Working with a buyer and writing an offer with real numbers

Maya now has a buyer client, Jordan, who wants a house near Longmont. This lesson follows the work from first meeting to a delivered offer.

Step 1: the brokerage disclosure and the buyer agreement

Before Maya discusses Jordan's confidential information, such as his budget ceiling, she gives the written brokerage disclosure (C.R.S. 12-10-408; Rule 6.5.A). Chatting about neighborhoods or price range in general terms does not need it first (Rule 6.5.B). The disclosure tells Jordan about the choices: buyer agency, seller agency, or transaction-broker (C.R.S. 12-10-408(1)(c)).

Jordan picks buyer agency, so Maya signs a written buyer agreement (a contract where the buyer hires her brokerage, sets the term and says how it is paid). Agency has to be in a written agreement; otherwise she is a transaction-broker (C.R.S. 12-10-403(2)). Every written agreement with a consumer needs a definite end date (Rule 6.14.D). As a buyer's agent she must follow the agreement, use reasonable skill and care, show good faith, loyalty and fidelity, seek a price and terms acceptable to the buyer, present all offers, disclose adverse material facts she knows, and counsel Jordan on risks (C.R.S. 12-10-405(1)).

Maya never discloses that Jordan would pay more than his offer, his motives, or that he would take other financing terms, without his informed consent (C.R.S. 12-10-405(2)).

Step 2: pre-approval

A pre-qualification is a lender's quick estimate based on what the buyer says. A pre-approval is stronger: the lender has checked income, assets and credit and issues a letter stating how much they are prepared to lend. Sellers take offers with a pre-approval more seriously. Maya asks Jordan to talk with a lender before touring, and she does not steer him to one lender in exchange for payment or gifts (kickbacks are barred by the federal Real Estate Settlement Procedures Act, RESPA, 12 U.S.C. 2607).

Step 3: showings

Maya schedules showings through the listing broker. She treats all buyers alike under the federal Fair Housing Act and does not steer Jordan toward or away from neighborhoods by protected class. She also never shares a property's access information (lockbox codes and the like) with a third party, such as an inspector or contractor, without the listing broker's authorization, and never uses it outside the authorized showing window (Rule 6.16). She notes what Jordan likes and does not like. When talking to a seller's agent, she avoids sharing anything confidential from Jordan, such as his top price.

Step 4: write the offer on the Contract to Buy and Sell

Jordan picks a house listed at $489,000. The Colorado Commission publishes an approved Contract to Buy and Sell Real Estate for residential sales. Maya fills it in. She does not copy language from memory; she fills in the blanks on the form and uses the sections by title: Parties and Property, Purchase Price and Terms, Earnest Money, Financing Conditions, Title, Inspections, Appraisal, Closing and Possession, and Dates and Deadlines. She also does not give legal advice: brokers are not obliged to prepare legal documents and may not charge a separate fee for preparing them (Rule 6.14.B). She suggests an attorney for legal questions.

Jordan authorizes an offer of $485,000. Here are the blanks:

• Purchase price: $485,000.
• Earnest money: $8,000. Earnest money is a deposit that shows the buyer is serious; if the buyer breaks the contract in a way the contract does not allow, the seller may keep it, and if the deal closes it is credited to the buyer.
• New loan: 90% of the price, so the loan is $485,000 x 0.90 = $436,500; the down payment is the other 10%, $48,500. With less than 20% down, a lender usually requires mortgage insurance (a monthly charge protecting the lender if the borrower defaults).
• Seller concession: the seller pays $5,000 toward the buyer's closing costs. All money moving between the parties must be itemized in the contract (Rule 6.14.A.1).

Step 5: the deadlines

The contract has dates, and each date is a decision point. Colorado's form lets the parties fill in the dates; what follows is an example, not a rule of law. Suppose the contract is signed ("mutual execution") on March 2.

Item	Date
Earnest money due	March 4
Inspection objection deadline	March 12
Appraisal deadline	March 20
Loan conditions deadline	March 27
Closing	April 6 (35 days after March 2)

Maya puts each date on a calendar for Jordan. If the contract has a deadline for something and nobody acts, the consequences follow; the next lesson set covers how to track them.

Step 6: money math for Jordan

Maya's cash-to-close estimate for Jordan: Down payment $48,500 + estimated buyer closing costs $9,700 = $58,200. Subtract the seller concession $5,000 = $53,200. Subtract the $8,000 earnest money already paid = $45,200 due at closing. The loan principal and interest at 6.5% over 30 years: about $6.32 per $1,000 borrowed, so $436,500 / 1,000 x 6.32 = $2,759 per month, plus taxes, insurance and mortgage insurance. Maya states these as estimates only; the lender's Loan Estimate is the official document.

Step 7: deliver the offer

Maya sends the signed offer to the listing broker. A broker must present all offers to the other consumer's broker if that consumer has an unexpired listing (Rule 6.13). She keeps a dated copy, and she gives Jordan duplicates of every document she prepares at the time she prepares them (Rule 6.14.A.2). When the seller accepts, Maya delivers the $8,000 to the holder named in the contract and gets a dated, signed receipt (Rule 5.12.A). She saves everything in the transaction file (Rule 6.20).

Example with real numbers

Offer summary: Price $485,000. Earnest money $8,000 (1.65% of price: 8,000 / 485,000 = 0.0165). Loan 90% = $436,500. Down payment $48,500. Seller concession $5,000. If the seller counters at $490,000, the loan stays 90% so the loan becomes $441,000, the down payment becomes $49,000, and the concession stays $5,000. That raises Jordan's cash to close by $500 (the extra down payment), to $45,700.