First, no contract for the sale of real estate is valid unless it is in writing. Regardless of what the parties agree, there is no such thing as an oral contract to buy or sell real estate. Therefore, both buyers and sellers should strive to reduce the terms of their agreement into a written purchase contract. The majority of real estate agents will use a fill-in-the-blank "offer to purchase" agreement form that may incorporate several addendum pages.

The buyer (with the assistance of his/her agent), will complete the offer to purchase form that spells out the terms, conditions, and contingencies of his/her offer. If the seller accepts all the terms and conditions of the buyers offer, the seller will also sign the form. If not, the seller has two options: [1] reject the buyers offer all together or, [2] counteroffer spelling out the conditions under which he/she will accept the buyers offer. Once accepted by both parties, this form becomes the written purchase contract.

The important thing to remember about an offer-to-purchase is that the seller has no legal obligation to sell the property to the buyer until both have executed (signed) the purchase contract, even though the seller may have verbally agreed to an offer.

In some states, binder forms are used. Binder forms differ from offer-to-purchase forms and purchase agreement forms. Regardless of which form or method of submitting an offer is used, a buyer should always read the form and/or ask their agent if the form or binder used is actually a contract. If not, the seller may not be bound to sell the property even if the seller executes a binder. As a buyer, it is in your best interest to have an attorney review any purchase contract that you do not understand.

Important items that should be covered in any offer-to-purchase include obviously, the sale price but there are other items equally important: [1] the financing terms the buyer seeks, [2] inspections the buyer deems important such as pest control, a home inspection, radon, well or septic, and so forth, [3] a condition that the property appraise for at least the sale price, [4] a limit on the cost of repairs that might be revealed in the inspection(s) process (this allows the buyer an escape clause and voids the contract if repairs exceed a certain dollar amount), [5] any seller paid closing costs or concessions requested by the buyer, [6] date of closing, possession by the buyer, etc. and, [7] any personal property or fixtures associated with the property which the buyer wishes to include in the purchase. These are just of the few of the conditions that are addressed in the typical purchase contract.

Once the offer to purchase and terms of the agreement have been executed, the buyer should formally apply for a mortgage loan if the purchase does not involve all cash. The lender will usually require an upfront check from the buyer to cover the cost of a credit report and the appraisal. It is important to note that the appraisal must be ordered by the lender (as client of the appraiser).  In most cases, the lender will not accept an appraisal prepared for (and ordered) by the prospective buyer. Uniform standards of professional appraisal practice outline the client relationship with the lender and dictate that the lender order the appraisal.

Once the appraisal has been completed, the lender will inform the buyer of his/her credit approval and/or any conditions disclosed in the appraisal that may require further consideration such as any required repairs placed as a condition of underwriting the mortgage loan. It is important for the buyer to have some understanding of the mortgage process for the following reason: suppose the buyer and seller agree on a price to buy/sell a property needing a new roof, paint, and guttering. The terms of the agreement assume that the house will be sold "as is" however, the offer is conditioned upon the buyer obtaining a 95% loan-to-value mortgage. Unfortunately, the lender is not willing to extend 30 year financing on a dwelling in fair or poor condition and will likely require that repairs be completed as a condition for underwriting a loan. This is a common problem in "FSBO" sales as buyer and sellers are sometimes unaware of a lenders requirements for issuing a mortgage.

Once the appraisal has been completed and the mortgage approved, the buyer is now ready to order the necessary inspections and set a closing date.  Since property inspections are generally performed at the buyer's expense, it is important for the buyer not to order any inspections until after the lender has given loan approval and completed the appraisal review process.