Making an Offer
How to Make a
Real Estate Contract

This article is designed from a buyer's perspective. However, sellers may learn something from it too. So, whether you're a buyer or seller, read on.

Considering getting into a real estate contract to buy a home? Feeling unsure about making a real estate offer?

Is your fear of making a mistake blocking you from proceeding?

I've always believed that the longer one takes to make a decision, the more difficult it ultimately is to make.

We sometimes tend to over-complicate things. We often think way too much. Just follow your instincts. After you've viewed some homes, if one of them just feels right, and it has most of the basic components you've been diligently searching for ...

Just Go For It!

During my career, I've had buyers change their minds over-night about making a home offer, deciding against entering a real estate contract to buy their favourite home from the selection viewed. Occasionally, they've even announced their decision to postpone buying a home. They step back, sigh with relief at not having to change their lives, to take that leap of faith, and fall back into their comfort zone.

But at some point in time, the realization usually dawns on them that the same reasons exist for wanting to move in the first place. Nothing has changed. Then, with deep regret for not having taken the plunge earlier, they contact me to begin the search all over again. That whole process is referred to in the trade as ...

Cold Feet

In the meantime, the home they fell in love with was sold to another buyer. Prices or mortgage rates may have risen, and they've not been able to save enough down payment to compensate. So, they either end up buying a smaller home, or have a higher mortgage payment.

True Story

I once had a lovely middle-aged couple walk into my real estate office, and ask to view some homes. During the usual consultation regarding qualification, and before heading out, I learned they were renting, and had been for many, many years. They had $100,000 safely ensconced in the bank, and they'd never bought a home!!

At the time, they could have bought a detached house in the suburbs for under $75,000, a small fraction of their market value nowadays. So, there was no question of affordability - they had all cash!

Even though they expressed the sincere wish to own their own home, and escape the perpetual rental game, they obviously permitted their fears to control their lives. Maybe, they were intimidated by the commitment of a real estate contract. Or they feared losing their jobs, hence their home. I guess they never considered the fact that they'd have been evicted for non-payment of rent far easier than losing possession of their own home for non-payment of property taxes and utilities, or mortgage if they'd had one.

When asked why they hadn't bought years ago when prices were even lower, they replied that they'd never found just the right place. Well, needless to say, and as I anticipated, they didn't buy any of the homes I showed them. I suspect they died renting. Maybe, they feared jumping into a real estate sale contract. How sad to never experience the joy and financial benefits of home ownership.

So, my advice to you is ...

Make The Decision - Make an Offer

Your buyer agent will prepare an offer for you. If accepted by the seller, this will become the real estate contract. All the clauses will be explained to you, so you'll not sign anything without understanding what you're signing.

Visit my real estate contract terminology page for an explanation of terms typically found in a real estate sales contract.

First, you'll determine the various terms of your home offer. Since you're a client with your own REALTOR® protecting your interests, you'll have the advantage of ...

Professional Guidance

They'll be able to show you print-outs or on-line views of comparable sold listings, provide you with a qualified opinion of value to help establish your initial offer price, and discuss negotiating strategy.

Of course, market value is an elusive figure. The ultimate sale price is almost impossible to determine in advance. It's an educated guess based upon previous sold comparable homes, and of course, the market experience and knowledge of your REALTOR®. Terms of a real estate contract, like the number and type of conditions, possession date and other provisions, will affect the price a seller will accept. Often, but not always, the fewer conditions, the more attractive the offer is to the seller. Sometimes, the price may be acceptable, but the requested completion date doesn't work for them.

The other clauses that will be included in your real estate contract will depend upon your individual circumstances. The size of your deposit will obviously depend upon how much readily available cash you have, or can arrange. Keep in mind that the size of your deposit is directly related to how much faith the seller will have in your offer. Do you want it to be taken seriously?

Offer a Generous Deposit

It doesn't really cost you anything, and it may make the seller treat your offer more favourably. Also, your completion (possession) date will depend upon when you're able to move from your present home, whether owned or leased. But be prepared to compromise when negotiating a real estate contract.

Is your present home already ...

SOLD?

This is a HUGE advantage when it comes to real estate contract negotiation strength. You may be able to get a better price without a condition pertaining to the sale of your present home.

Have you committed to a particular date on the sale of your old place, and the buyer can't, or refuses to agree to change the closing date to accommodate your needs on your purchase? Something to consider in this possibility is bridge financing. Are you leasing an apartment? When does your lease mature? How much notice must you provide to your landlord? Living at home with parents? No problem - move anytime.

The main items of any suburban, city or rural residential real estate offer, whether freehold or condominium, are ...

Price, Completion Date and Conditions

And not necessarily in that order. Sometimes the completion date is more important to one of the parties than the price. Or a seller may not accept certain conditions, like the sale of a buyer's property.

I've found that unless one of the parties is under duress, like a seller has already bought another home, or a buyer must vacate their present home by a particular date, or a buyer is competing with another bidder for the same property, a real estate contract is usually balanced. There's a ...

Give and Take Scenario

If a buyer, for example, agrees to the seller's need for a particular closing date, in exchange, a fair seller, in a balanced market, will compromise a little by agreeing to a slightly lower price. Or if a seller agrees to include his brand new kitchen appliances, then the buyer may agree to pay a little more money.

That's called ...

Fair Negotiation

In practice, and once again unless duress or competitiveness is involved, a seller rarely gets exactly what they want, nor does a buyer obtain their perfect terms in the real estate contract. Having said this, a seller's market often results in the seller being very happy with the results. But they'll be less happy when suddenly, they realize they're buyers in the same market. Then the proverbial shoe is on the other foot.

And conversely, in a buyer's market, sellers are disadvantaged due to the substantial competition from the numerous other comparable listings. Buyer's then have the golden opportunity of a great selection, and hungry sellers.

In the Toronto real estate market, and the surrounding areas, over the past few years, the market has been such that listings in prime neighborhoods, or attractive unique freehold homes and condominiums, have attracted multiple offers to purchase. I've personally been involved in situations, on both sides of the negotiating table, where ten to twenty different buyers have aggressively competed to buy, with sale prices far exceeding the asking price. Actually, it's been the regular practice of many REALTORS® to deliberately list property below market value to encourage this type of situation. Great for sellers, but obviously less so for the frustrated buyers involved.

While I'm on this topic, sometimes, it's a wise idea to fulfill certain conditions, like home inspection and financing, in advance of actually submitting a real estate offer. This way, you'll not need to include these conditions in your offer, hence making it more attractive to the seller.

So, there's a lot to consider when making an offer and preparing a real estate contract. And with a good REALTOR® representing you, the process will be far more enjoyable, successful, and with ...

Less Stress

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