Pam Porter

Sales Associate

Writing the Offer - Financial Considerations

It is standard practice to make a purchase offer contingent upon obtaining a mortgage. Because of this contingency, the seller will want the details of your financing plan included in the offer.

Down Payment
In the purchase offer, we will include the down payment amount you will apply toward the purchase. This will give the seller further evidence of your qualifications to secure a mortgage.

Interest Rate
Within the purchase offer, we will provide a safeguard against any dramatic change in interest rates between when the offer is made and when the loan is closed. The offer will not only be contingent upon qualifying for a mortgage, it will also be contingent upon an interest rate within a certain range.

Shopping for Interest Rates >

Seller Assistance
If the house you select is at the top-end of your budget range, we may want to include a request for seller assistance to pay a portion of the closing costs traditionally paid by the buyer or to help "buy-down" your interest rate. Other seller assistance may include having the seller "carry back" a second mortgage to cover your down payment or even 100% seller financing.

With any of these seller assistance options, you can expect to pay a higher purchase price than if you had handled the financing through a traditional mortgage lender.

What is Earnest Money?

rightEarnest money shows you’re serious
Typically when an offer to purchase a house is made, you, as the buyer, will also pay an “earnest money” deposit.  This deposit shows the seller that you’re serious about the offer to purchase the property. 

The amount of earnest money deposit varies based on the type of property being purchased and local market conditions.  As your real estate professional, I’ll help you determine the appropriate amount to pay as an earnest money deposit.

The sales contract will dictate who holds the earnest money.  Usually the seller’s real estate agent will deposit the earnest money in a trust or escrow account until closing.   At closing, the earnest money is applied to the purchase price.

In the event the sale doesn’t close, the sales agreement generally spells out the conditions under which you would forfeit the earnest money.  Generally if the seller meets all the terms of the contract, the seller will keep the earnest money.  If the seller does not meet the terms of the contract, you, as the buyer, may receive a total or partial refund of the earnest money.

Why you should get an Inspection

Whether you are buying or selling a home, you should have a professional home inspection performed.

A home inspection will look at the systems that make up the building such as:

If you are buying a home, you need to know exactly what you are getting. A home inspection, performed by a professional home inspector, will reveal any hidden problems with the home so that they may be addressed BEFORE the deal is closed. You should require an inspection at the time you make a formal offer. Make sure the contract has an inspection contingency. Then, hire your own inspector and pay close attention to the inspection report. If you aren't comfortable with what he finds, you should kill the deal.

Likewise, if you are selling a home, you want to know about such potential hidden problems before your house goes on the market. Almost all contracts include the condition that the contract is contingent upon completion of a satisfactory inspection. And most buyer's are going to insist that the inspection be a professional home inspection, usually by an inspector they hire. If the buyer's inspector finds a problem, it can cause the buyer to get cold feet and the deal can often fall through. At best, surprise problems uncovered by the buyer's inspector will cause delays in closing, and usually you will have to pay for repairs at the last minute, or take a lower price on your home.

It's better to pay for your own inspection before putting your home on the market. Find out about any hidden problems and correct them in advance. Otherwise, you can count on the buyer's inspector finding them, at the worst possible time.


Contingencies in real estate contracts

In real estate contracts the contingency is a common element. Contingencies are clauses in a contract that give either the buyer or seller a way to get out of the contract if certain conditions or timelines aren’t met.  A commonly used example is that of a buyer making an offer on a new home before selling his existing home.  The buyer needs to sell his present home before being able to get financing on the new one.  So he makes his offer contingent upon the sale of his existing home.  There will always be a time period associated with such a contingency.  If the buyer is able to get his present home sold within that time period, the deal can go forward.  But if he fails to sell within the specified time period, the seller has the option of getting out of the deal.  In most cases, sellers won’t accept this kind of contingency, because they will most likely feel that they can find another buyer capable of closing the deal without needing to sell another home first.  But new home builders are often willing to accept an offer contingent upon the sale of an existing home.

Every contract can be unique.  The possibilities for contingencies are virtually endless.  Some of the more commonly used contingencies would include:

Financing.  Contingencies that depend on the buyer being able to obtain financing are very common.

Home Inspections
.  Probably the most common type of contingency is the “contingent upon satisfactory completion of inspection”.  There are any number of specific types of inspection for which a contingency might be included in a contract.  Some of the more common would include inspection by a qualified home inspector for hidden defects, pest inspections, water and sewage system inspections, inspections dealing with the presence of radon or mold, etc.

Appraisal
.  It’s not unusual for a buyer to have a contingency that allows for a formal appraised value at or above purchase price.  Since lenders will nearly always want an appraisal performed too, sellers usually don’t have a problem with this.

Remember, just like everything else in real estate contracts, contingencies are negotiable.  Always take care before signing that you are comfortable with all contingencies included in your contract.  Likewise, take time to think about what contingencies you might like to have added.