paid or not, and unless you are closing on December 31st, someone owes the other person prorated property taxes. This also specifies that rents collected are to be prorated, so new landlords closing mid-month should get a partial rent check for the part of the month that they owned the property.
14. Casualty Loss
If the property is damaged while under contract, the seller must fix it. If they cannot, then the buyer can walk away.
If the buyer defaults on the contract, the seller will likely keep the earnest money. However, theoretically, the seller could also sue the buyer for “specific performance”, which is a way of saying the seller sues to force the buyer to buy the house. That’s tricky and rare, but theoretically possible. If the seller defaults, the buyer can walk away with their earnest money.
Before you sue, both parties should try mediation, first.
17. Attorney’s Fees
It it comes to a lawsuit, loser pays!
The title company not only provides title insurance but also act as the escrow officer, who holds all the money at closing. Once everyone is signed and the money is accounted for (buyer’s down payment, lender’s wire, seller’s money if they owe money at closing, etc), the title company then releases the money to everyone who is owed money, paying off the seller’s mortgage, paying the real estate agents, paying themselves and the lender fees, etc. The paragraph also deals with how it is handled if the contract terminates and there is a dispute over who should get the earnest money.
You are who you say you, have been truthful, and the seller can continue to show the home while under contract in order to solicit backup offers.
20. Federal Tax Requirements
Specific to foreign sellers, there are additional tax requirements for the title company to ensure Uncle Sam gets paid.
If it is not in writing, it doesn’t count. This section also has the information for buyer and seller that constitutes written notification.
22. Agreement of Parties
Again, if it is not in writing, it doesn’t count. In addition, there are checkboxes for some of the more common addenda to the contract. The most common addenda are undoubtedly the Third Party Financing Addendum and the Non-Realty Items Addendum.
23. Termination Option
This paragraph deals with the inspection period, also called the option period. 7-15 day option periods are common in the Fort Hood area, and $50-$100 option fees. The option fee pays for the right to have the option period, during which you can walk away from the contract of any reason whatsoever, losing only your option fee. You get your earnest money back if you terminate during the option period. The purpose is to give you a chance to inspect the home and ensure it is in acceptable condition. If it isn’t, you can use the option to walk away as leverage to renegotiate repairs with the seller.
24. Consult an Attorney Before Signing
Realtors aren’t lawyers. We know and can explain contracts like these, but cannot answer specific legal questions.
Third Party Financing Addendum
The Third Party Financing Addendum should be present with any offer that isn’t cash. The addendum protects the buyer against interest rates skyrocketing, plus gives the buyers a “financing contingency”. The financing contingency is for a specific number of days (15-21 is common) during which the buyer can walk away with their earnest money if they cannot successfully get final approval for financing from a lender. Remember, often lenders give out preapprovals based on the buyer’s word, and only after receiving a contract begin to verify documents. If something goes awry, make sure it happens during the financing contingency.
Non-Realty Items Addendum
Anything that is not part of the property but that the buyer would like should go on the Non-Realty Items Addendum. By far the most common use of this form is to ask for the refrigerator. Refrigerators, unlike stoves, built-in microwaves and dishwashers, are not considered “attached” to the property, and therefore do not convey with it unless you are sure to include it here.
There are dozens of other addenda depending on the specifics of the deal. Consult with your real estate agent on the specifics of what needs to be included.
Next > Market Analysis and CMA