Making a purchase offer and actually buying a home are generally two different actions, but home buyers sometimes confuse the two. Especially in states such as California where the purchase offer is not the final negotiation due to contingencies in contracts.
If the home you are thinking about buying is likely to quickly sell, and if you have a way to later cancel the contract, you should immediately make a purchase offer. Don’t sleep on it or try to get every single question answered beforehand or you may very well lose the home. Somebody else could beat you to the draw and steal it out from under your nose while you’re busy weighing the pros and cons.
If you like the home, odds are several other active home buyers will, too. You’re not the only smart cookie in the marketplace who can spot an excellent buy. And no, losing the home doesn’t mean it was “supposed to be that way.” Consider instead that you were supposed to buy it, and you messed up.
When a home seller accepts a purchase offer, the seller is hoping the buyer will complete the transaction at the price agreed upon and believes there is nothing wrong with the condition of the home. The home buyer, on the other hand, is hoping the transaction will close because the home is in A-1 condition and perfect. It’s rare that either of those expectations is in line with reality. No home is perfect and many conditions can change once a contract is accepted.
Buyers often submit repair requests.
Low appraisals can threaten to blow the deal.
Mortgages can be denied in underwriting.
In seller’s markets, almost every home sells within 30 days. In buyer’s markets, the DOM will be longer. There are many inherent characteristics and qualities that determine whether homes are likely to sell fast, but these are the top two combinations:
Turnkey homes in high-demand neighborhoods, excellent condition, and priced right.
Cosmetic fixers in good locations and priced below comparable sales.
If the home you want to buy falls within those two categories, you should quickly make a home offer, providing you retain cancellation rights.
Some real estate agents do not like to waste time writing an offer that a buyer might later cancel and will try to dissuade you from making an offer to purchase. Some might not even disclose to you that you have a certain number of days to change your mind. Don’t hire an agent who doesn’t have your best interest at heart.
The obvious reason to make a purchase offer right after finding a home you love is you will prevent anybody else from buying it. When the seller accepts an offer from you, the seller cannot accept another, except a backup offer, good only if your contract is canceled by you.
If your offer is first and sole, you can negotiate on price and terms. You can make a lowball offer. Your negotiation power is minimized if there are multiple offers.
Even if other buyers are interested, they will generally slink away once the seller accepts an offer, opening the door for your re-negotiations, if any, after the home inspection.
> If you’re undecided between two homes and go into contract on property A, property B might not be available if you should change your mind and cancel the first transaction.
> Return of an earnest money deposit is not automatic. Both parties are required to sign cancellation instructions. In California, for example, a seller can delay signing for 30 days, without penalty, an authorization to return the good faith deposit.
> Buyers can incur appraisal, credit report and home inspection fees that are non-refundable. Generally, title policy/escrow and other closing costs are waived upon cancellation.
Given the alternative of losing the home you want, however, it is advantageous to learn from the mistakes of others who have lost opportunities — because they were hesitant to act with urgency — instead of learning this painful lesson yourself.
A conditional offer is an offer on a property that allows you to set conditions that must be met to close the deal.
A conditional offer is an offer on a property that allows you to set conditions that must be met to close the deal. This can be done for a variety of reasons, such as if you need to sell your existing home or secure financing.
Let’s take a look at what conditional offers are, how they work, and how contingencies can impact buyers and sellers.
Examples of Conditional Offers
Common in real estate, conditional offers are offers made by buyers to sellers that include one or more contingency or “condition” that needs to be met for the sale to occur.
> Alternate name: contingent offer
Both buyer and seller must agree to the conditions. If the condition is not satisfied within a specific time frame, the contract is considered void. Here are some examples of common contingencies:
> Sale of your existing home
> Satisfactory home inspection
> Completed repairs as agreed on
> Completed financing
> Appraisal contingency
Conditional offers may not be as attractive to sellers as unconditional offers because they offer an out to a buyer if contingencies are not met. Because of this, sellers can include a clause in the sales agreement that allows them to continue marketing the home. Called a “kick-out clause,” this allows the seller to accept other, more attractive, offers, even after they’ve accepted a conditional offer. The purpose of this clause is to provide protection in the case that the buyers’ conditions aren’t satisfied and they choose to withdraw their offer.
For many buyers and sellers, conditional offers are worth it.
As a buyer, you’ll often be making a conditional offer due to necessity. This can be because you’ll need to qualify for a mortgage or sell your existing home. You may also want to make sure that the home is in good condition, in which case, your offer may be contingent on a satisfactory home inspection.
As a seller, you’ll likely prefer an unconditional offer rather than one with contingencies, especially since additional paperwork can bog down the closing. However, if you don’t have other options, conditional offers are a common way to get your home sold.
Ultimately, whether a conditional offer is worth it for you depends on your personal situation and broader market conditions.
Key Takeaways
> Conditional offers on a home gives the buyer the ability to set contingencies that need to be met before a deal will close.
> Common contingencies include selling an existing house and securing financing.
> Sellers don’t have to accept conditional offers, although they’ll want to consider market conditions before they decide.
> Sellers can choose to include a clause in the sale agreement that allows them to continue marketing and accepting offers on the home in case the conditional offer falls through.