The first step to a contract for the sale of real estate is to make an offer to purchase. In what follows, we will try to unravel the mystery of the offer to purchase, in order to put buyers in a better position to start the process of choosing the optimal property.
What is the link between the letter of intent to buy and the offer to purchase?
In Hungary it is common that, before a sales contract is signed or even before the buyer consults a legal representative, the buyer hands over money to the seller or to the real estate agent representing the seller in the sale of the property. At the same time as the money is handed over, the buyer usually expresses his intention to buy the property and makes an offer to purchase in a document known as a letter of intent to buy. It varies whether the buyer is really just signing a unilateral declaration for the seller or whether the document is also signed by the seller. The later actually creates a sales contract between the parties.
What is the concept of a purchase offer?
A purchase offer is a unilateral written statement by the buyer expressing to the seller his/her intention to buy the property, specifying at least the purchase price and the property.
What are the minimum requirements for the validity of a purchase offer to buy a property?
- The seller and buyer must be identifiable
- The property must be identifiable
- Includes the purchase price
- Make clear the buyer’s intention to buy the property
- The offeror shall make such statement in written form
What is a validity of offer?
According to the Civil Code, whoever makes an offer to conclude a contract is bound by his offer.
The validity of offer have two important legal consequences:
- Until the expiry of the validity of offer the offeror may not withdraw its offer, the offeror is bound by it.
- Acceptance of the purchase offer creates a contract of sale between the offeror and the person accepting the offer.
Validity of offer in practice
- If someone advertises their home for sale and a buyer comes forward to buy the property at the advertised price, a written declaration by the buyer that they wish to buy the property at the advertised price, or
- if someone makes an offer to buy the advertised home and the seller accepts the offer,
creates a contract of sale between the parties without any further action needed to be taken.
No mistake, no typo:
A contract for the sale of real property is concluded between the parties merely by the fact that the seller makes a written offer to sell the property and the buyer accepts it in writing.
In reality, the above example usually takes place in one or more rounds. The situation is usually as follows:
- The real estate agent, acting on behalf of the seller, advertises the apartment at a given price.
- An interested party comes along and makes an offer at a lower price. So here the offer is not made by the seller, but by the buyer. He is offering the seller a lower amount than the price offered by the seller.
- The buyer’s offer, as described above, therefore creates a validity of offer. The seller can accept the offer in a further statement.
- With this declaration of acceptance, the contract for the sale of real property has already been concluded, without the parties having the slightest idea of this legal fact.
Sample purchase offer
A sample offer to purchase is most often encountered when a real estate agency is involved in the sale of the property. Below is a typical sample purchase offer used by a real estate agency in Budapest.
What are the pitfalls and risks of using a sample purchase offer?
And this is where the serious problems start. It can be seen that by signing a sample offer to purchase, a contract for the sale of real estate is created between the seller and the buyer in such a way that
- the buyer does not have detailed information about the property at that time,
- the buyer has not yet consulted a lawyer,
- the parties have not yet agreed on the detailed terms,
- and the buyer often does not even know that he is a buyer, thinking that he has just expressed his interest in the property, and then deciding on the way whether to buy it.
Unfortunately, in today’s real estate market, real estate agents do not always inform the parties of the legal nature of this offer to purchase. More often they are not aware of the nature of this legal instrument and the very serious obligations that it entails. The average buyer only starts to look for a lawyer after signing the “letter of intent”. Unfortunately it is a common experience that only afterwards the legal or physical characteristics of the property or the parties’ expectations of the sale contract are revealed, which subsequently leads to the failure of the transaction.
Failure of a purchase offer – refund of earnest money
When using a purchase offer, an earnest money deposit is usually required. If the sale and purchase agreement concluded by signing a sample offer to purchase fails, the fate of the hundreds of thousands or even millions of forints transferred to the real estate agent or the seller is a matter of serious dispute. Unfortunately since the money is with the seller/real estate agent the buyer’s bargaining position is, for all practical purposes, close to zero. From this point, it is extremely painful for these parties to account to the buyer for the money already received, so we often find that the seller will use every legal and not so legal argument to withhold the money received from the Buyer.
If, in the absence of proper legal representation, the parties have not addressed in the letter of intent a condition that emerged during the preparation of the sale and purchase agreement and subsequently became contentious, it is indeed difficult to determine who is entitled to the amount under the law.
How to make an offer to purchase?
Our primary advice is that instead of making an offer to purchase – if it is otherwise clear that there is a willingness to sell the property at the price offered by the buyer – the buyer should immediately provide the seller with a complete, final draft contract of sale, which is essentially an extended offer to buy. Several law firms have the professional background to put the first draft contract on the table within 1 working day, once they have the necessary information. In this way, the risks inherent in the nature of a purchase offer can be completely eliminated.
If the property is being sold with the help of a real estate agent, this route is unlikely to be viable, because without signing a purchase offer and paying a certain amount of deposit, the buyer will not be able to contact the seller.
In this case, the buyer should seek to
- in the offer to purchase, in particular, agree to terms and conditions on the purchase price schedule and deadlines that he can comfortably meet,
- make clear with the seller exactly what the purchase price includes, including the movables in the property, with photographs documenting the condition of the property at the time of inspection,
- last but most importantly, ask for a title deed and a copy of the map of the property – the contents of which should be checked by a professional,
Above all, trust in your good luck that nothing will go wrong afterwards.
Is it possible to withdraw the offer to purchase?
Since the questions in the title are asked more often than would be optimal, it is essential to clarify to what extent it is possible to withdraw the offer to purchase.
The answer to this question is governed by the provisions of the Civil Code on the validity of offer. An offer to purchase by the buyer may be withdrawn until the seller has sent his acceptance to the buyer.
But there is another twist: if the purchase offer specifies the duration of the offer, the offer cannot be withdrawn, and the offer is binding until the deadline specified in the letter of intent to buy.
In practice, a regular sample purchase offer drafted by the real estate agencies under the name of the letter of intent to buy usually contain a clause stating how many days the buyer will keep the offer. Therefore, it is not possible to withdraw from the offer to purchase (even if it is called a letter of intent to purchase).
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