The Offer to Purchase from the Seller's Perspective

Caution
The information provided here is not to be considered as legal advice. If you/the seller wish to obtain information regarding how the clauses and contingencies in the offer to purchase relate to your specific situation, you should direct those questions to an attorney. License laws do not allow real estate agents to give legal advice unless they are a licensed attorney.

Fact
You will NEVER see two Offers to Purchase that are the exactly the same. Whether this is the first or the "dozenth" property you are selling, offers are almost always different from the others you may have already worked with. The basics of the offer, however, are nearly the same. The people, the agendas, the details, and the contingencies are what make the differences. The more you know about the offer to purchase contract the more comfortable you will be and the more protected you will be in the event of a controversy during the offer to purchase to the closing process. Working with a highly qualified and experienced agent is important. You may also decide to have an attorney review the contract before you fully commit to it. A clause asking for time for your attorney to approve of the contract is an option if you feel the need for reassurance.

NOTE: We are not focusing on all the details of an offer... only tips that will enhance your knowledge of the contract before you sit down to consider a written offer with your agent and/or your attorney. The better prepared you are when you are considering an offer on your property the more confident and the more comfortable you will be with the process.

Agency
Question: Are you selling By Owner? Is the buyer planning to buy directly from you, without the assistance of an agent or an attorney? If both sides are doing this "on their own," agency is not in play. Agency occurs when a contract is signed with a licensee creating a fiduciary relationship between the licensee and the buyer or the seller. I don't recommend either party go into an agreement to purchase real estate without professional assistance. If you have listed your property, the listing contract between you and the listing agency creates the fiduciary relationship. Your listing agent/brokerage is working in your best interest. If your listing agent/brokerage has also executed a Buyer's Agency contract with the buyer, there is a dual agency situation in play. Whoever drafted the contract with the buyer is either a Buyer's agent or a listing agency's sub-agent. Your listing agent will have explained the different kinds of agency that exist in the real estate transaction when you completed the listing contract. We'll review your choices later in this report.

Be sure your contract is readable
Hopefully, the agent assisting you is using Zip-form, or a similar computer program. If not, a hand-written contract should be legible. Contracts that are scribbled with large messy characters are NOT professional. If your agent doesn't have good handwriting, then ask them to print carefully so it's easy to read. If the contract is a mess the writer's credibility is greatly decreased. In the event agents, buyers or sellers find themselves in a lawsuit and are sitting on a witness stand in the court room - and your contract is being handed to you by the "other side's" attorney, will you be proud of how it was written and its appearance? If it's illegible and terms are vague the judge is likely to rule against the side that drafted the contract.

Fill in the blanks
That sounds pretty elementary. It is pretty elementary. Blank spaces in an offer are an invitation to trouble and misunderstanding. If you have NOTHING to write in a blank, mark that blank with a dash or n/a.

Cautions
Whenever you see the CAUTION items in an offer, read the verbiage carefully. It will likely be in BOLD to draw it to your attention. That should remind you that the words are important.

Inclusions
It doesn't matter what the listing contract says. It doesn't matter what the Multiple Listing information says. It doesn't matter what the listing office's information says. If you want an item included, it MUST be written in the offer. Period. If you want the cupboards in the garage; if you want the work table in the workshop; if you want the water softener - whatever you want to be included should be listed. There are blank lines elsewhere in the offer if you need more space. If the buyer thinks it's included - write it down to be sure. Never ASSUME anything. You know what happens when you divide that word into three words. "If in doubt, write it out!"

Exclusions
This is a place where trouble frequently occurs. The water softener is a recurring problem. Even if it's a rental, state that it is excluded. There is verbiage in the offer that may define a water softener's installation as a fixture. Other items that may appear to be included and aren't could be Jungle Gyms in the yard, pool equipment, fireplace inserts, decorative lighting, custom window treatments. Once again - "If in doubt, write it out!"

