What Is an Offer in Real Estate and How Does It Work?

A real estate offer is a formal proposal from a potential buyer to a seller, outlining the specific terms and conditions for purchasing a property. It serves as the initial and significant step in a real estate transaction, setting the foundation for negotiations and a binding contract. This document formalizes the buyer’s interest and begins the path to homeownership.

Essential Components of an Offer

A real estate offer includes elements to ensure clarity and legal enforceability. It identifies all parties involved, including the buyer(s) and seller(s), along with the property address and its legal description. This ensures no ambiguity about the parties or the property being transacted.

The proposed purchase price is a central part of the document. Accompanying this is the earnest money deposit, a good faith deposit demonstrating the buyer’s intent to purchase. This deposit typically ranges from 1% to 5% of the purchase price, but can be higher in competitive markets. Earnest money is usually held in an escrow account by a real estate professional or attorney and can be applied towards the down payment or closing costs if the sale proceeds.

An offer often incorporates various contingencies, which are conditions that must be met for the contract to become legally binding. A common example is the financing contingency, making the offer dependent on the buyer securing a loan. This includes details about the loan type, acceptable interest rate limits, and a timeline for approval. If the buyer cannot secure financing, this contingency allows them to withdraw from the deal without penalty.

The inspection contingency provides the buyer the right to have the home professionally inspected within a specified period, often 7 to 14 days. If significant issues are discovered, the buyer can request repairs, renegotiate the price, or cancel the deal. An appraisal contingency is also included, ensuring the property appraises for at least the purchase price. If the appraisal comes in low, this contingency allows the buyer to renegotiate the price or withdraw with their earnest money.

The offer specifies a proposed closing date for finalizing the transaction. It also details inclusions and exclusions, listing specific personal property like appliances or window treatments that are part of or not part of the sale. An offer includes an expiration date, typically 24 to 72 hours, by which the seller must respond. This creates a timeframe for the seller to consider the proposal.

Presenting a Real Estate Offer

After preparation, the offer is formally presented to the seller. Typically, the buyer’s real estate agent drafts the offer using standard residential purchase agreement forms and transmits it to the seller’s agent.

Real estate offers must be in writing to be legally enforceable; oral agreements are not binding. Delivery methods commonly include email, secure online portals, or in-person delivery by agents, ensuring a clear record.

Upon receipt, the seller and their agent review the offer’s terms. The offer’s expiration date, often 24 to 72 hours, creates urgency for the seller to respond. While there is no legal requirement for sellers to respond within a specific timeframe, industry practice generally dictates a response within a few days.

Seller Responses to an Offer

Upon receiving a real estate offer, a seller has several ways to respond. The most straightforward is acceptance, which occurs when the seller signs the buyer’s offer without changes. This forms a binding contract, provided acceptance is communicated back to the buyer.

Alternatively, a seller may issue a counter-offer. A counter-offer rejects the original offer while proposing new or modified terms, such as a different price, adjusted closing date, or altered contingencies. This shifts negotiation back to the buyer, who can then accept, reject, or make another counter-offer. A counter-offer voids the original offer, meaning the seller cannot later accept the initial terms.

A seller can also reject an offer. This can be done explicitly, often in writing, or implicitly by allowing the offer’s expiration date to pass without a response. While not legally obligated to respond, explicitly rejecting an offer is considered a professional courtesy. A seller may choose not to respond at all, particularly if the offer is significantly below expectations or if they are considering other proposals.

In a competitive market, a seller might receive multiple offers. Sellers can accept the most favorable offer, counter one while keeping others as backups, or inform all interested buyers that multiple offers are on the table and invite “highest and best” proposals. The decision involves evaluating not just price, but also factors like contingencies, financing terms, and the buyer’s financial strength.

From Offer to Binding Contract

A real estate offer transitions into a legally binding contract at the point of mutual acceptance. This occurs when both the buyer and seller have agreed to all terms and conditions outlined in the offer, and this agreement is formally communicated. Until this mutual agreement and communication take place, an offer is not binding.

Communication of acceptance is a requirement for contract formation. The seller’s acceptance, typically by signing the written offer without changes, must be communicated back to the buyer or their agent for the contract to become binding. This ensures both parties are aware a legal agreement has been established. Before acceptance is communicated, a buyer retains the right to withdraw their offer.

Once a binding contract is formed, several steps follow to move the transaction toward closing. The earnest money deposit is typically placed into an escrow account, marking a financial commitment. This signifies the official opening of escrow, a neutral third-party process that manages funds and documents. Concurrently, contingency periods for inspection, appraisal, and financing officially begin. These actions lay the groundwork for the home-buying process, leading to property ownership transfer.