Writing the Offer
All offers are submitted on Georgia Association of Realtors pre-written forms. We are not attorneys are are not allowed to practice law (nor do we want to!). Most clean, vanilla offers, with their exhibits, addenda and disclosures start at around 20 pages. If you’ve got a more complex deal, they can be much longer. Your agent is an expert at this paperwork and will walk you through what everything is for in a very simple and non-intimidating way. As the legal culture gets more and more complex, more pages saying a lot of the same thing get attached to the contract.
We use offer and contract interchangeably sometimes, but here are the dynamics of a contract:
1.) Purchase and Sale Agreement
This is the main portion of the contract as it dictates everything from Price, Due Diligence Period, Closing Dates, Agency representation and includes any special stipulations. This document can stand alone and be the entire contract, however there are many other pieces that we attach to it in the Atlanta Real Estate Market.
2.) Special Stipulations
This section is at the end of the purchase and sale agreement and usually requires an additional page to be added to the contract for those “Stips” that don’t fit. Your agent will use this section to add some extra protection to you as the buyer, and the seller may want a thing or two added here as well. This is the section where items specific to the sale that are not addressed in the pre-written form will appear. For instance, you may stipulate that with the sale, the seller agrees to leave the playset in the yard and pay for a one-year home warranty. Depending on the home and how you and your agent want to structure the deal, this section can get quite long and be a major point of negotiation.
3.) Sellers Property Disclosure
This is a form filled out by the seller. It is usually provided via the MLS or is in the house when we show it. The purpose is for the seller to disclose any defects they are aware of in the house and also to provide information on the home that a home buyer would want to know, like the age of the Furnace and A/C units, or how old the roof is. They will also state here what stays with the house and what specifically does not stay with the house. If the Sellers Disclosure says they are not leaving the refrigerator, and you want the refrigerator included, than we have to specifically ask for that in the Special Stipulations or with a Bill of Sale Exhibit. These things are then part of the negotiation. One thing to remember is that Georgia is what is known as a “Buyer Beware” state. This simply means that the onus is on the Buyer to do their proper due diligence when purchasing a house, and if the seller misstates something on this form or verbally, you really don’t have much recourse. This is why we have such thorough home inspections which we will discuss in a minute. Bottom Line, Sellers Disclosures are a good source of information but we have to verify the important things anyway. This will become an exhibit in our contract though.
4.) Financing Contingencies
Unless you are purchasing the home with all cash, we will include this exhibit in the contract to make the deal contingent on the buyer being approved for a loan. This exhibit dictates the details of the financing necessary to purchase the home. The down payment requirements, loan amount, rate, and type of loan will appear here along with how long the buyer will be allowed to get a full loan approval. This contingency period is usually around 21 days for conventional loans. If the loan is an FHA or VA loan, a special exhibit is used and those particular types of loans stretch the financing contingency all the way up to the closing date. This exhibit is to protect the buyer in the case that their lender pre-approves them for a certain type of loan, but after going through the full underwriting process, is then denied. If the financing is denied to the buyer, through no fault of their own (they don’t lie on the application or don’t get the required documentation to the lender in a timely manner) the financing contingency gives the buyer the opportunity to get out of the contract and get their earnest money back.
5.) Appraisal Contingency
This exhibit goes hand-in-hand with the financing contingency. It protects the buyer in the event that the appraiser determines that the Appraisal Value of the home is less than the agreed upon purchase price of the home. If the appraisal comes in below the purchase price, the bank may refuse to make the loan, depending on how much lower it is and how much down payment the buyer is putting down. If this happens, the appraisal contingency dictates that the buyer will share the appraisal with the seller and it gives the seller a certain number of days to either lower the agreed upon price or come to a new agreement that is satisfactory to the bank and buyer (for instance, the seller may come down some on the price and the buyer may agree to put more money down). If the buyer and seller cannot come to an agreement that satisfies the bank in the allotted period set forth by the appraisal contingency, than the buyer has the option to terminate the contract and receive their earnest money back. If however, the appraisal is not received by the deadline of the appraisal contingency, and comes in low, the buyer does not have the option to terminate the contract for this reason and will have to either make up the difference with cash to satisfy the bank’s underwriter, or if that is not possible, they may lose their earnest money. Obviously this points out how important it is to make sure that the appraisal is ordered in a timely manner so that we do not miss this deadline. Your agent will be on top of the lender (who orders the appraisal) to make sure this time line is met.
