You will hear many terms when you are buying or selling a home, or if you work in real estate and “Prospective Buyer” is one of them. But what exactly is a prospective buyer in real estate?
A prospective buyer, in real estate, can be someone who has:
- Begun looking for a new home but has not yet chosen a particular property.
- Expressed an interest in a specific home but has not yet made an offer.
- Made an offer, but the seller has not accepted that offer.
- Had their offer accepted and may or may not be in the process of negotiating the details. In addition, this person has not yet signed the closing documents.
Some jurisdictions have a legal definition of a prospective buyer, and others do not.
For example, both Minnesota Statutes and the Illinois Residential Real Property Disclosure Act include the following phrase:
“Prospective buyer” means a person negotiating or offering to acquire for value legal or equitable title or the right to acquire legal or equitable title, to residential real property.
What Is A Prospective Buyer In Real Estate?
You may hear the term “prospective buyer” in real estate and the phrase can mean many things. A prospective buyer can be anyone looking for a home, from the moment they first express an interest in house hunting until the time they sign the contract at the closing meeting.
In some situations, where you are on the prospective buyer ‘spectrum’ doesn’t matter.
However.
In areas of the country where “prospective buyer” has been used and defined in legislation, it can be essential to know whether or not you qualify as one.
Let’s take a look at all of the definitions, who might use them, and when they are important.
A Prospective Buyer In Real Estate # 1
Someone who has begun looking for a new home but has not yet chosen a particular property.
A real estate agent is there to facilitate the buying and / or selling of a property. Some real estate agents specialize in working with sellers, some with buyers, and others will work with either buyers or sellers.
From the point of view of either type of real estate agent, or a real estate broker, a person becomes a prospective buyer as soon as they begin looking for a property. And there is a reason for that.
When you approach a real estate agent and let them know you are interested in buying a home, you may eventually buy a home either from them or with them. This makes you, in their eyes, a prospective buyer.
Depending on how you interact with them at this stage, a real estate agent may keep your details and list you as a prospective buyer. As such, an agent who sells properties may contact you at a later date with the details of another home, which may suit your criteria. Likewise, an agent who works with buyers may follow-up with you to see if you currently have a contract with a buyers agent, and if not, if you would like them to assist you in your property search.
The only time you may come across this definition in a legal sense is if privacy legislation dictates that a real estate agent must obtain your permission before keeping your details and contacting you in the future.
In this case, you may be asked to give consent as a “prospective buyer,” and then when you are no longer in the market for a home the real estate agent will have no reason to contact you.
A Prospective Buyer In Real Estate # 2
Someone who has expressed an interest in a specific home but has not yet made an offer.
In a similar way to the previous definition, you become a prospective buyer in the eyes of a real estate agent when you express more than a passing interest in a property but have not yet made an offer.
However, in this situation, you may become something of a “hot prospect” for the seller’s agent, and they may contact you, through your own real estate agent, to ask if there are any questions you would like to ask, anything stopping you from making an offer, etc.
Again, the only legal situation where this definition occurs is when privacy issues dictate a definition.
A Prospective Buyer In Real Estate # 3
Someone who has made a firm offer on a property, but the seller has not accepted that offer.
In some cases, a person legally becomes a prospective buyer when they have made a written offer to purchase a property, regardless of whether or not the seller has accepted the offer yet.
I’ll discuss what that means for the buyer and the seller, and the rights and responsibilities it conveys under the next definition.
A Prospective Buyer In Real Estate # 4
Someone who has had their offer accepted and may or may not be in the process of negotiating the details. In addition, this person has not yet signed the closing documents.
This is the most common legal definition of a prospective buyer in real estate. It assumes that once someone has made an offer, and the seller has accepted their offer, that both the buyer and the seller have certain obligations to each other.
However, once a seller has rejected a particular offer, the definition, from a legal perspective, no longer applies.
This definition can be found in legislation across the country. However, to have legal standing, it must be used in the place where the property in question is located and not where the buyer resides.
Places such as, but not limited to, Minnesota and Illinois use the term “Prospective Buyer” in legislation that covers real estate. In both of these states the following wordage is used:
“Prospective buyer” means any person or entity negotiating or offering to become an owner or lessee of residential real property by means of a transfer for value to which this Act applies.
Why is this important?
It is important because it then gives the prospective buyer certain rights during the sales process. These rights are mostly centered around the information a seller must provide to a prospective buyer, usually in the format of a standard disclosure form, before the closing meeting.
In some locales, the potential buyer becomes a prospective buyer from a legal standpoint, as soon as they submit an offer. In other areas of the country, this status is only conveyed to the buyer once the seller has accepted their offer.
Seller’s Responsibilities
The details around what a property seller must disclose to the prospective buyer of their property vary significantly according to where you are in the country. These disclosures can require a seller to tell their prospective buyer whether the property has ever been flooded, or if it has been a drug lab. The list of what must be disclosed, depending on where you live, is almost endless.
A great example of this is the question of whether or not you have to disclose a death in the property. In some areas of the country, you must disclose any death that has occurred within the home in the last five years, In others you must let your prospective buyer know if there has ever been a violent death in the property, no matter how long ago it happened. Several states have a requirement that sellers must tell a prospective buyer anything that isn’t considered a natural death, and yet others say you have to disclose a murder, but not a suicide or accidental death.
Some jurisdictions require the seller to actively tell a prospective buyer, while others say you only have to tell if the buyer asks you a direct question.
I make a point of saying this because you should always research the rules and regulations in the place in which the property you are buying is located. And, rules change. Just because you were entitled by law, as a prospective buyer, to certain information in a previous property transaction, don’t assume you are still entitled to the same information now.
Final Thoughts
So now you know that the term “prospective buyer” in real estate can mean anything from a person who is just looking at homes in general to someone who has made an offer on a specific property, has had that offer accepted by the seller, but has not yet made the sale final at the closing meeting.
The most frequent use of this phrase in a legal context refers to a buyer who has made an offer on a particular home.
About The Author
Geoff Southworth is the creator of RealEstateInfoGuide.com, the site that helps new homeowners, investors, and homeowners-to-be successfully navigate the complex world of property ownership. Geoff is a real estate investor of 8 years has had experience as a manager of a debt-free, private real estate equity fund, as well as a Registered Nurse in Emergency Trauma and Cardiac Cath Lab Care. As a result, he has developed a unique “people first, business second” approach to real estate.
Check out the Full Author Biography here.
This article has been reviewed by our editorial board and has been approved for publication in accordance with our editorial policy.