Making an Offer On a House: Put It All in Writing

Youve found a house you love, and now youre ready to make an offer. This is where the process really begins to get serious and the paperwork starts to build.

Buying a home isnt a handshake deal; verbal agreements just dont count. Thats why everything important -- in fact, any little detail expected to be a part of the terms of sale -- must be written down and specifically agreed to. There are no shortcuts.

How the offer process works

No matter how excited you are about the prospect of your new place, at this stage of the process you have to be prepared to negotiate or potentially even walk away if the terms arent right for you or if you feel pressured.

Youve done your homework and know your local market. You have a list of sales comparable to the house youre interested in, and youre ready to make a smart offer. Heres how the process works:

1. You make a written offer.

2. The seller accepts, counters or declines the offer.

3. If its accepted, you move on to the next step.

4. If the seller makes a counteroffer, you either accept it or make a new offer -- and go back to step 2.

5. If the offer is refused, you can make a new offer or begin a new round of house hunting.

Your agent will do all this work on your behalf.

Putting together the offer to buy a home

The written offer is legally binding, so in most cases a simple letter wont work. There are many state, and sometimes local, laws guiding the process, so youll want to cover all the bases by using a legally approved form.

Your real estate agent can provide you with a Residential Purchase Agreement that complies with applicable state and local laws. In some states, it is common for a lawyer to be a part of the offer paperwork process.

Some buyers are encouraged to write a personal letter to accompany their offer, hoping to gain an emotional edge over competing buyers or to explain why a bid based on comparable sales might be reasonable and justified. Thats fine; just dont count on that letter having any legal bearing on the transaction.

A written offer may contain these elements, among others:

• A legal address and sometimes the legal property description

• Details regarding the purchase price and terms

• The amount and terms regarding earnest money

• A mandate that the seller will provide clear title to the property

• Details regarding any buyers participation in closing costs or other fees, as well as how certain taxes and expenses will be prorated between the buyer and the seller at closing

• The date and time of the offers expiration

• A projected loan closing date

• Other state-required provisions or disclosures

• Any contingencies that the deal is subject to

Contingencies and disclosures

At least a couple of standard contingencies will likely be noted in the written offer. These are things that need to happen before the sale can move forward. Your offer will most likely include some standard contingencies, such as one stating that the deal hinges upon you obtaining financing within a specified time. Another may require the completion of a home inspection. There could be several others.

Although you have to protect your interests and gather enough information to make a wise purchase, contingencies can -- especially in hot markets -- act as roadblocks to getting a deal done. Its best for both the buyer and the seller to put only enough stipulations in the contract to cover the necessary bases; no more.

Seller disclosures, on the other hand, are usually required by law. This is information regarding the property and improvements that the owner is aware of that may affect its value. Disclosures could include natural hazards, structural issues or other substantial defects. Youll want to review these carefully before committing to a purchase.

Putting cash on the line

When you make an offer, in most cases youll be required to submit a deposit -- called earnest money -- that the seller will hold in escrow as good-faith money. This may be anywhere between 1% and 3% of the total purchase price. The offer agreement should detail under what circumstances youd have to forfeit the money (for example, in the event you back out of the deal without a valid reason), or returned by the seller (such as in the event your offer is rejected).

Its a yes: whats next?

Remember, a phone call, handshake or verbal commitment doesnt make it official; its not a done deal until both parties sign the offer agreement. Once thats done, after the brief celebration and sigh of relief, you should be ready to get down to the serious business of closing the sale. That will likely include a home inspection, and it will definitely mean starting the process of finalizing your financing through the lender.

That can take an average of 30 to 60 days to complete.

Making an offer on a distressed property

If you are making an offer on a pre-foreclosed home or real-estate owned (REO) property, be prepared for an extended offering process, especially if its a short sale. Short sales are pre-foreclosure transactions in which a house is being sold by the owner for less than what is owed to the lender.

Distressed property purchases are not easy deals to make and are best made by the very patient buyer. More often than not, successful transactions on such properties are completed by cash buyers.

Whether its finding a bargain on a distressed fixer upper, or making a move to the best address in the neighborhood, the foundation of a good home purchase is the initial written offer.

Hal Bundrick is a staff writer at NerdWallet, a personal finance website.

This article originally appeared on NerdWallet.