In this competitive real estate market, an investor has to be ready to make an offer the minute they see a property that fits their investment criteria. While some investors rely on a skilled realtor to do this, it’s a good idea to learn how to write your own offer letter.
A real estate offer letter is a document that outlines the terms for a real estate purchase. The letter is typically put together by a buyer or their real estate agent. Its purpose is to give both the buyer and the seller a clear understanding of every part of a purchase agreement.
They outline not just the asking price of a property, but also the amounts that will be transferred for a host of other fees, as well as a proposed timeline for the entire transaction.
An offer letter is the best way to make the terms of your offer clear to a home seller. Real estate transactions are rarely as simple as just offering a set amount for a property, and winning a bidding war is rarely as simple as just throwing out the highest offer price. Real estate transactions typically contain multiple pieces of information, and there are many parts to an offer that can affect both a buyer's and seller’s bottom line.
By having an offer letter that outlines all of the parts of an offer, a seller is able to compare multiple offers and have the information they need to effectively counteroffer. In many states, offer letters are practically required. They contain all of the information that homeowners are required to see before agreeing to a sale of their property, including financial details and timelines.
In many states, there are rules governing what information must be provided to a seller in order for an offer letter to be considered valid. There can be a lot of variation in what is specified, but a typical offer letter will have:
Be aware that while your state might have some requirements as to what is included in an offer letter, there is some leeway in what has to be stated. In general, however, it’s a good idea to include as much financial information as possible, especially information that will affect the overall level of profit that a buyer will make.
If this information is not included, it is most likely that the seller will just delay the sale to ask for the information rather than make a decision without it.
A real estate offer letter outlines the purchase terms for a piece of property. It is not a place to make a plea to the seller, it is just a statement of financial terms. Do not include the following information:
Be aware that purposefully including so-called “outlawed” information is generally just a good way to ensure that your offer letter will not be put in front of a buyer. Protecting their clients from these kinds of legal snafus is one of the most important jobs of a real estate agent.
If your offer letter includes personal information that could directly or indirectly influence the sale, the offer will most likely be rejected on legal grounds before it even makes it to the seller. For this reason, do not try to include this information, even if you think it will give your offer a competitive edge.
There are plenty of real estate websites that encourage buyers to write long flowery offer letters to sellers. The truth is that in addition to being illegal in some places (or running very close to running afoul of the law), these letters rarely work.
The vast majority of real estate transactions are business arrangements between real estate agents. Sellers are very rarely swayed by letters that try to pursue them to let their primary asset sell for less than market value simply because someone really wants it. Don’t waste your time on this.
When putting together your offer letter, be sure to follow these steps:
The easiest way to write an offer letter is to start with a template. Templates will typically include everything you need to show to the seller of a property and exclude anything that could get you into legal trouble. While a person who is very experienced in real estate investing may choose to customize their offer letter, most investors choose to reuse a good template once they find one that works for them.
Real estate offer letters can be in the form of a pdf file, template file, sample, or form. Nearly all of them will allow you to fill out your own information.
There are a few different real estate offer letter templates that can be used. This is one that is fairly popular: docformats.com
Offer letters are legal documents, but they are not legal contracts. If that statement seems confusing, don’t worry. A lot of people have trouble understanding the difference.
A legal document is any document that can be used to show intent. In a real estate transaction, this means that appraiser reports, offer letters, and bank statements can all be legal documents. Because the document can be used in the future to show the intent of the buyer when he or she made an offer to buy a property, it is important that it is done correctly and legally.
An offer letter will be taken seriously by a seller. It shows how much a buyer intends to pay for a home, and how they want the contract to be set up. It is not a contract, however.
Remember that the seller does not have any obligation to accept an offer letter. In fact, they don’t even have an obligation to respond to an offer letter. There are plenty of cases when a seller will choose not to acknowledge that they even received the offer letter (this is usually the case if an offer is considered to be insultingly low, or if the seller has decided that they do not want to sell the property).
If a seller does acknowledge an offer letter, they are allowed to respond by either accepting, rejecting, or counter-offering. A counteroffer does not have to be accepted by the buyer; they can also choose whether to accept, reject, or offer another counteroffer. It is not uncommon to go through multiple rounds of counter-offers before arriving at an agreement that suits both parties.
Be aware that there are a number of things that can be negotiated during this stage. Counter-offers can include information on a lot more than just the asking price. It is also possible to counter-offer with a different breakdown of closing costs paid or a new schedule for closing. It’s not uncommon at all for both parties to use the offer letters to negotiate improvements on a property or compensation in lieu of completing these improvements.
Once this agreement has been reached, a contract will be written. This contract actually is legally binding, but it will typically be put together by a real estate professional. Until the contract is signed by both parties, everything is negotiable. Once the contract is signed, however, the only way something can be negotiated is if both parties agree to start negotiations.
Read Also: Wholesale Real Estate Contract: The (Ultimate) Guide
The offer letter is a place where a potential buyer and the seller can spell out contingencies for a property. These clauses are essentially checkpoints that have to be reached in order for the sale to proceed.
The most common contingency clause is a provision that the house must pass an inspection in order for the sale to proceed. These clauses are usually written so that negotiations can be reopened after a report is made. This allows the seller the opportunity to make repairs or offer monetary compensation so that the buyer can make repairs on their own.
Of course, in competitive real estate markets, it is becoming much less common for buyers to place any contingencies in their home offer letter. Carefully consider the monetary and time value of each one of these clauses before including it. There are a lot of possibilities, and each offer letter will include contingencies that are unique to the property. Some of the most common examples of contingencies that need to be considered are:
Real estate offer letters are the best way to spell out the financial terms for a real estate purchase. Keep the focus on your numbers, not on forming an emotional connection with the seller. Experienced investors find a template that meets their legal needs and modify it only slightly for each offer.
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