Semantics
Be sure to use the right word when naming something you want to stay... like a kitchen range vs. a stove. An agent in my office some time ago found himself in a mess over "the stove." There was a kitchen range in the kitchen. There was a Ben Franklin stove in the family room. Buyer asked for the stove. Buyer arrived at their new home after the closing. The Ben Franklin stove was still there. Seller was half-way to their new home in Pennsylvania with the kitchen "stove" on the moving van. Buyer wanted a kitchen stove. The selling agent bought them one! That doesn't always happen... you could end up buying one to side-step the attorney-scene. Words may have multiple meanings. Avoid confusion. Be specific.

Acceptance
Acceptance occurs when all buyers and sellers have signed a copy of the Offer to Purchase. Binding acceptance occurs when that fully signed document is properly delivered per at least one of the options for delivery. Be aware of the differences when you are stating "Time is of the Essence" deadlines for acceptance and performance. Deadlines are commonly calculated from acceptance. Specify Binding acceptance if that's what you want. Do the printed words convey your intentions and expectations? Carefully consider how much time you need for performance of contingencies and deadlines.

Delivery

Personal Delivery - that's easy. Walk up to the Party or the Party's contracted recipient and hand it to them.
Commercial Delivery - depositing it, postage/fees prepaid, addressed to the Party or the Party's contracted recipient.
Fax - either the buyer's, the seller's or the agent's fax number. If the buyer's fax is on the contract and you send it to the agent's fax; It is NOT properly delivered.
CAUTION: If the agent, brokerage or attorney has his/her fax number on the contract, the responsibility of binding acceptance lands on the "owner" of that number. Problems can arise when all parties are not immediately aware the fax was sent and that binding acceptance has been accomplished.
US Mail - Depositing, postage prepaid in the mail.
SUGGESTION: I'd suggest you get something stamped to prove the time you or your agent deposited it or bring along a witness, just in case you have to prove the time you dropped it in the mailbox. BEST SUGGESTION: Unless it's in the middle of the night and the post office is closed - have it sent with return receipt requested. That gives everyone proof of when binding acceptance occurred - and you have proof that it has arrived at its destination.
E-Mail - At this writing, this clause seems to be the most misunderstood clause in the offer to purchase. FIRST - the transaction must be a consumer transaction (not commercial) and the property is going to be used for personal, family or household purposes. SECOND - "each" consumer providing their e-mail address must have first consented electronically to the use of electronic documents..." This is a federal law. In 2010 every offer I received on my listings had the agent's or the agent's business office e-mail address in this part of the contract. Unless the agent is the consumer AND unless that agent/consumer has first consented electronically to the use of electronic documents, the agent's e-mail is NOT an acceptable method for binding acceptance to occur.

NOTE: The specifics of Electronic Signatures as a method of binding acceptance are easily researched. Your agent or attorney should know the rules.

Occupancy
Is the buyer selling their current home? Do they have an accepted offer? Find out the details of occupancy on that offer. Be sure the closing dates and the occupancy dates are coordinated. An agent in my office, a few years back, actually let the buyer come home and stay with him because they got caught in an occupancy squeeze. Campers and tents also work well as interim housing when you haven't coordinated occupancy dates, or a motel!

Definitions
Don't pass over this section. There are words in there that can bite badly if they apply and the agent doesn't know that. The listing agent has primary responsibility to find out about these items by asking questions of you and researching items in question. If you are working as "By-Owner" you are the responsible party. The sub-agent/buyer's agent also has responsibility. Ignorance is not a defense when due diligence could have saved the situation. Full disclosure and honesty are the watchwords.

Closing
If your closing is delayed, you are REQUIRED to extend the date in writing. Verbal is not binding. Problems occur when verbal agreements are written on proper forms and signed by all parties. Hand-shakes are NOT legally binding.

Closing Prorations
The pre-printed contract verbiage is self-explanatory. Real estate taxes may be more complicated than more constant pro-rations like subdivision dues, assessments, etc. There are a few things to be considered. Is the buyer paying a lot more for the property that the current assessment? Or, a lot less? Full disclosure is necessary. Will there be a new assessment in place before the closing? Again - full disclosure. Is the property described on the tax bill the exact same property that is being transferred? Check carefully. Is the buyer purchasing more or less than the parcel described in the legal description? Again - check carefully. Is there an assessment payable from previous municipal or association projects? Ask the proper authorities. Will assesments be paid off at the closing which would change the pro-ration calculation.