6.) Community Association Exhibit
Many homes and most townhomes in Atlanta belong to some type of a Home Owners Association (somtimes known as Community Association). These associations can have mandatory annual or monthly fees as well as optional fees. The purpose of this exhibit is to get agreement and disclosure on what the fees are, what they cover as well as disclose any assessments that have been voted on by the association or any assessments that have been proposed but not voted on yet. During the due diligence period (after we have a binding agreement) your agent will confirm all of this data with the Association and its management company for accuracy.
7.) Bill of Sale (Personal Property Exhibit)
This exhibit lists all of the personal property that will transfer to the buyer with the sale of the property. Items included on this will be all appliances, fixtures, and other items that we decide to negotiate into the sales price. Many of these items may be included in the special stipulations or on the Sellers Disclosure but we list them here to make sure that both sides are crystal clear on what is included. These items of course are all negotiable as well.
8.) Lead-Based Paint Exhibit
This exhibit is required by law to be signed by buyer and seller and their agents for homes that were built prior to 1978. It simply confirms that all parties are aware that there is likely lead based paint in the house which has been determined by the Environmental Protection Agency (EPA) as being a health hazard if ingested. Essentially, if there is Lead Based Paint in the home, you need to be aware of it so that you don’t let your children gnaw on the windowsills and such. You will also be provided with a government issued pamphlet about the dangers of lead based paint and how to keep your family and pets safe when it is present in your home. If the home was built after 1978, it is unlikely that there is any lead based paint in the home (perhaps with the exception of some furniture) as Lead Based Paint was made illegal in 1978. There is really nothing negotiable about this but it has to be part of the contract.
8.) Copy of Earnest Money Check
At the time of the offer, you will have to provide your agent with an Earnest Money check made out to either your Buyers Agent’s broker or in some cases, the Listing Agent’s Broker. Earnest Money is essentially “Good Faith Money”. In the Atlanta Real Estate Market, it is customary to put down 1% of the offer price as earnest money. This money is held in the Broker’s Escrow account which is strictly regulated and audited by the Georgia Real Estate Commission and will be credited back to you at the closing, so this is NOT extra money on top of your down payment or closing costs. It’s “Good Faith” in that it is a gesture to the seller that if you do not live up to the promises you are making in the contract, that this is what you will forfeit. The seller is taking a risk by taking the property off the market for the period of the contract during which time they will be missing out on other opportunities to sell the home to ready willing and able buyers. This is really a gesture that you have some skin in the game and that if you don’t play by the rules of the contract, you will compensate them with this earnest money for it. Its important to note that earnest money is not the only recourse the seller will have the option to pursue legally if you breach the contract, but customarily, this is price of breaching the contract. Remember, this is a legally binding document and has legal ramifications.
Your agent will build in plenty of legal ways to get you out of the contract by way of the contingencies and special stipulations that we have already discussed. However, for instance, if all contingencies have been removed and stipulations fulfilled by the seller, and the buyer decides the day before closing that they simply changed their mind, they will likely lose their earnest money. We make a copy of this check to attach to the offer as proof, or if the buyer chooses to wire the earnest money to the brokers account instead, we will include a wire confirmation.
9.) Copy of Lender Pre-Approval Letter
We’ve already discussed the Lender’s Pre-Approval letter at the beginning of the process. We should already have this in our file and may just need the Lender to update it with the property address of the home we are making an offer on. We attach this letter to the contract so that the seller knows that you actually have spoke to a lender and have the money to buy their house before they take it off the market.
10.) Timelines and Due Dates
There are several timelines established in an offer. One of them is how long the offer is good for, or in other words, how long the seller has to respond to the offer before it is no longer good. Depending on the negotiation strategy and a number of other factors, you may decide that you want a response quickly in which case the seller does not have much time to respond. In some circumstances, you may decide that you don’t want to put the seller under too much pressure and make that offer good for a longer period of time. It is customary in the Atlanta Real Estate Market to give at least 24 hours for the seller to respond.
Other timelines are when the deal will close, how long the Due Diligence Period will last, and how long the financing or appraisal contingencies will last. All contingency deadlines, unless a specific date is agreed upon, are based on the Binding Agreement Date. This is the date that all parties have signed in the final agreement on Price and Terms, and the last party to have signed has delivered the signed agreement to the other sides agent. Timelines in the contract are always based on calendar days (not business days) unless otherwise stipulated. As an example, if you have have agreed upon 10 days for the Due Diligence Period, and the binding agreement date is January 1st, day one of 10 will be January 2nd, and unless otherwise stipulated, the deadline expires at midnight of the 10th day. Your agent will be responsible to keeping an eye on these deadlines and advising you accordingly as you get close to the expiration of these deadline.