Understanding the Offer: Price, Terms & Contingencies
An offer to purchase a home is about much more than the number you’re offering.
There are several pieces that work together to create the overall offer.
And before you sign anything, you should understand what you’re agreeing to.
Let’s break down some of the common pieces in plain English.
Purchase Price
This is the amount you’re offering to pay for the property.
It is one of the most obvious parts of the offer, but it isn’t the only part that matters.
The appropriate price depends on the property, comparable sales, current market conditions, your financing and your overall comfort level.
Earnest Money
Earnest money is money submitted under the terms of the contract to show your commitment to the purchase.
The amount, timing and handling can vary depending on the contract and transaction.
It’s important to understand what happens to the money and how the contract addresses it.
Financing
If you’re obtaining a mortgage, the offer will address the financing involved in the purchase.
Your lender is an important part of this process.
You’ll want to understand:
- How much you’re financing
- Your loan type
- Your down payment
- Your estimated payment
- Any financing conditions that need to be met
And remember: preapproval is not the same thing as final loan approval.
There are additional steps after you have an accepted offer.
Inspection
An inspection provision may address the buyer’s ability to have the property inspected and how inspection-related issues are handled.
The exact terms depend on the contract and transaction.
An inspection is an opportunity to learn more about the condition of the property.
It is not a guarantee that you’ll never have a repair.
Appraisal
If you’re financing the purchase, the lender may require an appraisal.
The appraisal is part of the lender’s process for evaluating the property.
If the appraised value differs from the purchase price, that can create an issue that needs to be addressed according to the contract and financing circumstances.
Attorney and Title
In Illinois transactions, attorneys and title professionals can play important roles in the contract and closing process.
Your attorney can help you understand the legal aspects of the contract and transaction.
Title work helps address ownership and title-related matters.
Real estate agents, attorneys and lenders each have different roles.
You should use the appropriate professional for the question you’re asking.
Closing Date
The offer will generally address when the transaction is expected to close.
This date matters to both sides.
Your lender will have work to complete.
The seller may have another purchase or move that depends on the timing.
Possession
Possession refers to when you are entitled to take possession of the property.
That may or may not be exactly the same as the closing date, depending on the terms of the transaction.
Make sure you understand the arrangement before you sign.
Contingencies
A contingency is generally a condition that must be satisfied or addressed before the transaction moves forward in a particular way.
Depending on the transaction, contingencies can involve:
- Financing
- Inspection
- Appraisal
- Sale of another property
- Other specific conditions
Contingencies can be important buyer protections.
But every contingency also has terms, deadlines and potential consequences.
Don’t agree to something simply because you don’t understand it.
Ask questions.
Seller Credits or Concessions
Depending on the transaction and applicable rules, a buyer may request that the seller contribute toward certain allowable costs.
These requests are negotiated and are not guaranteed.
Your lender can explain what is permitted under your loan program.
Personal Property
Sometimes buyers and sellers negotiate over items that aren’t automatically included with the real estate.
That might involve appliances, certain fixtures or other items.
If something matters to you, don’t assume it’s included.
Make sure it is addressed appropriately in the transaction documents.
Offer Expiration
An offer may include a deadline for the seller to respond.
This creates a timeline for the offer.
The exact effect depends on the contract and applicable law.
Other Terms
Real estate contracts can contain additional provisions depending on the property and circumstances.
That’s why you should never skim through an offer simply because you’ve seen a similar form before.
Every transaction is different.
Your Team Matters
There are several people involved in getting you from offer to closing.
Your real estate broker can help you understand the real estate process and negotiate within the scope of the brokerage relationship.
Your lender handles the financing side.
Your attorney can advise you on legal matters.
Your inspector evaluates the property within the scope of the inspection.
Your title company handles title and closing-related responsibilities as applicable.
You don’t have to know everything each professional does.
You just need to know who to ask when you have a question.
The Bottom Line
An offer isn’t just a price.
It’s a package of price, terms, timelines, contingencies and other provisions that together create the proposed transaction.
Read it. Ask questions. Understand it.
And never be afraid to say:
“Can you explain that to me?”
You deserve to know what you’re signing.
Note: Real estate contracts and practices can vary by state, transaction and contract form. This page is educational and is not legal or financial advice. Your attorney and lender should advise you on matters within their respective areas of expertise.
Have a Question?
Buying a home comes with a lot of questions. You don’t have to figure everything out on your own.
Have a question about something you read here? Want to talk through your situation? Or just not sure what your next step should be?
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