The Offer to Purchase: Know How it Should Read Before You Shop for a New Home

It’s Saturday morning and you and your spouse have been looking for a new house for about twelve weeks without finding the perfect fit for you. The Colonial on the quiet side street was as close to perfect as you’d seen, but another buyer beat you to the offer and the house is off the market. The phone rings, and your broker exclaims: “the Cyprus Road house is back on the market. The other buyers couldn’t get financing.” You know you want to make an offer that is competitive yet reasonable, but do you know what should be included for your protection? Have you spoken to your attorney in advance of looking, or are you going to leave your fate in the hands of the broker, who in most cases is working for the seller?

As making a successful offer involves a lot more than bidding the right amount of money, Parker|Scheer recommends that you consult a real estate attorney before completing the offer stage. First of all, the offering buyer should always put their bid in writing and put down a deposit to secure it. In fact, in the state of Massachusetts any agreement regarding real estate must be in writing to be valid. While the offer form provided by your broker may appear to be a very simple and informal document, it establishes several important terms of the ultimate contract that are difficult to modify once put in writing. There are four aspects of the Offer to Purchase that are important for any buyer to understand.

The first crucial element of the Offer to Purchase (typically a pre-printed form with details filled in by hand) is the purchase price and deposit terms. The deposit terms are critical – buyers want them to be as low as can be negotiated; sellers want them to be as high as possible. A typical deposit with the Offer is $500.00 to $1000.00; a typical deposit upon signing the purchase and sale agreement is 3%-5% of the purchase price. A common mistake that buyer’s make is they list the deposit amount as the amount of cash that they ultimately intend to put into the deal (commonly 10%-20% of the purchase price). From the buyer’s perspective, this amount should not be the deposit amount, as that entire amount would be at risk if the buyer could not ultimately perform.

The second significant item is the timing and terms of the signing of the purchase and sale agreement. It is recommended that enough time be permitted for the buyer to take care of critical tasks such as performing a home inspection and arranging mortgage financing. The period, however, should not be so long as to prejudice the seller if the deal is not finalized for whatever reason. If an offer does not result in a signed P&S, the seller wants to be able to put the property back on the market. The recommended time period, in most instances, is 7-12 days.

The third important facet involves arranging a home inspection. In some instances, the buyer will waive the right of inspection to make their bid more competitive; in others, the seller will not allow an inspection. Home inspections for residential real estate are common however, and typically the deadline for a buyer to give notice of any inspection items that need to be discussed is two days before the deadline for signing the P&S.

The final critical component of the offer is the amount and timing of the buyer’s mortgage financing. The “mortgage financing contingency” is designed to protect the buyer’s deposit if they can’t get the mortgage financing that they need to buy the home. The typical provision in a residential purchase and sale agreement is 80% of purchase price. It is always in the buyer’s interest to negotiate the highest contingency amount and latest possible date to notify the seller. Sellers will want to keep the timeframe under the mortgage contingency as short as possible.

Parker|Scheer recommends that buyers and sellers speak to a real estate attorney early in the process, so that they clearly understand each aspect of the offer, and can then confidently strike a deal that is in their best interests while protecting their legal rights.

Contact a Real Estate Attorney

For more information on The Offer to Purchase, or if you need a real estate attorney, please contact Rob D. Stewart. If you prefer, you can also telephone our offices in Boston seven days a week at toll free 866-414-0400.

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