Are you “making an offer” or buying a house?

soldBuyer Beware of Real Estate “lingo”. The soft language of “making an offer” is really leading you to sign a binding contract. For some this comes as no surprise. But for others who may think they are simply making an offer, and later deciding whether or not they really want to buy the house, this is very important. If the seller signs your offer without any changes, you are in a binding contract to purchase that house.

An agent can pretty much tell what is happening when the buyer is signing the contract. That is why I think all contracts should be signed in person, in front of the agent, and not via fax or e-signing. If they are only paying attention to the offer price, signing quickly, and not asking questions about or reading the 10 or more attached pages to “the offer”, it becomes fairly evident that they are thinking they are flushing out the “true” price vs. the asking price from the seller. Not so. Another clue is if the “offeror” is asking how they get their Earnest Money back, before signing the offer. In real estate you quickly move from making an offer to actually buying THAT house, in many cases. Once the seller signs that “offer” you are quickly pushed into the queue toward closing via the escrow process that ensues.

The key is not simply to leave yourself a bunch of legal outs, but to make sure that you really ARE going to buy that house, unless new information suggests otherwise. You should not be cancelling “on inspection” because you decided not to buy the house because of the street it is on, unless you learned something new about that street (from the inspector) AFTER you made the offer. You can, but you shouldn’t. You should consider that the seller is thinking that you really do intend to buy his house, based on what you could readily see prior to making the offer. Making an offer is not really a “maybe I will buy it”. Making an offer is indicating that you ARE buying it, unless new information that was unavailable at time of offer comes forth prior to closing, and during the due diligence period of the contract.

Technically you can lose your Earnest Money if you say “I changed my mind about buying a house” when you ask to cancel “on the home inspection”. Well, let’s change that to you SHOULD lose your Earnest Money if you are cancelling merely because you changed your mind, or because you didn’t realize when you made the “offer” that you were actually agreeing to buy the house. Remember, you are causing the seller to REMOVE the home from market. You are pulling the property OFF of the public portals. You should not be doing that simply to have more time to think about whether or not your really want to buy it.

Making an offer means you want to buy that house. An offer to purchase is not intended to be used simply to prevent other offers from coming in, while you think about whether or not you want to buy that house.

78 thoughts on “Are you “making an offer” or buying a house?

  1. Agreed, as a buyer, you must be prepared for the possibility that the seller will actually sign off on the offer you send over. I’m guessing this must be a problem in King County to spur this blog post? I’m not seeing buyers slinging offers around in Pierce and Thurston Counties. Most of the buyers (most not all) are writing solid offers and intend to purchase if accepted.

    Reminds me of an old story I heard on a Carlton Sheets cd long ago. A potential investor called him up with a concern. “What do I do if they accept my first offer?” Buy it! Was his advice. 🙂

  2. Brett,

    In the “hot” market it was not uncommon for buyers to have little time between the property coming on market, and making that offer. There was such a short amount of time that many really didn’t ponder the “do I really want it?” long enough. We are seeing the same thing with “screaming deals”. Buyers are trying to mix together “good investment” with best home to live in, and that is a hard balance with one or the other usually winning.

    The best investment is often not the best home for a given family and vice versa. Yet many are approaching the market with both objectives, and mostly picking the house they want most, and then justifying that it is a “good investment”. It is most often not the “screaming deal” they are convincing themselves it is.

  3. Bravo, Ardell! The whole contingency period has come to be seen as a free look, and I am seeing more and more buyers cancel two weeks into the escrow because, well, they can. My latest involved your example of location. Sixteen days into a seventeen day contingency period, the buyer decided they didn’t like the street. The problem is that the home was on the same street it had been when they made the offer to purchase; no one moved it. I always try to remind our buyer clients that there are contractual “rights

  4. Ardell- One can always tell how good an RCG Post is by the quality of the first few comments. This one looks like a winner. The problem of course is having enough time to think a deal through. Unlike cars and other fungible things, each home (and neighborhood) is unique. With my clients as their architect, I’ve gone through the home evaluation process quite a few times with the idea that each and every offer may well be accepted and thus result in a immediate binding contract of sale. J-

  5. Kris,

    The point of the post is that we lead buyers in that direction by not having a “maybe I want it, maybe I don’t” phase where they can flush out more of the facts, including price.

    When I started in real estate there was a “Proposal to Purchase” form prior to binding contract. It was a one page form with price and general terms like close date and what is and is not included. IF both parties agreed on “the proposal to”, then a contract was signed and then the inspection. The inspection wasn’t a huge YAY or NAY for the buyer. The contract had a dollar limit and named the type of things the buyer could cancel for.

    It really isn’t fair to structure the whole system incorrectly, and then complain when people act according to the contract, but not the way we “want” them to act. The problem is in the system, the lingo and the contract wording.

