Making an Offer & What that Means

Many buyers think that making an offer means you’ve bought a property. In fact, buyers are heavily protected through many steps of the process before you’ve actually exchanged money for title. For nervous buyers, this can help. Let me explain the steps:

  1. Negotiations: You likely won’t get your offer accepted in a seller’s market. When you’re reaching for a good deal, it’s likely that the seller, in a seller’s market, will come back with new terms. When the seller makes a counter offer, your offer is immediately void until you accept or offer new terms.
  2. Earnest Money Deposit (Days 1-3): Once your offer is accepted, you have three days to send in your earnest money deposit (EMD – usually 3% of the purchase price). Before the EMD is sent, it’s very easy to cancel if you have to. At this point, the seller likely hasn’t changed the property status on the MLS, so they will still solicit other offers. Once you send in the EMD, you settle into the escrow/investigation process.
  3. Physical Contingency (Days 1-17): Depending on negotiations, you have up to 17 days (in some cases) to investigate the physical state of the property. During this time, you can cancel if you don’t like anything about the property, and receive your EMD back. (Out of the 50 or so escrows I’ve brokered, only one company charged a $200 cancelation fee. That is not normal.) During this period, the seller delivers disclosures about the property and we receive the preliminary title report.
  4. Loan Contingency (Days 1-21): Depending on negotiations, you have up to 21 days (in some cases) to get approval on your loan. Given the massive amount of loans being processed in Southern California, this process usually takes 21 days or longer unless you have worked with a direct lender to get approved already. Often, the best we do is get a confident nod from the loan officer to go ahead and remove the loan contingency.
  5. Appraisal Contingency (Days 1-21): Depending on negotiations, you have up to 21 days (in some cases) to get an appraisal on the property for the price that you offered. If the appraisal comes up short, you can invoke the appraisal to cancel the deal.
  6. Removing Contingencies (Day 21): Once you’ve removed all of your contingencies, your EMD is promised to the seller. That said, if you can prove negligence on the seller’s part, an arbitrator may not grant the seller your EMD. During this time, you work with your loan officer for final approval. You still have not paid your down payment, and that is still protected, in most cases.
  7. Funding (Day 30): Once your loan is approved, you sign loan docs, and you transfer your down payment, you can still shout STOP and the escrow company cannot move forward with the deal. If the other party doesn’t agree to cancel and refund your money, you will likely go to arbitration to settle claims.

In conclusion, it is preferred to be confident in your offer. But if you’re nervous as a buyer, rest assured that signing your first offer doesn’t necessarily mean you’ve made your most important real estate decision. Usually, that comes when you remove contingencies.

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