Answering the Hard Questions: What's in an Offer Part II

I know I left you hanging on the rest of what goes in an offer. I promised I’d be back with more… and more do I have!

Mortgage Contingencies: This is another one you may have heard people talk about waiving in super competitive markets like we saw over the pandemic (and still are seeing today in some areas!). A mortgage contingency is the part of your offer that says if you can’t secure financing for some reason, for example, you lose your job after you go under contract, you can walk away from the deal without penalty. Sellers prefer to see the least opportunities for the buyer to terminate their contract, so waiving this one gives just a little bit more security. In the event that you do terminate your contract due to financing failure without this contingency elected, you’re not only at risk of losing your deposit money, but also at risk of being sued by the sellers for not holding up your end of the transaction!

Earnest Money Deposit(s): Speaking of deposit money, that’s what’s next! Also known as the earnest money deposit (EMD), this is the amount that you put into escrow to show that you mean business! This is also the money that the seller is entitled to if you default on the contract outside of the acceptable termination terms. There are typically one or two deposits that you make over the course of the transaction. Whether it is one or two seems mostly regional. In Philadelphia, I often see two smaller deposits made while out in the suburbs I see one large deposit as more of the norm. There are two variables here: how much you deposit and when.The first deposit is due within a few days of signing the contract. The second deposit is made some time after the first, typically around the time you finish inspection negotiations. To make this part of the contract work in your favor in a competitive situation, higher EMD and smaller windows to make the payments are very attractive. Sellers love to see that you’re willing to put your money on the line and quickly to have their house! Once again, it is lower risk for and a higher reward for them in the event that something goes awry.

Settlement Date: Also known as the “closing date.” This is the estimated day that the magic happens: you sign a whole load of papers and become a homeowner! This date is typically around 30-60 days out from contract signing. It can be longer, it can be shorter. That often comes down to what needs to be done before getting to the closing table. Your mortgage lender will need time to process your loan, you will need time for your due diligence/inspections, and any negotiations that may arise. All of this can dictate exactly how short your settlement timeline can be. Sometimes sellers need some extra time to move out of the home and will ask for a specific closing date to accommodate them. Often, a shorter timeline is more appealing to a seller that doesn’t need to remain in the home for any period of time. The sooner they can sell the property (and stop paying taxes/mortgage/fees on it), the better in their eyes! Everyone loves to save money. 

Additional Clauses: There are a few special clauses that can make a big difference on whether or not your offer is accepted! 

Here are a few:

Escalation Clause: When trying to get a leg up on the competition but wanting to avoid over-paying, this clause comes in handy. You offer your purchase price, but agree to pay more up to a certain amount in set increments if there are other offers higher than yours. For example, you put an offer in on a property at $350,000 with an escalation clause up to $375,000 in $1,000 increments. So if the highest offer that comes in is $365,000, you agree to pay $1,000 over that, $366,000. If the highest offer is over $375,000 (your max), that is still the most you are agreeing to pay.

Appraisal Gap Coverage: This is where you agree to pay a certain amount to compensate for a low appraisal. A lender will only lend as much as the home is worth so if you’re paying over that value to win the bid, offering to cover the gap helps the seller know you won’t be asking them to reduce the price. 

Transfer Tax Coverage: This one is pretty simple. Oftentimes, buyer and seller will split the transfer tax but you can offer to pay for all of it, saving them some money. 

This list hits the big ones but certainly is not exhaustive. There are endless ways to write an offer and your realtor should be able to advise you through what strategy will work best for you while winning you the home!