Writing A Real Estate Offer In California, Part 1

If you’ve never written a real estate offer in California, you might be surprised to find out the sheer number of documents required. Not only is there a 10-page purchase agreement (the “offer”), there is also at least half a dozen accompanying disclosures and various other supporting documents.

Whew! That’s a lot. This three post series explains the package and the process.

But first a word about dual agency. 

A Warning About Dual Agency

Some buyers think it’s a good idea to use the listing agent to write their offer. Either they have some misguided idea they’ll get a better deal or they simply don’t understand the concept and availability of an independent buyer representative.

There are some listing agents who will be all too happy to write an offer for you or have another member of their team do it. It’s an easy way to pick up additional commission on the listing, but is it the best idea for you?

Think about it. The agent already has a relationship with the seller. And fiduciary responsibilities. Legally they will owe you the same if they act as your representative, but can one person really represent two competing sides adequately?

I’m in the distinct minority among my real estate colleagues, but my first career as a consumer fraud attorney leaves me cold when it comes to dual agency. We rarely use it and if we do, we are super clear to all parties about what is happening and how it might impact them.

And what about when the listing agent who agreed to write your offer has done the same for other buyers? You’ll never know why you didn’t get the property or what could have been done to get you the property.

No, dual agency is rarely a benefit for buyers. The agent who tells you you’ll have a “in” if you let him/her/them write your offer is undoubtedly saying the same to others and probably can’t be trusted. Don’t fall for it.

The Offer

The offer itself is a 10-page document outlining the buyer's offer to purchase the property. Once the seller accepts the offer, it becomes a binding contract. The seller might provide a counter-offer prior to accepting, but might also accept the offer outright. The offers and counter-offers can also go back and forth quite a bit.

There is no contract until both parties agree, but note that a buyer is “agreeing” in the first instance by submitting the offer. An offer can be withdrawn any time up until it is accepted by the seller. Find our sample here and follow along!

The first paragraph describes the property and escrow. The next paragraph describes which brokerage represents which party.

The third paragraph is all about the money. A minimum of 3% of the purchase price is required to be deposited into escrow within three business days of escrow opening. The deposit is refundable if defined contingencies aren’t met or escrow fails through no fault of the buyer.

Some buyers will offer a higher deposit to put more “skin in the game” in a competitive offer situation. If one or more loans are involved, the terms are described. 

Contingencies

Typical contingencies in a California real estate offer include:

• Appraisal 

• Loan

• Inspection

The appraisal contingency (¶3.I) gives the buyer an out if the property doesn’t appraise for at least the list price. This is a critical contingency to have in your back pocket if you don’t have additional funds to make up the gap if the property does not appraise high enough to secure the loan.

As a practical matter, however, many buyers are waiving this contingency in competitive bidding situations, but don’t do this if you don’t have a stash of cash to make up the difference if there is one.

All contingencies have to be lifted during escrow on the schedule written in the offer. The offer contract has certain defaults, but these are often shortened to make an offer more attractive to the seller.

I’ve had luck fighting low appraisals and getting the appraiser to increase the appraisal, but you can’t count on this. It really comes down to other recent sales in the area, the reasonableness of the appraiser and the tenacity of your agent.

For cash sales, appraisals won’t kill financing, but if you care about some random appraiser’s opinion of the value of your property before you buy it, write in the contingency.

The loan contingency (¶3.J(2)) gives the buyer an out if the buyer can’t secure financing on the terms written in the offer, despite a good faith try. As a practical matter, sellers won’t accept financed offers without proof that the buyer will qualify for a reasonable loan. This contingency is really for buyers who have financing lined up, but something goes horribly wrong. 

A contingency for sale of the buyer’s property (¶4) can be written in, but most sellers will reject the offer if they have others without this contingency. At my shop we have alternative ideas for clients that need to sell a property in order to finance a purchase because this contingency is almost always dead on arrival.

The inspection contingency is described in (¶14.B). By default, this contingency has to be lifted within 17 days, but a shorter inspection period is usually more attractive to a seller and often 10 days is used. This means your agent better have a great general inspector on speed dial and your agent better be ready to help you order extra inspections as warranted.

What happens if you can’t make it happen in time? It’s case-specific, but a good agent will try to negotiate a little more time for well-documented issues.

So this is the beginning of the offer writing process. In Part 2, we’ll walk through the rest of the offer contract.