    It is the way “we” word the inspection contingency that gives them the impression that they are doing it correctly. If we had a blank space “buyer can cancel if cost to fix inspection items are more than $ dollars (could be $500, $1,000, $10,000) depending on the house and value. An as-is bank owned at discount would have a higher number than new construction.

    We changed the inspection to a blanket right to cancel vs a true inspection negotiation. We can’t blame buyers for that.

    The “ethcial” issues involve how this impacts the seller and many other people who were working toward closing during those many days. Escrow, lenders, Title, agents, the seller… The practice of thinking the buyer should not meet the seller has clouded the ethical issues as well. A clear sense of whom you are harming, by the buyer meeting the seller, would help too.

  6. Jerry,

    You raise an interesting point. The “offer phase” should likely include an inspection phase. One where no one can make an offer BUT the buyer is not yet obligated to proceed to closing.

    The entire system needs to be revamped to incorporate what buyers really need vs. our expecting buyers to move through a system like cattle. Sometimes I think a buyer should get to stay in the house for a few days overnight, the same way you get to test drive a car. The buyer side of the process for making such a big purchase is really not adequate.

  7. Ardell — I think you hit on something by noting that this issue can be ameliorated if there is a relationship between buyer and seller. That is one of the benefits of the “FSBO” — the parties typically deal directly with each other and therefore develop enough of a relationship that the buyer is less likely to, uh, “get over” on the seller by taking the home off the market without even being committed to buying it.

  8. Jerry,

    I love ya! But that’s a commercial. Very few buyers want to think about changing the design of a home, while they are trying to buy one that isn’t going to cost them much after they purchase it. I have had a few need an architect prior to offer…but not many in 20 years and clearly “always” having one is not part of the process for good reason.

    The biggest sign that this is not the right house, is when the wife turns to the husband and says “we can move this wall”…time to go find a different house! 🙂

    • ARDELL- I love ya back as our president says. More than a few times I’ve helped an open-minded Agent with an incipient sale by pointing out changes that could be made sooner or later- without radical surgery.

      It’s awfully hard to put design considerations forward as part of my RCG Comments/Contributions without being accused of being self-serving but I do think sales mechanics need a bit of balancing. The so-called “different house” may lurk within this one with a bit of redoing. J-

      • Jerry,

        I think my mind goes to HUGE cost when the words “architect and remodel” appear in the same sentence. Very often there is a mint green toilet that definitely needs to go! 🙂 But when I picture an architect in the mix, I picture a project that costs as much as building a house. Correct me there, for my sake. Is my mind going to the wrong place?

          • Jerry,

            I’m not thinking about the cost of your consultation, which would be in addition to the inspection and not instead of the inspection. I’m thinking about the cost of the changes to the home. Isn’t it better to just look for a different house that doesn’t need an expensive remodel?

          • Ardell-

            As we’ve long known, you and I look at houses for sale somewhat differently. It doesn’t cost much to have me look at a home to decide if it has design and/or other possibilities- before or after looking at what else may be on the market. And not all remodels are expensive. J-

          • But I would think the remodels that need an architect are generally more expensive. Again, I only know that I don’t run into architects often in 20 years. It’s not uncommon for people to ask “can I take this wall out or widen this doorway or cut a pass through opening here or there. But most times I just find them a different house that already addresses WHY they want to change something in the house we are looking at.

            My ballpark for needs an architect would be in the range of an improvement that will cost $50,000 to $100,000. Can you name a $20,000 improvement or $10,000 improvement where an architect would be helpful?

            I can think of one that I sold last year that needs a change in the steps, but clearly the buyer of that short sale home did not have an extra ten grand to make that change. He was getting a house that previously sold for $465,000 for $275,000, so we weren’t all that concerned about the style “defect”. It had one of those “cape cod” staircases that seems to have a “box” at the base all the way to the wall, so you have to step up and down passing from one side of the house to the other.

            I would think the staircase to the 2nd floor starting up against the front wall is not an easy “fix”.

  9. Craig,

    Yes and no.

    1) Most often when a buyer has over paid for a home (in my experience, of course) and they don’t know that until they are getting ready to sell it, they bought it FSBO.

    2) Most often when I represent a seller and the buyer wants things as part of the inspection, and the seller says “It had that problem when I bought it, but I didn’t ask for it then, so why is this buyer asking now?”, they were not adequately represented when they bought it.

    It takes a very special buyer and seller to be able to work together without one or the other ending up with the short end of the stick. Unfortunately the short end usually goes to the buyer.

    There are times when I think we need to scrap the whole system and do a complete “do over”…but no one being represented is generally not a good idea for most home buyers.

  10. P.S. to Craig. Most times an appraiser will ignore a FSBO comp, because it was not a price that was “market tested”. That alone tells us that they expect a FSBO can get over on a buyer more easily than the test of price within the system.

