Writing A Real Estate Offer In California, Part 3
In Part 1 of this series, we set the stage for making a real estate offer in California and we described the financing provisions and contingencies. In Part 2, we walked through the rest of the contract and briefly described electronic signatures. Here, in Part 3, we’ll talk about the supporting documents.
Proof of Funds
Any seller willing to pick your offer instead of competing offers is always evaluating your ability to complete the process and pay the seller on the expected terms, conditions and time frame.
First and foremost, the seller wants to know that you have the financial ability to close the transaction. This involves providing proof of funds for the down payment, closing costs and purchase price (if no loan is involved).
We like to encourage our clients to provide proof that shows just the amount needed to close. That is, if $2M is needed, we don’t want the seller to see that you have $3M sitting in a bank account. Why? Because that will encourage them to counter your offer with a higher price. It’s none of the seller’s business how much more than the offer price you have available.
We understand that buyers may not always have the right combination of accounts to achieve this goal, but we want you to understand the strategy. Also note that the accounts you show do not have to be the accounts you end up using for the property. At this stage, it’s about showing you have ready access to funds, not showing the exact funds you’ll use. Nobody is going to follow you around to see where the money wired into escrow comes from.
Second, please be assured that we redact all personal information from the proof of funds provided to the seller. We show your name on the account and the balance, but all other details are redacted for your privacy. We will need to discuss and explain co-owners on accounts that aren’t parties to the offer/contract.
If you’re financing the property, part of your proof of funds is a loan pre-approval letter from a lender that the seller trusts to provide the loan. If your lender is from some obscure bank or mortgage company, be prepared to further explain their track record in funding similar loans.
Love Letters & Other Personal Buyer Information
Historically, we’ve had a ton of success appealing to sellers in competitive scenarios with letters describing our buyers, designed to evoke emotions favoring our buyers. These letters profess the buyer’s love for the property and how they’ll use it and take care of it.
Unfortunately, some sellers could use these letters to pick buyers based on information provided that might inadvertently violate fair housing laws. For example, we’ve provided happy family photos and it’s possible that sellers could have selected buyers from photos based on skin color or other prohibited criteria.
Our industry has mostly outlawed these love letters in recent times. It makes me sad because great stories can definitely make buyers stand out from the crowd. Alas, no more letters.
Disclosures & Advisories
Real estate is filled with disclosures and advisories designed to prevent litigation, or at least to shift blame if there is litigation. The offer is submitted with the following:
Disclosure Regarding Real Estate Agency Relationship (describing which brokerages represent which parties)
Fair Housing & Discrimination Advisory (describing the protected classes and various state and federal laws related to fair housing, as well as prohibited conduct)
Possible Representation of More Than One Buyer Or Seller (telling you a broker “might” represent competing clients)
Wire Fraud & Electronic Funds Transfer Advisory (advice on how to safely wire funds to escrow)
Buyer’s Inspection Advisory (advice on what to inspect and a reminder that your broker won’t make those decisions for you)
California Consumer Privacy Act Advisory (describing how your personal information might be used in a real estate transaction in CA)
The above are the disclosures and advisories baked into the offer package. The following will also accompany the offer or be signed later in escrow:
Market Conditions Advisory (describing the cyclical nature of real estate, that buyers pick their own offer price, the contingencies and consequences of waiving the same)
Confirmation of Real Estate Agency Relationships (outlining who represents who AGAIN)
My parenthetical descriptions are necessarily abbreviated. Refer to each individual document for details and definitely ask questions as they come up!
So that is the offer process! In case you ever wondered why you need a good agent, this is just the start. Navigating escrow, including inspections and negotiating repairs, is the next big trick. Oh and keeping on your lender to make sure they are performing on schedule is another ninja trick we pull out of our bag. We’ll describe these processes in future posts.
Who’s ready to make an offer?? Schedule time on our calendar and let’s talk about a strategy that gets you to the offer stage and getting your offer successfully accepted.