Back to Course

Understanding Home Ownership- The Beginning

0% Complete
0/0 Steps
  1. Module 1: Understanding Mindset
    9 Lessons
    1 Quiz
  2. Module 2: Understanding What you want your money to do for you?
    6 Lessons
    1 Quiz
  3. Module 3: Understanding The Types of Real Estate Investments
    7 Lessons
    1 Quiz
  4. Module 4: Understanding The Resources
    11 Lessons
    1 Quiz
  5. Module 5: Understanding The Finance
    15 Lessons
    1 Quiz
Module Progress
0% Complete

The 5 Big Contract Components

There are several key components to your offer that will need to be decided and added to the contract. Specifically, here are five big decisions you’ll need to make in order to prepare your offer:

  1. Cash or Financing
  2. 2. Purchase Price
  3. 3. Earnest Money
  4. 4. Closing Costs
  5. 5. Contingencies

1. Cash or Financing:

The first thing you’ll need to figure out is whether you’ll be offering to purchase the property “ALL CASH” or “FINANCED.” This decision will impact several other parts of your offer, and if your offer is accepted, will dictate how the seller views the deal throughout the closing process. Generally speaking, an all cash offer is one where you intend to purchase the property using cash you currently have available in your name (you will likely be asked to prove it) and a financed offer is one where the funds are intended to be borrowed or otherwise obtained before the closing.

2. Purchase Price:

The next big decision you’ll need to make is your starting offer price. In some situations, you’ll want to start with a low offer that you expect will get negotiated higher and in other situations you’ll want to offer at your MPP right off the bat.

Depending on the situation, one strategy will likely be more successful than the other.

3. Earnest Money:

The next question you’ll need to answer when putting in an offer is how much earnest money you plan to put down on the property. Earnest money is a customary deposit that you provide along with the offer to show good-faith in your promise to purchase. Earnest money is also the security that the seller gets to ensure that you follow-through on your contractual commitment; if you back out of the deal after your contingency period(s) are up (in other words, if you violate the contract), the seller may be legally entitled to keep your earnest money deposit.

4. Closing Costs:

  1. A lot of new investors (and new homebuyers) don’t realize this, but in some areas of the country and for some price level of houses, it’s not uncommon for the buyer to ask the seller to pay some or all of his closing costs for him. This is more common for lower-priced houses and for buyers who are getting loans, as these are the buyers who tend to have the least amount of disposable cash, and they are trying save their cash as much as possible.

5. Contingencies:

A contingency is a statement (also known as a “stipulation”) that is added to your contract that will allow you the right to back out of the deal without penalty under specific circumstances. Contingencies are often used by buyers who aren’t 100% convinced they’re ready — or able — to buy the property, and want some extra time to “get their ducks in a row.”