DISCLAIMER: This article is intended as a general guide only. The provisions and contingencies to include in your purchase offer may vary depending on your particular situation and the property you’re purchasing.
If you’re shopping for land for sale in Northern Virginia, then the time will come when you have to think about what to include in your purchase offer. However, before I dive in to the nuts and bolts of a land purchase offer, let’s talk about how to present your offer.
Simply put, presentation is important. I can’t count the number of times I’ve received offers that contain typos, inaccuracies, or incomplete information. It should really be your agent’s job to get the details right, but unfortunately not all agents have a good eye for these things.
The problem is, if you present a disorganized offer, not only does it make you look unprofessional, but it creates more work for the receiving agent and sets the tone moving forward. If you’re trying to curry favor with the seller’s agent, creating more work for them isn’t a winning strategy.
What does a well-presented offer look like?
Letter of Introduction. While not a requirement, a letter of introduction can be a good way to build rapport and establish trust with the seller. The letter should be addressed from you directly to the seller. Keep it brief, and certainly no more than a single page. You might tell the seller a little bit about you and your family and why the property is a good fit for you. Maintain a measured tone, so you don’t come across too eager. Also, try not to disclose anything the seller could use against you in a negotiation.
Compile Offer Paperwork into a Single File. Your full offer will likely include a few forms, addendums, and/or disclosures. Compile everything into a single PDF file rather than clogging the recipients inbox with several attachments. Label attachments clearly. (Again, this is your agent’s job, but keep it in mind).
Proof of Funds. Regardless of whether you’re paying cash or financing your purchase, you should submit something that shows the seller you have the wherewithal to close the deal. If paying cash, a screenshot of the funds in your bank account (with sensitive information redacted) or a letter from your banker will suffice. If financing, then a pre-appoval letter from your lender is sufficient.
Offer Summary. A full offer packet might include 20-30 pages of paperwork. Therefore, I like to include a summary of the terms of the offer in an email to the seller’s agent when I submit the offer. This should include the purchase price, the means of financing (cash or bank financing, for example), the proposed settlement date, contingencies, and the timeline for fulfilling the contingencies.
The anatomy of a land purchase offer
As mentioned at outset, the terms of your offer might vary depending on your particular situation, but the following provisions and contingencies are included in most land purchase offers:
Price and Financing. Your offer should clearly state the purchase price and how you will fund the purchase. If you are financing, then the offer should state the down payment amount and the amount financed. For example, you might put 20 percent down and finance the remaining 80 percent. Your lender will advise you on this.
Loan Approval Contingency. If you are financing the purchase, then it is wise to include a loan approval contingency. A loan approval contingency protects you in the event you are unable to secure financing within a specified time period. If you cannot, then you can cancel your contract with no penalty.
Earnest Money Deposit (EMD). An EMD is a good faith cash deposit that is submitted along with your offer, or within a specified time after the offer has been submitted (usually 1-3 days). The deposit is held in escrow until settlement, at which point it is typically applied towards the purchase price.
Under certain circumstances (if you breach a condition of the contract, for instance), the deposit may be retained by the seller and become non-refundable. The conditions under which this can happen should be clearly stated in the purchase offer. As you long as you pay close attention to these conditions, there is no reason you should find yourself in the position of having to adversely forfeit your deposit.
How much you offer as an EMD is completely negotiable. In most cases, it is between 1 and 3 percent of the purchase price. A higher deposit makes for a stronger offer.
Settlement Date. Your purchase offer should state the settlement date, or the date you intend to close the sale and take ownership of the property. Make sure to talk to you lender and real estate agent to determine how much time you need to allow for a loan approval and to fulfill any other contingencies in your offer. Typically, 45-60 days is sufficient.
Settlement Company. In Virginia, it is customary for the buyer to select a settlement company. The settlement company will complete the title work and hold your deposit in escrow. If you do not have a settlement company in mind, then your agent should be able to offer a recommendation.
Study Period Contingency. The Northern Virginia Association of Realtors’ Sale Contract for Unimproved Land defines a study period as a period “for Buyer to determine whether Property is suitable for Buyer’s intended use through feasibility, soil, utilities, percolation study(ies), or any other study(ies) or test(s) deemed necessary by Buyer.” It goes on to state, “If Buyer, in Buyer’s sole judgment, determines that Buyer’s intended use of Property is not permissible or practicable, Buyer shall have the right to void this Contract, in which event Deposit shall be returned to Buyer and the parties shall have no further liability or obligations hereunder…”
Personally, I love this definition, because it covers any studies you deem necessary and gives you sole authority to cancel the contract based on the results of those studies. Exactly what studies you choose to conduct will depend on your intended use of the property and whether the seller has already done some of the work for you. For example, the seller might have obtained a septic certification letter prior to listing the property for sale, in which case you may not need to conduct a soil test.
If there are wetlands on the property, then you can use the study period to obtain a wetlands delineation report. You can also use the study period to collect quotes for anticipated site work (clearing, driveway installation costs, etc.) that will be needed after settlement. Whatever studies you decide to do, try to find out how long your contractors will need to complete the studies so you know how much time to ask for in your study period contingency. In most cases, 30-60 days is sufficient.
Appraisal Contingency. An appraisal contingency allows you to hire a professional appraiser to ensure the property you’re purchasing is valued at a minimum specified amount. If you are financing your purchase, your lender will require an appraisal to ensure the property is sufficient collateral for the loan they are providing.
Property Owners’ Association Disclosure Packet. If you’re purchasing land in a planned community, then the land might belong to a property owners’ association. If so, the Virginia Property Owners’ Association Act requires the seller to deliver an association disclosure packet (obtained directly from the association) to the buyer. Once you receive the packet, you have 3 days to review the packet and decide if you wish to proceed with the purchase or cancel the contract. You can also cancel the contract if the seller altogether fails to deliver the association disclosure packet.
I know I covered a lot of ground in this post, so please let me know if you have questions or if anything I covered is unclear.
If I had to sum it up, the most important takeaways are:
- Present a professional offer.
- Lean on your agent and lender to figure out how much time you need to get to settlement and exactly what you need to accomplish during your study period.
- Be well aware of timelines and conditions in order to avoid the possibility of losing your deposit.