Friday, July 15, 2011

"Buy It" - Part One - What's an Offer?

You found something you like, and can afford - YEA!  

Next step - Make an offer.  

What constitutes an offer and how do you make one?

An offer to purchase occurs when you state your terms and conditions for the purchase of something (in this case that something is real property).

You can make a verbal offer or a written offer.  Telepathic offers don't count.  Verbal offers usually don't count either, because they are not binding and rarely contain the level of detail that is needed to be clear about what everybody needs to do.  My first employer told me - "Verbal offers are worth the paper they're written on .....".   

Write it down.  When you do so you will begin to articulate not just what property you want to buy and how much you will pay, but also when you'll pay it, how you'll pay it, what other conditions apply.   All of these items are important.  Work with your broker to be sure the list includes everything it should. 

Buyer Name - Is it you personally, you and a partner or significant other, your company, a family trust ?  If you're not sure, then note that as well so that appropriate provisions can be made later to vest title as you may choose. 

Seller Name - The listing agent will have this information and your broker should be able to obtain it from him/her.

Property description - The legal and common description of the property - be sure everybody knows what property is the subject of the contract.

Price - What will you pay, in what currency.  In Belize it is common for property prices to be quoted in either Belize or US Dollars.  The quote usually tells you which kind of currency the seller wishes to receive.  An asking price of $100,000 US means the seller wants US currency, not Belize currency.  

Earnest Money - When you write an offer it is customary to present an "Earnest Money Deposit" with that offer.  Traditionally it is done by way of a personal check.  It should be 100% refundable if the offer to purchase is not signed by the seller.  Why bother?  Because the "Earnest Money" is to show you are doing this IN EARNEST.  You're serious.  If you want to be taken very seriously, make the check a substantial one.  Your broker will advise you on the amount that is appropriate for the property and offer you are making.  If the offer is accepted, the earnest money will be put into the purchase escrow account and will become part of the purchase price at closing.

Terms - When will you pay the balance of the purchase price and how?   In 30 days, 90 days, or an a particular date that coincides with the maturation of a CD, or will you put a % down and pay the Seller over time (1  year, 5 years, 1 years?).  If you are making payments over time, when will each one be due and how much will each one be.  Where and how will you make those payments?  By check, by wire?  To what account?   What are the consequences if you are late?  All these items should be made clear.  

Possession of property - When do you get to "control" it - when do you get to move in or move on the property?  Usually it is at the "closing" of the contract.  Ask your broker for details on what constitutes a closing.  

Closing - When does the down payment (or entire purchase price, depending on the contract) get paid to the Seller?   Contingencies must be satisfied prior to this date, papers must be signed, etc.   Typical closing dates are 30-60 days from the time the offer is made. 

Contingencies - the list below is a sampling of things you may wish to put in an offer.  A contingency means - IF this happens, we proceed to buy.  Each property is different, so you should work with your broker to establish the appropriate contingencies.

Typical provisions are:    Title search showing that the property has clear title and that the person selling it owns it.     Receiving, reviewing and approving a copy of the registered survey of the property.  Having property taxes paid up to date.  

For raw land there usually isn't much more to include as a contingency, but for a condo or a house there will be other items to include.  

For a condo, you will want to receive, read and approve the CC&R's and have the condo fees verified.  

For a house you may want to have provisions for a property inspection with a builder or contractor.  

If you are buying a furnished property you will want to include a general inventory (don't get too type-A on this by including every fork and spoon - focus on the big stuff) and note the condition the items should be in at closing (working order or "as-is" ?).  

Perhaps you wish to review the insurance currently in place on the property?   If you are not closing for a while, you'll want to stipulate that the seller has to keep the property insured until closing.

If you are buying a business there are a host of other contingencies that are too complex to go into here.  One day I'll take up that subject..... but  for now let's proceed with the assumption that you are buying a lot, house or condo.

Other costs - Who pays for what? 
Title search, Stamp Duty and fees of the Closing Agent are usually paid for by the buyer.  It's in the buyers best interest to have it this way - the individuals doing this work should work for you and represent you. 
Broker commission - Sellers usually pay all of this.
Annual Real Estate Tax - pro-rated for each party to pay a fair-share from closing until the end of the tax year in which the closing occurs.
Insurance - policies are not assignable, so there is no pro-ration for this.  Old policy will terminate at closing and a new one should be arranged to be in place when the property changes hands.  In the event of an installment sale/mortgage agreement, the buyer usually pays for the policy, and the insurance company will name both parties as loss-payees.  Discuss details with your broker an insurance agent.
Homeowner's fees - pro-rated, with seller paying up until closing and buyer paying thereafter.

Hopefully this list did not scare you - it's not meant to!  Your broker will take his/her boilerplate contract template and customize it to include the items that are appropriate to your offer.  

Read it before you sign it.  If something is not clear to you, ask for clarification.  In Belize it is the intent of the contract that prevails and contracts are typically very straightforward.   Simple agreements are usually easier on all parties - do cover the important parts but don't engage in so much hair-splitting that you give everybody a headache.   

When does an OFFER become a CONTRACT?   When all terms and conditions on the paper are agreed to - in writing - by both parties.   Be sure your "offer" has a time-limit on it, so that if it's not signed by the seller in a certain number of days it "expires" and cannot become a binding contract without your re-endorsement. 

Contracts are like road-maps - they say where you want to go, who's going, and what roads you wish to take to get there.  Sometimes (often) there is an unexpected adventure or detour along the way, but if you keep your attention on the destination (closing) you should arrive there just fine. 


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