When you find a property that you want to buy, you make an offer on it. Real estate offers are in writing, and inform the seller of how much you are willing to pay. Your offer consists of a Contract to Buy Real Estate, disclosures and addendums, proof of financing, and an earnest money check.
Contract to Buy Real Estate
This is a standard Colorado contract, prepared by your real estate agent, which defines the price, terms and timeline of your offer.
Disclosures and Addendums
There are numerous supporting documents to the Contract. These are the most common ones, although there can be more.
- Source of Water Addendum – Informs the buyer where the property’s water supply comes from. This is important for rural properties and new subdivisions, where the water source could be less reliable than established municipalities.
- Seller’s Property Disclosure – Informs the buyer about what the seller knows about the property.
- Square Footage Disclosure – Informs the buyer where seller came up with the square footage of the property.
- Closing Instructions – Defines who is the closing company (Title Company).
- Lead Based Paint Disclosure – Only required for houses built prior to 1978. Informs the buyer of the seller’s knowledge of the presence of lead-based paint on the property.
Proof of Financing or Funds
The purpose is to inform the seller that you are a “serious” buyer with a down payment and loan (or the cash) to purchase their property. Normally you will submit a Pre-qualification Letter from a bank or mortgage company. Even better is a Pre-approval Letter, which means you have been through a more advanced process called underwriting.
Earnest Money Check
The final part of your offer is an Earnest Money Check. Earnest money is a “deposit” on the property, held in an Escrow Account. So be aware…your Earnest Money Check will be cashed; have enough in your account so the check will clear!
Money in an Escrow Account is neither the buyer’s nor the seller’s; it’s held for the benefit of both parties. At the Closing, the Earnest Money is transferred to the seller and is applied to the down payment. If the transaction is terminated prior to the Closing, the money reverts back to the buyer (assuming all contract terms were met).
After You Submit Your Offer…Let The Negotiations Begin
Wait to hear from the seller. They are required to respons prior to the Acceptance Date. The seller has three options:
- Accept your offer as-is
- Counter your offer
- Reject your offer
I hope your buying strategy is sound and you are successful with your offer. Hearing “YES” on a contract is one of the most exciting days of your life.
Gary Clark's Real Estate Tips 