Leased Property
The word "if" defines your use of this clause. The clause is self-explanatory. If applicable, be sure the buyer knows the details.

Rental Weatherization
Have you ever heard a buyer say they are really going to rent it but not right away? If you know the property won't be officially owned and occupied by the buyer, it isn't exempt. You will be held responsible if you "don't hear what they said."

Real Estate Condition Report
Wisconsin's rule: A prospective buyer who does not receive a report within 10 days may, within two business days after the end of the 10 day period, rescind the contract of sale... by delivering a written notice of rescission to the owner or the owner's agent... " (Regarding rescission rights, buyer should consult an attorney for additional information.). It is a state law that sellers provide the Real Estate Condition Report. Other states likely have similar guidelines.

Additional Provisions/contingencies
Every Contingency requires a Condition, a Consequence, and a Deadline. No exceptions!

An example: "Buyer to provide financing pre-approval 2 days from acceptance." So - what happens if they don't do it? Likely Nothing. (except confusion and upset) There is no stated consequence if they do not perform. A good attorney would catch that glitch quickly and turn the situation toward his/her client's favor. A well-written contingency needs some teeth in it for non-performance in a timely manner.

State the conditions of the contingency, the consequences if they don't, and the deadline for performance. Example: " Seller reserves the right to withdraw from this offer if buyer, within 3 working days of this accepted offer, does not provide to seller/seller's agent a written statement from a bona fide lending institution that the buyer is pre-approved for financing as stated in this offer to purchase."

Anytime there is a contingency in the offer for absolutely anything, you need: a condition (what do you want done), a consequence (what happens if it doesn't happen) and a deadline (if not performed in time). The example shown here is just a guideline. Whether the condition is a requirement of the buyer or a requirement of the seller, use the same principle:
Contingency = Condition, Consequence, and Deadline.
C = C + C + D

When Should You Include A Contingency In An Offer You Are Writing?
When you know the buyer has an expectation of use that may not be consistent with legal use or the current use; when a conditional use permit may be required; when you know the buyer only wants to buy the property if they will be allowed to do something - such as have a horse, a pig or a duck! Maybe they want to fence the yard, have 3 or 4 dogs; or raise chickens. Do they plan to run a home-based business in their basement? Perhaps they want to build a second garage or maybe a pole building; put in a pool, or build an addition. The list can be endless. In other words - if the buyer has specific needs they should be encouraged to include a contingency that gives them time to confirm they can do what they want to do with the property.

NOTE: Story. The family who bought a property in an area that seemed like country. They were avid 4-H members and were active in the horse project. They were moving so their children could raise their horses for the fair. It surely looked like they could do that. The seller's had a horse in the back yard and there was a small barn. It turns out the property had been in the family a long time and nobody said anything about their horse. But the neighbors did say something when the "new people" moved in with their 3 horses. The residential zoning of the property didn't allow farm animals. A lawsuit ensued. Guess who lost? A well-worded contingency would have saved a lot of heartache.

Financing
Use care when completing the finance contingency. Of special note is the blank for the interest rate "not to exceed _____." Do not use "market" in the blank. An actual number should be written there.

NOTE: I suggest adding at least a ¼% to the rate the buyer expects. If the rates fluctuate during the financing process, the buyer could be in a position of either having an out if they want one, or asking you/the seller for an amendment.

UNAVAILABLE FINANCING. If financing per the terms of the offer turn out to be unavailable, be sure the buyer understands that the you/the seller has the right to offer them seller financing at the same terms as found in the offer.

CASH OFFER: If the buyer's offer is a cash offer, ask for documentation from a financial institution of Buyer's choice stating that the buyer has funds sufficient to complete the transaction. The clause I use is, "Seller reserves the right to withdraw from this of if buyer, within 3 working days of this accepted offer provide to the seller a written statement from the financial institution of Buyer's choice that the buyer has funds available to complete this transaction on the terms and condition as set forth in this offer." Or, have your attorney suggest similar verbiage.

