Completing A Purchase Contract
Once you have found the “right” home, your REALTOR®® will help you prepare an offer to submit to the Seller for consideration. Offers are submitted to the Seller through their Listing Agent using the Arizona Residential Purchase Contract. Here are some items to consider when completing the offer:
Home Loan: If you are obtaining a loan to purchase the home, your offer must include a Loan Prequalification Form, which is completed by your Lender and shows that you are financially qualified to purchase the home.
Prices and Terms: Most offers to purchase a home involve a negotiation between the Buyer and Seller. Most negotiations are over the sales price and Seller concessions.
Seller Concessions: Your Agent will help you determine the market value of the home and what you would like to offer for a sales price. In addition, you may want to request some Seller concessions, such as payment for a portion of your Closing Costs. Closing Costs will be covered in a later post, but they tend to run $4,000 to $6,000 when the Buyer is obtaining a loan.
Response Time: When an offer is submitted to the Seller, a deadline is set for a response which is usually 24 hours. The Seller may respond that they Accept your offer or they may Counter your offer.
Counter Offers: There may be one or more Counter Offers made before both the Buyer and Seller agree to the contract terms. Once both parties agree to the terms, the home is “Under Contract” and negotiations are over.
Additional Contract Terms: While price and seller concessions are the most commonly negotiated contract terms, there are several other provisions that will be a part of the contract:
Earnest Money: A Seller will require a deposit of funds as proof of the Buyer’s commitment to complete the sale. This deposit is called the “Earnest Money” which is held by an independent 3rd party called an Escrow Company. The Earnest Money is applied to the purchase price and closing costs or may be refunded if the sale is cancelled. How much Earnest Money is appropriate? Usually 1% of the Purchase Price.
Downpayment: How much of your funds will you be using for the Downpayment? Certain loans require a minimum Downpayment, such as FHA at 3.5%. VA Loans require 0% down while Conventional Loans may range from 5% to 20%. Your Lender will help you determine which loan program is best for you.
Close of Escrow: Close of Escrow or COE is simply the date the sale will be recorded and the home placed in your name. If you are obtaining a loan, it typically takes 30 to 45 days to complete the process and the COE date should be set to allow for this.
Escrow & Title Company: The Escrow or Title Company is responsible for ensuring that all the legal and financial terms of the purchase are met. They make sure all of the funds are received and all legal documents signed and completed properly in order for the sale to complete. The choice of Escrow Company is up to the Buyer, but they are an independent 3rd party responsible to both the Buyer and the Seller.
Home Warranty: There are companies that offer warranties on the appliances and major systems in the home. Repair costs are limited to a trip fee which is the primary benefit of the program. Buyers often request the Seller purchase a Home Warranty on their behalf, which is a consideration in the Purchase Contract.
This list covers the primary considerations when submitting a Purchase Offer. Additional terms may be submitted with the offer, which are also subject to negotiation with the Seller.