Buyer FAQ

In most transactions, the seller pays the listing broker and the buyer’s broker compensation for their services. If the seller is not offering compensation to the buyer’s broker a separate agreement between the buyer and their broker can be arranged for compensation.

When your offer is accepted, you will be expected to make a deposit to escrow within two business days. This deposit is called earnest and will be applied towards your downpayment.

Closing costs are charges paid to various entities during the real estate transaction. They can include escrow fees, document preparation fees, the cost of an inspection, and lender fees.

These terms refer to your status in the loan approval process. Prequalification is a determination of your probable ability to obtain a loan. A lender or mortgage company will help you determine the price you can afford, based on your monthly income, your current debts, and the cash you have for a down payment. Preapproval means that the mortgage lender has already verified and approved your credit and income. Obtaining preapproval early in the process will make your offer more attractive to the seller.

Earnest money is a “good faith” deposit submitted when your offer is accepted to show the sellers you are serious about purchasing their home. There is no set amount that is required, but the amount sometimes makes a difference in the negotiation process. Once the buyer and seller have a mutually accepted offer, the earnest money is deposited into a trust account. That deposit becomes a credit to the buyer and becomes part of the downpayment.

Real estate contracts are complicated legal transactions. This is another area where having a knowledgeable and professional agent is a necessity. Rarely does the buyer lose the earnest money. Most often, if the transaction falls apart, there are circumstances beyond the buyer’s control that cause it to happen. If the buyer willfully decides, however, that they no longer want to buy the house and has no legal reason for rescinding their offer, then the seller has the right to retain the earnest money.

To put yourself in the best negotiating position before you find the new home you want, hire a qualified real estate agent to help you put your home on the market. Once you write an offer on a new home, your offer will be “contingent” upon the sale of your home. A buyer in this position may not have the same negotiating power as one whose home has already sold (or at least has an accepted offer). The seller may be hesitant to accept your offer because there are too many things that must happen before the sale can close.

As the name suggests, an escalation clause is a clause that can be included in your offer. If there are multiple offers on the home, this clause allows you to increase your suggested purchase price in order to avoid getting outbid.

Typically, there are three important parts to an escalation clause:

1) Proof of a bona fide offer: Sellers can’t just use an escalation cause to secure a better sale price. In order for the clause to go into effect, the seller must be able to provide proof that another offer came in higher than yours.

2) An escalation amount: The escalation clause will also include the amount by which you would like to outbid any other offers. If, for example, another party offered $800,000 and your escalation amount was $5,000, the escalation clause would increase your offer to $805,000.

3) A price cap: The cap represents the maximum amount that you’re willing to pay for the home, or how high you’re willing to allow your offer to go.

A financing contingency gives the buyer time to apply for and obtain financing for the purchase of the property. This provides important protection for the buyer, who can back out of the contract and reclaim their earnest money in the event they are unable to secure financing from a bank, mortgage broker, or another type of lending.

A financial contingency will state a specified number of days the buyer is given to obtain financing. The buyer has until this date to terminate the contract (or request an extension that must be agreed to in writing by the seller). Otherwise, the buyer automatically waives the contingency and becomes obligated to purchase the property—even if a loan is not secured.

An inspection contingency gives the buyer the right to have the home inspected within a specified time period, such as five to seven days. It protects the buyer, who can cancel the contract or negotiate repairs based on the findings of a professional home inspector. An inspector examines the property’s interior and exterior, including the condition of electrical, finish, plumbing, structural, and ventilation elements. The inspector furnishes a report to the buyer detailing any issues discovered during the inspection.

Depending on the exact terms of the inspection contingency, the buyer can respond in one of 4 ways.

1) Approve the report, and the deal moves forward.

2) Disapprove the report, back out of the deal, and have the earnest money returned.

3) Request time for further inspections if something needs a second look.

4) Request repairs or a concession (if the seller agrees, the deal moves forward; if the seller refuses, the buyer can back out of the deal and have their earnest money returned)