Buyer's Loan Commitment
Pay close attention to the following and read it aloud to the buyer: "BUYER, BUYER'S LENDER AND AGENTS OF BUYER OR SELLER SHALL NOT DELIVER A LOAN COMMITMENT TO SELLER OR SELLER'S AGENT WITHOUT BUYER'S PRIOR WRITTEN APPROVAL OR UNLESS ACCOMPANIED BY A NOTICE OF UNAVAILABILITY." The Buyer should be encouraged to remind their loan officer not to send out a written loan commitment without their/the buyer's written approval.

Appraisal Contingency
Suggest that the buyer stay in touch with their lender so that the appraisal is ordered and completed in time to match with the timeline in this contingency. Ask to be informed when the appraisal is ordered. It should occur within a few days of their formal loan application. Take nothing for granted. I recently had a buyer who filled out a form and thought he had properly applied for the loan. We caught the mistake when no appraiser had called after a reasonable period of time. A delayed closing was averted.

Closing Of Buyer's Property Contingency
This clause may be written differently, depending on whether you are a buyer or a seller. The seller's agent may opt to add to the blank line at lines 310-311 to include the following: "written waiver of the Closing of Buyer's Property Contingency and [the financing contingency, the professional inspection report, and any contingencies that reference property conditions required by the buyer in the accepted offer to purchase - except water, well, and sanitary disposal systems performed by a licensed plumber.]

Time Is Of The Essence
When dealing with an offer, be sure you understand what "Time is of the Essence" means. It doesn't mean "close to the date" - it means "drop dead" date.

NOTE: When doing a counter, Time is of the Essence may not survive all of the dates in the offer unless "Time is of the Essence as to all dates in this offer" is restated. Consult an attorney if you have questions. If in doubt, restate it if that is the intention of the person making the offer/counter offer. Better safe than sorry.

Title Evidence
It is prudent for the seller/seller's agent to do a Search & Hold on their listings to find out early if there are problems that need to be addressed. The sooner you find out about mortgages that were satisfied but not properly recorded, deaths that occurred without termination of ownership, judgments, unsatisfied liens, etc.

NOTE: If dealing with a foreclosure or short sale, special care should be taken to be sure that the lending institution has the right to foreclose, deficiencies in short sales have been satisfied, etc. Take special care with short sale and foreclosure properties. Buyer's and seller's consultation with an attorney is strongly +suggested. Horror stories are often told that might have been avoided with competent legal representation.

Special Assessements and Other Expenses
Due diligence by the agents, the buyers and the sellers is important when it comes to assessments and other expenses that may be legally attached to the property being sold.

Earnest Money
My advice? Be sure that BOTH parties know, at the time of the offer, that the parties to an offer have little or nothing to say about who gets the earnest money when a transaction fails and an argument with attorneys involved ensues over its dispersal. Explain that the procedure is specifically regulated by written rules; Attorneys are involved; And explain that the verbiage in the Offer to Purchase is a very short version of the complicated process of disbursing contested funds. Every now and then you meet a buyer who thinks they get the earnest money back if they don't close or a seller who thinks they get it if the buyer doesn't close. They need to know up front that it doesn't work that way. Agents tend to be blamed if earnest money isn't disbursed according to the party's expectations.

Inspection Contingency
With very few exceptions, an offer has much less chance of coming back to bite you after the closing if the buyer has had a professional inspection. For almost as many years as I was in the business I "strongly encouraged" a buyer to hire a professional inspector. If they didn't want one I would ask them to sign a statement that I told them to. If they didn't want to do that I noted their refusal on the form, dated it and put it in the file. Suggested verbiage on the decision not to perform the inspection:"Buyer has been advised of the benefits of having a third-party, professional inspection of the subject property and waives their right to said inspection."

THERE IS A DIFFERENCE BETWEEN A PROPOSED AMENDMENT AND A NOTICE OF DEFECTS. Read the Caution aloud and mark a check by the Inspection Contingency - "A PROPOSED AMENDMENT IS NOT A NOTICE OF DEFECTS AND WILL NOT SATISFY THIS NOTICE REQUIREMENT." Often those forms are not used properly. Allow enough time if you wish to present an amendment requesting that the seller fix something. If it is a deal-breaker if they won't, the deadline for Notice of Defects is crucial.