Selling: 6. Offers and Earnest Money

I've got a buyer, I've got a buyer!

Until you have an offer in writing with a deposited earnest money check, you don't have an offer. Once you do have the written offer, you'll typically have one day to accept or reject the offer. There will be either a single page for you to fill out regarding your decision, or it may be inside of a larger document.

Accepting An Offer
You may cause an offer to be contingent upon a counteroffer (PDF) - especially if the buyer tries to pull a trick like making an offer for an amount less than your FSBO Formula asking price. If your home is priced higher than the FSBO Formula and the buyer has proposed a lower price, then you should consider making some compromise in your agreement sales price. You can use the counteroffer to set a different closing date which is most beneficial to you, but is typically in 30 to 45 days. Once you or the buyer has finally accepted an offer and all of it's counteroffers (or portions thereof), you'll then proceed towards closing!

You need to consult with your already-chosen title company, closing officer and real estate attorney about the below - and remember that use of this website is subject to our terms of use. These forms need not be daunting, and you can get through them. What is commonly referred to as "a purchase agreement" means a group of documents, including:

1. An "Offer to Purchase Real Estate"
2. An "Agreement to Sell Real Estate" a.k.a. "Real Estate Sales Contract"
   with Escrow Instructions and Contingencies
3. EPA Document "Protect Your Family From Lead In Your Home" PDF
4. Seller-filled-out copy of "Lead Warning Statement" PDF
5. Legal Description of Premises
     (you prepared this and some of the other documents needed now in Step 2)
6. Property Condition Disclosure Statement
7. Improvement Location Report or Boundary Survey (It's great to include an informal "plat" with your sales sheet), ask your title company or real estate attorney
8. City/County real estate records of the "legal lot of record"
9. Any local rules and regulations, such as home owners association agreements or covenants
10. General Warranty Deed
11. Water Rights Conveyance, if applicable
12. Amendments and Counter Offers to your Real Estate Sales Contract, if any
13. Rental Agreements with deposit amounts for any tenants on the property

Your title company, closing officer and real estate attorney will be able to ease your fears about any of these documents - this is the part that you are paying them for, and they are here to help! Both the buyer and the seller should keep copies of everything as they work through these documents and on their way to closing. Here are some further considerations:

Earnest Money Deposit & Escrow Instructions
You should not consider an offer serious without an earnest money deposit of approximately 1% of your asking price, or whatever amount you feel comfortable with. Having already decided on your title company, the title company or closing officer will instruct you to whom the earnest money check should be made out to. In some cases, the buyer may wish to deliver the earnest money directly to the title company rather than to you. It is not wise to accept a post-dated check. Understand that this deposit (usually in a non-interest bearing account) does not constitute the entire down payment. The contract will spell out in full what happens to earnest money, but in general:

• If something prevents the sale which is outside of the buyer's control (can't get funding, for example), then their earnest money must be returned;
• Typically, you will ask that "upon removal of all contingencies that the earnest money deposit shall become nonrefundable;"
• If the buyer arbitrarily 'decides' to withdraw from the agreement (wasn't ready, doesn't really want to buy, didn't meet agreed upon contract deadlines), then the earnest money may be kept, but you must check with your real estate attorney;
• Likewise, you the seller cannot back out of the agreement once you've accepted it, except in specifically defined circumstances.

Escrow Instructions should comprise parts of your Real Estate Sales Agreement.

Proof of Funding / Qualification Letter / Pre-Qualify Your Buyer
It is always a good idea to counter an offer with a request to ask buyers to provide a letter from their lender within 2 days stating that they qualify, or are pre-approved, for a loan of the amount needed to purchase your home (or more). If the letter does not cover the sales price of your home and the buyer will be making a down payment of substantial size, you may also want a letter from the buyer's bank about the account balance being sufficient to cover the promised down payment. It is very important to obtain this information before you accept an offer and execute a sales contract. Otherwise, you could tie up your home for a very long time just to find out that your buyer didn't actually have any ability to buy!

If you feel that a buyer is serious but does not have funding pre-arranged, it may be a good idea to speak with your own bank or a mortgage broker and refer the buyer to them for pre-qualification before you consider an offer as being presented. See also our list of mortgage brokers. While it may seem overly strict to require proof of funding from buyers, this very well may be the third most important thing that you do (after pricing and preparing) in the sale of your home.

Multiple Offers
If you receive and are considering multiple offers at the same time, you will need to make that known to your buyers in each counteroffer and make provisions allowing you to review all pending offers before any one of them becoming binding.

Frequently Asked Questions For This Page

Q: Where can I get an idea of some of the odd things which may come up throughout this process?
A: Here are some interesting resources:
US Department of Housing and Urban Development (HUD) Buying Your Home: Settlement Costs and Information
http://www.hud.gov/offices/hsg/sfh/res/sfhrestc.cfm
and
FreeAdvice.com : Real Estate Law : Buying and Selling A Home
http://real-estate-law.freeadvice.com/buy_sell_a_home/
and
HUD : Selecting An Attorney http://www.hud.gov/offices/hsg/sfh/res/sc2sectb.cfm