Purchasing a home is a bit like a Charles Dickens novel – it is the best of times; it is the worst of times. For most, the highs come from house hunting and finally selecting that property your entire family loves. The lows are often accompanied by abundant paperwork, much of which is nearly impossible to decipher.
But before you can call that house your home, you’ll have to sign a purchase agreement. And to protect your interests in the deal, it’s essential to understand the contingencies and conditions in your purchase contract before you sign.
You should note that each state has its own form requirements, meaning that the paperwork you fill out when you buy a home in Florida will vary considerably from what you will fill out in California or Texas.
What is a purchase agreement?
Also called a real estate sales contract, a purchase agreement is a legal document of about 10 pages or so that sets the price, terms, location, and conditions of the transaction. The agreement becomes a binding contract only after the seller and buyer sign.
The contract is often loaded with contingencies that act to protect both parties, which is another reason to read it over carefully – and to understand what you’ve read – before signing.
Remember, purchasing a home is a complex transaction with numerous moving parts, so the agreement should also cover potential pitfalls. For instance, one of the main reasons pending sales fall through is because the buyer didn’t qualify for their financing – maybe they lost their job before the closing date. The contract should address what happens if those types of issues arise.
The purchase agreement is a living document before it is signed
You are not considered under contract until the purchase agreement is signed. If you’re the buyer, your agent will prepare the document and work with you to customize it regarding price and contingencies.
Once your agent presents it to the seller, the agreement still has work to do. During this time, both agents will negotiate to get the best outcome for their clients. It’s likely that the seller will make some changes, whether it’s the price, closing date, or even some contingencies and terms. The agreement can go back and forth a few times until all parties agree to the terms. Although you’ve read the original purchase agreement, you must carefully review each amended versions. You don’t want to miss that the seller didn’t agree to your closing date or a detail that affects your contingency involving the sale of your current house. The buyer and seller are considered under contract only after they’ve signed. Negotiations have now stopped, and you proceed to the next phase of the buying process.
What’s in a purchase agreement?
No matter what state you purchase property, the purchase agreement should include the following:
· Exact address and clear legal description of the property
· Legal identities of the buyers and sellers
· The property price agreed upon
· Earnest money paid
· How the buyer will finance the property
· Property disclosures. For example, does the home contain hazardous materials?
· Items that will stay or be removed from the house — washer, dryer, refrigerator, etc.
· Contingencies that could nullify the contract
· Closing date
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What happens once the contract is signed?
A lot. Both parties now have about 30 to 45 days (depending on your chosen closing date) to get their affairs together before closing on the property.
Once under contract, the buyers will submit their earnest money deposit, schedule a home inspection and appraisal if they included these as contingencies, and finalize their loan approval. The seller will begin any buyer-requested repairs and start removing their
belongings from the property – inside and out. The buyer should make a final walk-through to ensure the seller has met all requests.
At closing, both parties will sign closing documents, and the lender will send funds to escrow to be dispersed per the agreement. At that point, the local county recording office will transfer the title to the buyer, now the new owner, who takes possession of the keys.
A closer look at purchase agreement terms
Get acquainted with some of the terms in purchase agreements, and you’ll find that reading and understanding the document is much easier. Remember that each state has its own forms.
Buyer and seller details: Legal names and contact information.
Property details: Including dimensions, property description, and year built.
Essential rights and obligations: Includes purchase price, representations, warranties, financing, mortgage note, contingencies, title insurance, closing costs, lead-based paint disclosure.
Conditions: The condition of the property.
Fixtures and appliances: Which ones are included in the sale, and which are excluded.
Earnest money deposit: Earnest money is a monetary deposit made in good faith to the seller from the buyer during a home sale. A purchase contract usually contains all information pertaining to the earnest money deposit used in the transaction. It will also outline terms and conditions of refund, contingencies and escrow details of the earnest money deposit.
Itemized closing costs: Outlines all closing costs and details who is responsible for paying them.
Closing date: When the transaction is expected to close.
Terms of possession: When the keys to the property are handed over.
Contingencies: Simply put, contingencies are conditions that all parties must meet before the sale can go through. For example, it’s common for a potential buyer to have to sell their current home before buying a new place. You’ll often find contingencies that state the buyer’s home must sell before finalizing the new house purchase. So, if the buyer can’t sell the home, they can back out of the contract.
