Homebuyer’s long read
Making an offer: price, contingencies and deadlines
What usually goes into a purchase offer, how earnest money and contingencies work, why deadlines matter more than headlines, and questions to settle before you sign.
Once you find a home you want, the offer turns your interest into a contract. The headline is the price, but the terms around it decide how much risk you carry until closing. Purchase contracts are governed by state law and local practice, and forms differ from place to place. This chapter is a general map of the common parts so you can read your own contract with better questions. It is not legal advice; in some states attorneys handle this stage, and a real estate attorney can review any contract before you sign.
Before you write anything
Settle three things with yourself first:
- Your ceiling. The highest price that still fits the household budget you worked out, not the lender's maximum. The budget limit worksheet helps.
- Your cash after closing. How much you must still have in savings after the down payment and closing costs. See down payment planning.
- Your walk-away conditions. What would make you stop: a major defect, a low appraisal, a loan you do not like, a title problem.
Writing these down before you are emotionally invested makes the negotiation clearer.
The main parts of an offer
Most purchase contracts cover:
- Price and how it will be paid: down payment and loan amount.
- Earnest money: a deposit showing good faith, usually held by a third party such as a title company, escrow agent or attorney.
- Financing terms: the type of loan you are seeking.
- Contingencies: conditions that must be met, or that let you cancel.
- Deadlines: for inspections, loan approval, appraisal, title review and closing.
- Who pays which costs: some closing costs, title insurance and transfer taxes can be allocated by custom or negotiated.
- Seller credits: an agreed contribution toward your closing costs.
- What stays: appliances, fixtures and anything else included.
- Possession: when you get the keys.
Contingencies, one by one
Inspection. Gives you a period to have the home inspected and to negotiate repairs, a credit or a price change, or to cancel within the deadline. See inspections.
Appraisal. Protects you if the appraisal comes in below the price. Your contract may let you renegotiate or cancel within a set time. See the appraisal chapter.
Financing. Protects you if you cannot get the loan described in the contract by a deadline, after making a good-faith effort. Pre-approval is not final approval; see pre-approval.
Title. Lets you review the title commitment and object to problems. See title insurance.
Sale of your current home. Sometimes used when a buyer must sell first. Sellers often find these less attractive.
HOA or condo documents. Where relevant, a period to review association rules, budgets and fees.
Each contingency is only as useful as its deadline and notice requirements. Missing a deadline can mean losing the protection.
Earnest money: protect it
Ask:
- How much is customary here, and when is it due?
- Who holds it, and how is it returned or applied at closing?
- Under which contract conditions could I lose it?
Treat earnest money instructions with the same care as closing funds. Verify wiring instructions by phone at a trusted number, as described in protecting closing funds from wire fraud.
Competing offers
When there are several offers, buyers sometimes offer more than the asking price, shorten deadlines, or waive protections. Each of these trades price or risk for attractiveness. Before agreeing:
- Above-asking prices may exceed the appraisal. Know how you would cover any gap, or whether the contract lets you renegotiate.
- Short deadlines must still be achievable for inspections and loan steps.
- Waived contingencies shift risk to you. Ask your agent or attorney what exactly you lose.
No offer is worth leaving yourself without savings or stuck with a defect you cannot afford to fix.
After signing: build a deadline calendar
Once the contract is signed, list every date: inspection period end, appraisal deadline, loan approval deadline, title objection deadline, final walk-through and closing. Next to each, write who is responsible and what notice must be given, and how. Share the list with your agent and lender.
Then tell your lender immediately and request your Loan Estimates and a rate lock plan that fits the closing date.
Questions to ask before you sign
- Which form is this, and what does each contingency allow me to do?
- What notice do I need to give, by when and how?
- What happens to my earnest money in each scenario?
- Which costs am I paying that could be negotiated?
- What happens if closing is delayed?
Contract forms and practices vary by state. Ask your agent or a real estate attorney licensed in your state to explain the contract before you sign.
Questions to take into the next conversation
- Decide your maximum price and your walk-away conditions before you write an offer.
- Ask your agent for a copy of the standard purchase contract used in your area and read it in full.
- Write down every deadline in the signed contract, with who is responsible for each one.
- Confirm how and where earnest money will be held, and verify the payment instructions by phone.
Should I waive contingencies to make my offer stronger?
Think carefully before you do. Contingencies are the parts of a contract that let you step back if an inspection, appraisal, financing or title problem appears. Waiving one can make an offer more attractive to a seller, but it moves the risk to you, sometimes including your earnest money. Ask your agent or real estate attorney exactly what you would be giving up, in writing, before deciding.