An Offer is a sales contract prepared by the Buyer. Once Seller and Buyer sign the offer, it becomes a legal and binding real estate contract.
Examining the Offer: Twenty minutes spent with a blank real estate contract will go a long way towards making you comfortable with examining a Buyer's offer. At a minimum, you will recognize non-standard terms.
Make sure you understand SPECIAL CLAUSES written in above the signature block. This is where the buyer makes non-standard demands, asks you to pay portions of his costs or demands you move by a specified date.
Sections of a sample offer:
Purchase Price ____________
$75,000
Earnest Money Deposit ______
500
Deposit to be held in trust by __
Financing (1st mortgage) ____
73,500
Down Payment ____________
1,000
CLOSING DATE: Some time next year
SPECIAL CLAUSES:--------------------- The seller agrees to pay All closing costs -------------------
Things to watch for:
Make Sure:
Purchase contingent on sale of buyer's home.
Buyer has been pre-approved or at least pre-qualified for a real estate mortgage big enough to buy your home.
Do not sign the offer until the Buyer has been pre-qualified.
Excessive time for buyer to get financing.
Low earnest money deposit.
Penalty if seller can't move by specified date.
Requirement for seller to pay buyer's mortgage costs
After reviewing the offer, you have several options:
Accept the offer as is. In most cases, you simply sign the offer which becomes the sales contract. In some states you sign a separate agreement called a binder.
Make a counter-offer. Cross out unacceptable terms on the offer, or fill out your own contract, and specify the terms you want.
Reject the offer.
If the offered price is less than what you wanted, look at the offer as a whole. There may be terms that counterbalance the lower price (i.e.: fast closing, buyer paying their own closing costs, etc.). Be prepared to split the difference if you and the buyer come within $1000 of each other.
The buyer should provide at least $500 in earnest money or a "binders fee." Some people won't sign an offer until an earnest money check has been made out to them, but if you judge the prospective Buyer to be serious, you may forego the earnest money. The earnest money check is made out to you and held by a third party (your attorney, the buyer's real estate agent, or whomever you stipulate in an escrow agreement). This check is yours to keep if the buyer defaults on the contract.
Once you have signed an offer, you may still accept a backup offer, as long as you make sure the backup buyer understands the house is under contract, and his contract is second in line.
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CLAUSES written in above the signature block. This is where the buyer makes non-standard demands, asks you to pay portions of his costs or demands you move by a specified date. 
