A real estate purchase agreement is not a rough guide to a deal. It is a contract specifying exactly what legal obligations each side has. In other words, be sure it says what you want it to say, and has everything you need in it.
Normally, if you are buying a property that is listed with a real estate broker, they will have a purchase agreement ready to have the blanks filled in. If you have a buyer’s agent that you work with, he or she will have the necessary forms. There are the routine parts which are necessary, but not easily forgotten or done wrong. These include the following.
The Date – Names of Buyer(s) and Seller(s) – Address Of Property – Legal Description Of Property – Purchase Price And Terms – List Of Anything Included With Property – Date The Deal Should Close By – Closing Process – Disclosure Statement – Signature With Date For Buyer And Seller – Addresses and Phone Numbers Of Buyer And Seller.
These may be routine items, but be sure that you look all of this over carefully. If the disclosure statement clearly states that there is a foundation problem, for example, you can’t later get out of the deal when those cracks in the basement make you nervous. With the following items, be especially careful.
Real Estate Purchase Agreement – The Crucial Items
Good Faith Deposit or Earnest Money – Real estate agents will try to convince you that your deposit should be as much as possible. There is no “normal” amount, and while it’s true that a seller might take an offer more seriously with a bigger deposit, this is up to you. Real estate is regularly bought with $500 deposits. An alternative is to include a deposit of $200, and the line, “to be increased to $2,000 when all contingencies are satisfied.” That way if the inspection shows nasty surprises your money isn’t tied up while the seller argues that there isn’t a problem.
Designation Of Who Pays What – Make sure the agreement clearly states who will pay for what. Are you splitting the cost of the fee paid to the closing company? Who is paying each of the other closing costs. If it doesn’t state in the purchase agreement that the seller is paying, expect that you are.
Financing Contingency – Unless you are paying cash, you will probably have to get a loan. A Pre-approval from the bank doesn’t guarantee much, so be sure that you make the agreement contingent on getting that loan, and specify the terms. For example, it might read, “This offer is contingent on buyer obtaining a mortgage loan within seven days, at 7.5% annual interest or less.”
Inspection Contingency – You may not need an inspection if you are buying land, but with residential real estate an inspection is a good idea. Generally, the clause for this will allow you about a week or ten days to get it done. It might read something like this: “This offer is contingent on an inspection of the property at buyer’s expense, and buyer’s approval of the results of that inspection within seven days.”
Other Terms, Conditions or Contingencies – There are sometimes other issues, and you have to address them in the real estate purchase agreement. For example, if the back yard is full of junk cars, you better add a clause like, “All cars and junk to be removed at seller’s expense before closing.” If you are shopping alone but your wife needs to approve the home, you could also add a clause like, “Offer is subject to a approval by spouse within two days.” Then your wife can look at the house later and say yes or no to the deal. As you can imagine, sellers may not like that one.
If you are not working with an agent, you can buy an agreement (sometimes called an “offer to purchase” or “buy-sell agreement”) online or in some office supply stores. Having a lawyer review all the paperwork is best. Remember that a real estate purchase agreement is a binding contract the moment you and the other party sign it.