Real Estate Contracts and Financing
Writing An Offer
This is a simple formula for deciding what your offer is going to be. Look for other formulas and more details about offers from articles on www.reidepot.com.
Simple Offer Price Formula Example
FMV of Property $150,000 Profit you want - 10,000 (Min) Rehab estimation - 6,000 Closing Costs - 5,000 (usually about 3% to buy and to resell) Holding costs - 5,000 (mortgage, insurance and utility costs while holding the property) Realtor Fee - 10,000 (Usually 6 or 7% of the sales price-If you will be using a realtor) Offer Price $114,000
NOTE: Be sure to subtract off any other expenses that you are aware of that may be regional to your area or specific to this property! Subtract all costs from the fair market value and that will be the maximum offer you will make. Your first offer should be even lower.
Two Essentials to Every Offer
# 1 - When you write up your offer you want to write in as the buyer your name and/or assigns making sure that the offer is assignable to another buy without having to go back to the seller to get approval to assign it. I would run any contract ideas past your attorney to make sure you are comfortable with the usage of them
# 2 - Every offer needs to have an escape clause along with any other clauses that your offer is subject to. An escape clause could be worded similar to “This offer is subject to and contingent upon the inspection and approval of the buyer’s partner.” This allows you to back out of the offer and without any penalties and to get your buyer’s deposit or earnest money back. This will save you many headaches and potentially thousands of dollars if you find a show stopper after you have an accepted offer. Work with your realtor to put in an escape clause that you will be able to get accepted and that is appropriate for your area.
It is easy to create a standard addendum in your word processor and to have all of you standard clauses already typed in. It is easy to delete clauses you don’t require for a particular offer. I recommend you research how to store this as a template for your word processor. The addendum should have wording at the top that identifies it and the offer it modifies clearly. I would title it something like Contract Addendum # 1 and then on the offer form where you write in your clauses that the offer is subject to, write in the words “See Contract Addendum # 1”. Some forms have a box at the bottom to check if an addendum is being used. If your form does have such a box, make sure that you check it also. Work with your realtor to make sure what you do is appropriate for your area.
An addendum form is very simple. The follow text can appear at the head, the various addenda follow, and the parties to the transaction sign at the bottom. The example provided below is for reference only. If you have any questions about its use please seek legal advice from the appropriate legal resources. See Low cost Access to Top Rated Attorneys below for resources.
Contract Addendum # 1
This Addendum is made the _________ day of ________________________, 20___________,
and is added to and amends that certain agreement by and between
______________________________________________________________, as seller(s) and
____________________________________________________________, as buyer(s), which
contract/agreement is dated the ________ day of ___________________________, 20_____ ,
on the following property: _______________________insert property address_____________.
Following this you place the text of your addenda and then have a place for both parties to sign at the bottom. Attach the addendum to the original contract, and everything is finished.