Home Buying Offers and Contracts: Part 2
Offers and Contracts on Home Buying by George Bogosian
Signing a purchase and sales agreement shows your intent in purchasing the property if all stipulations are met. Read the entire agreement carefully before you sign. Both you and the seller will be signing the agreement. The contract has a location for you to write in your contingents about buying the property. There may be minor or major repairs you would like completed before purchase. Or maybe you deduct those repair costs from the purchase price. This is an example of a negotiation that can take place before signing a contract. You are signing this agreement, subject to or contingent upon certain conditions being met. You would include,
1. Getting the proper financing from your lender.
2. An appraisal by the lender, (which the lender will require)
3. A satisfactory inspection of the property by your hired inspector.
4. And other factors you feel are important to know before the property is purchased. (I.e. land boundaries, water testing, septic fields, etc.)
A home warranty plan that covers repairs to the homes systems is also something to consider.
Be sure it is included in the conditions of the sale if you desire to have it. Sellers usually pay for this and many times it is already part the contract because it helps promote a sale. The plans vary, and usually there is a small deductible you must pay if there is a problem, but these plans are usually worth their salt.
When you take occupancy should also be part of the agreement as well as a walk-through of the property prior to concluding the sale. You simply want to be sure that the property is in the condition that it was during your inspection.
The form of taking title, joint tenant, tenancy by entirety, community property, individual tenancy and tenancy in common can have consequences on your tax and credit outcomes.
Have a tax attorney or tax accountant help determine how you should take title. Part of your financial well being is at stake here, so ask for expert help.
Most contracts have a separate area for financing. Usually you are given five (5) days to apply for financing and then thirty (30) days to receive a commitment letter from your lender which states that your loan will be approved. During this time the seller cannot sell the property to someone else, hence they want as short a period of time as possible. They may continue to show the house and sign up a backup buyer in case your contract becomes invalid. You should apply for your loan immediately after your purchase and sales agreement is signed to allow for enough time for the paper work to be completed. As stated before, you would have started the preliminary process before you went to the Realtor so thirty-five days should allow for enough time to get your financing in order.
Remember the more items you have in the contingent section of the contract the more the seller feels there may be a problem with the sale and the less likely the seller will be flexible with price and other items you might want to negotiate. You may want to negotiate for the appliances or other items, like curtains, furniture, rugs, that you would like to be part of the sale. It is important to include items in the contingency that you need to know about prior to the sale, but don't clutter up the contingent area with unnecessary requirements. Remember, fewer stipulations usually equal a lower price and better negotiating clout.
A deposit is required at the time of signing a purchase and sales agreement.
This amount varies around the country. The agent and the seller want you to show serious intent and the ability to purchase the property; therefore they would like a large deposit. It is a negotiable amount. Usually $2,500 for homes under $100,000 and $3,500 for homes up to $200,000 and $5,000 for higher priced homes will satisfy most sellers. This money is held in escrow, (placed in the custody of a third party, usually a bank, to be given to the seller only after the conditions of the purchase and sales agreement have been fulfilled). This is done at the closing. But this arrangement can vary so talk it over with the Realtor or seller. This deposit is intended to show good faith on your part about buying the property. If all items in the contingency are not met and you decide not to go ahead with the sale then that money is returned to you.
Offers & Contracts summary:
1. Don’t worry about sweaty palms, this is where the deal is made, everybody has them.
2. Know your bargaining power. i.e. too high an asking price, down real estate market, needed repairs on the house. Use inspectors report to show needed repairs.
3. Consult with a real estate lawyer. (recommended)
4. Get answers to all of your questions.
If you missed Part 1 you can click below to view.