The process of buying a home is filled with paperwork and forms to complete. One of the most important documents signed by buyers and sellers is the purchase and sale agreement, also known as the purchase agreement. This agreement is a contract that spells out the terms and conditions of the home purchase and sets the timeline of the transaction. According to My Home by Freddie Mac, this document is also used by the buyer to obtain mortgage financing.
Both buyers and sellers should carefully read this agreement and fully understand the terms prior to signing. Here are four things to keep in mind when it comes to these crucial documents:
1) Understand the Purpose of the Agreement
The purchase agreement documents the terms of the transaction discussed between the buyer and seller. Included are the purchase price and the closing date, two of the most important items in any real estate purchase. The amount of money the buyer places on deposit, also known as earnest money, is defined in this agreement as well, and this money should be placed in an escrow account until settlement.
The parties involved in the transaction may wish to spell out items included with the sale of the house, such as appliances and window treatments. Items expressly not included, like a washer and dryer, for example, may also be stated by the seller.
2) Define the Commitment to and Contingencies of the Home Purchase
The purchase and sale agreement defines your intent to buy the home. In the contract, you may stipulate certain contingencies, which would release you from the obligation to buy the home and allow their deposit to be returned, such as:
The sale of your current home – this contingency gives you time to sell your current house. If your home doesn’t sell, it allows you to forgo purchasing the new property.
The mortgage contingency clause – many buyers wouldn’t be able to complete a home purchase unless they’re approved for a mortgage, thus making the home purchase contingent upon loan approval.
The appraisal of the new home – you must have the home appraised at a certain value to qualify for a mortgage. If, for some reason, the appraisal doesn’t match the purchase price, you may not be able to complete the transaction.
As a seller, you should evaluate the overall strength of the buyer’s offer before accepting a contingency. Sometimes, sellers request permission to continue marketing the home during the contingency period. A buyer may request the right to match any new offers or remove the contingencies. Typically, a deadline is set for buyers to respond to new offers to ensure the sale isn’t delayed.
3) Outline the Home Inspection Process
In the purchase and sale agreement, buyers and sellers also agree on home inspection procedures. The seller sets a time limit for the buyer to perform inspections, and they may also note that the house is being sold as is, meaning they won’t fix anything in the house prior to the sale. In these cases, buyers may still be granted the opportunity to perform a home inspection. If sellers aren’t selling the home as is, there should be room for negotiation on repair costs post-inspection.
4) Adapt Language and Terms as Needed
Home sales are unique, complex transactions, and the standard language of a contract doesn’t always fit every situation. As such, the language and terms of the standard purchase agreement may be adapted for each new transaction.
State real estate laws vary, and thus, standard forms aren’t the same in every location. If this is the first time you’re buying in a new state, go over the new agreement you’ll be using, check for changes and adjust accordingly. Buyers and sellers may also add stipulations defining who pays for closing costs, the proration of taxes and other disclosures the seller wishes to communicate to the buyer in writing.
A home purchase is a significant investment of time and financial resources by both the buyer and the seller. To expedite the process, you’ll want to agree to the terms up front and include them in the correct format. For additional help and resources, including information on your state’s specifc forms and purchase agreement, contact Owners.com today.
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