  11. When I am sitting with Buyer clients putting together “an offer” and we get to the standard home inspection contingency, I do show them that there are two scenarios given to the buyer. Scenario 2 is giving notice voiding the contract without penalty.

    Twice this year I saw agents cross-out that option eliminating it from their client’s “offer”. Indeed they seemed stronger and I pointed that fact out to my Seller clients.

    It certainly demonstrated their commitment to buy the home.

  12. Doug,

    Here in Seattle Area we used to have two Inspection Contingency forms:

    1) Buyer’s right to cancel
    2) Seller’s right to repair

    The second gave the seller the right to fix what came up at the inspection, and negated the buyer’s right to cancel as long as the seller agreed to fix everything unless the “fix” was unsatisfactory.

    For some reason they took option 2 away a few years ago. Not sure why.

    As to your response, I would hate to see buyers lose ANY rights to legitimate negotiation of inspection problems. But cancelling because you don’t like the street the house is on…well, that’s one you should have noticed before you made the offer, AND should not be a legitimate out “on inspection”.

  13. Ardell,
    The concerns raised in this blog are largely “mute” in my market. My market is dominated by REO and Short Sale listings. If you’ve read a bank addendum lately, you’ll understand my position clearly.
    Regardless of who is actually selling the home, when I represent the buyer. I’ll use whatever legal and ethical means available to me as a buyer’s broker to ensure my client get’s the home they desire, at an acceptable price.

  14. Brett,

    I hear ya…but those bank addendums can be pretty darned scary for buyers! They read like they will take your first born child if you don’t close 🙂

  15. Yeah, they look like builder addendums on steroids. $100-$150 per diem penalty for a late closing, rights to accept other offers and of course their contention that they intend to sell only “as is”. But if the discount is high enough, it’s worth it to some buyers to roll the dice on an reo.

  16. I agree, Brett. The addendum usually repeats “We WILL keep your EARNEST MONEY” about 20 times too :). Still a good deal is a good deal and I’ve done more than my fair share of bank-owned’s this year. Have been great buys for my buyer clients.

  17. When an offer came in on a listing of mine recently, I went to the buyer broker’s world famous web site to see how they have a “Start an Offer” button which seems to fall into the theme of your post.

    No, not eBay but it just sounds like it.

    During negotiations, I had a frantic call from one of their CS reps or agents asking if the property was a condo? No, it’s fee simple. You see, when the address is Googled, their branded site shows a FSBO listing posted as a condo three doors down which obviously added to their client’s confusion. I cover key items like this with clients before we make offers, not in the middle of negotiations.

    Yes, they pulled their offer.

    Garbage in, garbage out.

  18. Doug,

    I feel the same way about the new iPhone “do a contract on your phone” app. It even has a place where you finger the touch pad to “sign” the “offer” 🙂 The times they are a’changin’ and not always for the better.

  19. Ardell- I had hoped to respond to this up closer to yours but RCG won’t let me. You said this above:

    “But I would think the remodels that need an architect are generally more expensive. Again, I only know that I don’t run into architects often in 20 years. It’s not uncommon for people to ask “can I take this wall out or widen this doorway or cut a pass through opening here or there. But most times I just find them a different house that already addresses WHY they want to change something in the house we are looking at”.

    The Northwest is rather different than other places where you’ve sold Real Estate. It’s long been possible to create your own custom home- new or remodel- that meets your own special needs- with the help of residential architects such as myself. And more people hereabouts are aware of this due to the Seattle Times and the Seattle PI
    featuring these unique, carefully designed and crafted homes. Jerry

  20. Jerry,

    There you go again Jerry…pulling the “native” card. Oh well…have fun with that. I love mid-century modern homes, Jerry. I really do. But good ones worth remodeling with big bucks are not the majority of what is selling in this economy.

  21. I do love Toll Brothers and Pulte. On the bright side, Jerry, building lots are a LOT cheaper these days than they were a couple of years ago. I remember a time not too long ago that the Average Joe couldn’t get a building lot in a good place before a builder snapped it up. So people who DO want to build their own custom home have a better shot at it now…except for getting the financing to build it.

  22. Jerry,

    What “I” want is really not of much consequence. I can tell you that most home buyers do not want a lot of land to take care of. You don’t have to go to “the East” to find that scene. Almost every newer construction in Issaquah, Bothell, Redmond…wherever, is like that. Small lots is not an East Coast/West Coast thing. Clearly older homes on the East Coast are similar in lot size to those here. Pitting “people” against one another is never, ever good. In fact it is against Fair Housing Guidelines to talk about the “people” vs the houses. I think that is another reason it bothers me so much when you do it.

    Treating people “born and raised here” differently than those who moved here is NOT permitted under Fair Housing. Though “transplants” are not a “protected class” the overall guideline is stick to the attributes of the houses…not the people and their particular likes and dislikes. That said I have a post for you coming up 🙂

  23. Pingback: Top 10 real estate posts of the day for 12/17/2009

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