Basic Terms and Conditions
The purchase contract is a binding legal document. Here in Colorado we have one of the most buyer and consumer friendly real estate contracts in the nation. As confusing as the 17 page document seems it establishes a lot of buyer/seller conditions that (hopefully) prevent misunderstandings and with it future law suits. So make certain to take your time going over the details with an experienced Realtor in order to understand the legal jargon and all of the issues which could impact the deal. Ask questions! Every contract has certain basic clauses. In a real estate purchase contract these include:
- Address and Legal Description of the property
- Names of both purchaser(s) and seller(s)
- Purchase price and terms of the purchase
- Amount of earnest money deposit
- Personal property or fixtures to be included / excluded from the sale
- Type of Deed to be transferred
- Any special instructions regarding who pays which closing costs
- Dates for milestones - deadlines (inspections, repairs, etc.)
- Date of closing
- Date of possession of the property
- Deadline for acceptance of the offer (usually 2 to 3 days)
Not all boilerplate contracts contain contingency clauses, yet these are essential in protecting your rights during the process and allowing you a legal opportunity to withdraw from a contract with a full refund under certain circumstances. One of the most common is a clause which states that the purchase of the property is contingent upon the buyer obtaining financing. While it is highly recommended that a buyer be prequalified, it’s important to be protected against the unlikely event that the financing will fall through.
You also need protection in case the property appraisal comes in lower than the listing / purchase price. If this occurs, you can have the option to go ahead with the closing, but the lender will require you to make up the difference in cash. The loan and down payment required will be based upon the lower appraised price in this instance. For example, suppose you have offered $130,000 for a home and the lender is requiring a 5% down payment. If the appraisal comes in at $130,000 your required down payment (not including closing costs) would be $6,500. However, if the house only appraises for $125,000 and you decided to follow through with the purchase at the original offer price, your down payment would jump to $11,250 ($125,000 x .05 = $6,250 + $5,000 = $11,250.)
Inspections are another important feature, especially when the home is not new construction. Inspections are performed by licensed contractors who check the furnace, A/C, breaker boxes, appliances, roof and structural issues. If you are looking for a home inspector you can always look up one in your area at the American Society of Home Inspectors. The contingency clause should set a time frame for the inspection and a release clause that states your right to be released from the contract if the inspection does not meet your approval Inspection Objection Deadline. Look at your contract to purchase. There is a long list of dates. Find the Inspection Objection Date - this is the date by when the inspection has had to have occurred. If you are NOT satisfied with a condition in or around your home you will note it as an objection. Your list of objections will be presented to the seller, you might ask him for repair, a repair allowance or perhaps a home price reduction. If an issue is absolutely unacceptable to you, you may cancel your purchase contract by this date and be released from the contract.
In some cases, a seller may respond with a counter to the offer you have made. For example, perhaps you have offered $5,000 under the asking price; the seller may counter with a higher figure. In essence, a counter offer is a rejection of your original proposal and you are no longer obligated to proceed with the purchase. If you accept the counter, however, the adjusted terms will become binding on both parties.
The best way for a buyer to protect their rights is to work with an experienced Realtor. Are you interested in Colorado Springs homes for sale? If so, contact Susanna Haynie at yourcoloradospringshouse.com and find out what a pro can do for you.
You might also like: Home Buying 101: Getting Started