Making an Offer

You have finally found a home that you want to make an offer on. It is now time to strategize with your agent and figure out what terms to offer.

The following are key terms that you should discuss with your agent:

Purchase Price

To decide what to offer, you first need to have an understanding whether the asking price is at, below or above fair market value. Ask your agent for a comparative market analysis to help you make an informed decision.

In addition to the market value analysis, the following factors will affect your pricing strategy:

  • How long has the property been on the market?
  • Does the seller currently have other offers?
  • Is the sale a standard sale, probate sale, bankruptcy sale, REO or short sale?
  • Has the seller previously turned down other offers because the price was too low?
  • Is the property likely to appeal to a small or large pool of buyers?
  • What is the condition of the property?
  • Does the property require significant work to place it in move-in ready condition?

You should also consider your own personal factors:

  • How much do you like the home?
  • Does the home have unique attributes that are especially valuable to you?
  • What is the maximum price that your budget affords?

Escrow Period

The escrow period is the number of days after the seller accepts your offer that you have to close escrow meaning that all funds (including the loan funds) required to purchase the property and pay for your share of the closing costs will have been deposited with the escrow holder. Sellers would like the escrow period to be as short as possible. The shorter the period, the sooner you are required to close and the more attractive your offer will be. However, if you will be getting financing to purchase the home as most buyers will, how much time you will need to close will in large part be dictated by your lender. In today's market, lenders are scrutinizing loan applications very closely and you should expect that it may take 2 to 3 weeks or more, if unexpected problems arise, for your lender to be in a position to fund the loan after the appraisal is in. Because loan processing is taking longer than it used to, we do not recommend an escrow period shorter than 30 days or longer depending on the lender that you will be using.


There are three basic contingencies in the standard California Association of Realtors Residential Purchase Agreement form commonly utilized in residential transactions.

  • Loan contingency. This contingency gives you the right to terminate the purchase agreement and get your initial deposit (often referred to as the earnest money deposit) back if despite diligent and good faith efforts, you are not able to obtain the loan you specified in the purchase agreement.
  • Appraisal contingency. This contingency gives you the right to terminate the purchase agreement and get your initial deposit back if the property appraises for less than the purchase price.
  • Inspection contingency. This contingency gives you the right to terminate the purchase agreement and get your initial deposit back if you are unsatisfied with the results of your inspections and studies, with any property disclosures or reports that you received, with the condition of title or any other matter affecting the property.

The default period for these contingencies in the C.A.R. Residential Purchase Agreement is 17 days, but your offer can provide for longer or shorter contingency periods. The shorter the contingency periods, the more attractive your offer will be. You should, however, be careful not to shorten the contingency periods to an unrealistic timeframe.

Allocation of Costs

What is customary will vary from location to location. In Los Angeles County, it is customary for a seller to pay for the following:

  • Owner's Policy of Title Insurance
  • 50% of escrow fees
  • Home Warranty not to exceed a certain amount (often $300 to $500)
  • City and county transfer taxes
  • Termite inspection
  • Section 1 termite work (negotiable)
  • Natural Hazard Disclosure Report
  • Government retrofit work

It is customary in Los Angeles County for a buyer to pay for the following:

  • 50% of escrow fees
  • Lender's Policy of Title Insurance
  • Home inspection
  • Appraisal

Cost allocations, however, are deal driven and there are situations when a buyer may need to pick up certain costs that sellers usually agree to pay for.