Whether you are selling "By Owner" or through a REALTOR®, there are some very important questions that should be asked when you receive an offer to purchase.
If there is a mortgage contingency:
- Does the prequalification letter (always be sure to have one on hand or, at the very least, accept with a contingency of receiving one within 24 hours) state that it is based on a credit review? You want to be sure that there are no issues with the buyers' credit that would cause difficulty in his/her/their obtaining a mortgage. This does not mean that issues cannot appear when the full credit history is investigated but it is a start.
- Are there any issues upon which the qualification (or prequalification) is or would be conditioned such as selling and closing on another property, receipt of funds from another source, payoff of other debt, etc. Remember, a prequalification letter is not a commitment but merely an "indication" of the creditworthiness of the buyer and ability to pay. It does not always disclose conditions even though the mortgage broker might be aware of these conditions. You have to ask if you want to know. If you have a Realtor, ask him/her to call the mortgage broker directly and ask these questions when an offer is presented; if selling "by owner" do it yourself - you need to know.
- Is there a spouse? If there is, even if the buyer is separated and no matter how long they have been separated, or even if the spouse is not going to be on the deed and is not on the contract, the spouse must sign the mortgage - not the promissory note but the mortgage. Without that signature, the mortgage will not close. I don't know if there are exceptions to this, I have never found it to be otherwise, but please check with your real estate attorney and/or the mortgage company if the question arises.
- Be sure that the prequalification states both the dollar amount of the mortgage and the LTV (loan to value) percentage and that both of these match the contract. If you are going to present a counter-offer, be sure that the buyer will qualify for the higher amount and either ask for an updated prequalification letter or make the counter-offer contingent on receiving a matching prequalification letter within 24 hours of the effective date of the contract.
If it is a cash purchase, ask for proof of funds: either a bank letter or a copy of the most recent bank statements. Be sure that, if the contract is only in one name, that the bank letter states that the buyer is the sole owner of the account or that the bank statement(s) is only in the name of the buyer. If it is a joint account then insist that the co-owner of the account sign the contract as well. Again, you might want to ask your real estate attorney.
Remember that the standard real estate contract has been written by real estate attorneys, usually in concert with a committee of Realtors. It is fair and unbiased and usually will protect all parties. (You don't want your attorney to rewrite the contract which is why I always recommend that the attorney you consult is a real estate attor
ney - see below). There are a few options from which to choose in the preprinted contract so make note of which options have been chosen. Some of the options offered in the contract are there because common practice will vary from country to county. Be sure that the option chosen is standard to your area or market.
The most common variation between counties, at least here in Florida, is title evidence and title insurance. Some contracts or options call for the seller to obtain and pay for title insurance, in which case the seller chooses the closing agent; others call for the seller to merely provide proof of clear title to the buyers' title company and the buyer pays for the title insurance and chooses the closing agent. Title insurance can be a big expense - it is usually a percentage of the sales price of the house - so be sure that you are aware of that if you are required to pay for it. Your real estate attorney can provide you with the cost, if it becomes an issue.
Also make careful note of any changes to the standard contract, any blanks that have been filled in or need to be filled in and any additional terms that have been added. These are the areas where you should be most concerned. Usually when there is a blank to be filled in there will be, in parentheses, a default condition if not filled in. I never like to leave blanks so I always fill in something, even if it repeats the default condition.
If you have any questions/concerns or if you wish to have your attorney review the contract before signing, be sure that you consult an attorney who specializes exclusively in real estate law. You don't want an attorney to rewrite the contract and a real estate attorney will be very familiar with the standard real estate contract and will not feel the need do that - you just want to be sure that any added clauses or chosen options do not put you at risk. If time for acceptance is an issue, you can add "subject to review and approval by sellers' attorney within 48 hours of effective date of contract". If the contract is a good, solid contract and you have assured the buyer that your attorney is familiar with the standard real estate contract , then the buyer and/or agent should not have a problem with this.
If your contract states that "Time is of the essence", be absolutely sure to note all deadlines/dates and stick to them; otherwise, your contract could be at risk, whether to the detriment of the buyer or the seller. It means that all time frames called for in the contract must be met specifically unless otherwise amended. Also, check the contract to determine how time is calculated, whether it is calendar days or business days. There is usually a separate paragraph within the contract that will specify this.
What I like to do is to create a schedule with actual dates - not "days from . . . " - of every event that is to occu
r during the course of the contract from signing to closing and have all parties sign it. That way, there is never a misunderstanding and there is never an opportunity to miss a date.
If you are selling "AS IS", keep in mind that "as is" means that the buyer is accepting the property in the condition that it is in at the time of the inspections (usually inspections will be a contingency in the contract). The seller will still be obliged to maintain the property from that date to closing and, if anything breaks during that interim, the seller will still be required to make the necessary repairs. In other words, the property must be in the same condition at closing as it was at the time of inspection. If something breaks or is damaged, i.e. the a/c dies, the seller will be required to repair or replace before closing or, at the time of closing, funds will be escrowed until repairs are completed or buyer & seller settle on a dollar amount to be credited to the buyer at the closing. Many sellers - and even some Realtors - think that "as is" relieves the seller of all obligation for repairs. It does not.
I am not a big fan of "as is" contracts but am okay with it if some exceptions are included:
- There is a dollar amount or % of sales price stated for total repairs below which the buyer would automatically accept the property in its current "as is" condition; and/or
- The seller has the option to make any and all necessary repairs and, therefore, the "as is" condition would be waived.
In any case, if other than a very standard, straight-forward, commonly seen, clean contract, I recommend Consult Your Real Estate Attorney. Most Realtors are not attorneys and we cannot nor should we offer legal advice. We can only offer our experiences and training, which hopefully is extensive!
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