The document that spells out the terms and conditions of your home (or condominium) purchase is variously referred to as a purchase contract, deposit receipt, earnest money contract or sales contract. It’s a legally binding document that should reflect your intentions and capabilities accurately.
Purchase contracts will vary depending on the type and location of the property and on whether the contract is a reprinted form used by a real estate broker or a document drawn by an attorney. But there are basic elements that should be included in any residential property sales agreement.
To be enforceable, a property sales contract must be written; oral agreements to sell real estate are not binding. The contract must identify the buyers, the sellers and the property. And it must establish a purchase price and the terms of the sale if the sale is not all cash.
The contract specifies the amount of the buyers’ earnest money (good faith) deposit. The agreement usually provides for this money to be held by a third party, typically an escrow officer or an attorney. The deposit is applied to the purchase price at closing, or it’s refundable to the buyers if certain terms of the contract (called contingencies) aren’t satisfied. The deposit amount is negotiable, but local custom often prevails.
Most real estate purchase contracts will include at least two contingencies. A financing contingency makes the purchase conditional on the buyers’ ability to obtain a loan commitment from a lender. An inspection contingency allows the buyers to have professionals inspect the property to their satisfaction. If the sellers are unwilling or unable to correct defects, the contract is voidable and the buyers’ deposit is refundable.
A deposit could be forfeited by the buyers under certain circumstances, such as the buyers backing out for a reason not provided for in the contract.
The purchase contract should describe the sellers responsibilities which will include such things as passing clear title to the property; maintaining the property in its present condition until closing; delivering the property “broom clean” and free of personal possessions and debris; and making any agreed upon repairs to the property.
The sales contract should also specify who’s responsible for paying which closing costs. Closing costs include such things as a brokerage commission, loan origination fees, title insurance and transfer taxes. Who pays these charges is usually dictated by local custom but they can be negotiated.
The purchase contract should clarify any items of personal property that will be included in the sale and any attached fixtures that will be excluded. The dates that title will transfer to the buyer and when possession will be delivered to the buyer should also be specified in the contract.
First-Time Tip: A final walk-through provision gives the buyers the right to inspect the property prior to closing. This allows the buyers an opportunity to confirm that the property is in the same general condition as it was when they agreed to purchase it. A walk-through can also be used for the purpose of assuring that the sellers have completed repairs they agreed to do, or that a home that was still under construction when the buyers purchased it is finished.
The Closing: A real estate purchase contract is a complicated legal document. You should read and understand it before signing it, although many buyers never do. If you have any questions, ask your real estate agent or a knowledgeable attorney for an explanation. There are no stupid questions when it comes to buying real property.
Dian Hymer is author of “Starting Out, The Complete Home Buyer’s Guide,” Chronicle Books, Revised 1998.