Congratulations, you’ve decided upon the house you want. Now is the time to (gulp) make the commitment and put the offer in writing. Over the course of looking at houses, your buyer agent probably made good use of the togetherness time in the car by explaining “What’s In A Residential Offer to Purchase and Contract?”.
The first thing to understand is that the document is a collection of mutually acceptable promises or terms. If both parties do not agree initially, then both sides counter offer and compromise until the contract suits both parties.
There is a lot of language about the legal description of the property, the names of the parties, the conveyance of clear and marketable title and what does or does not convey with the house. Be prepared to spend quality time with your agent reviewing all of these terms.
The salient parts of the most common types of contract to purchase a house would be:
- Purchase Price
- Earnest Money Deposit (aka “Good Faith Money”)
- Possibly a Due Diligence Fee
- Financing Terms (how will you pay for this purchase? Cash? What type of loan?)
- Seller Contribution (are you asking the seller to pay towards your closing costs?)
- Due Diligence Period (a reasonable amount of time to perform any and all inspections, allowing sufficient time to negotiate for repairs if necessary. This period also specifies TIME IS OF THE ESSENCE for the buyer to withdraw from the contract in writing by the expiration date).
- Closing or Settlement Date (be sure to consult with your lender when calculating this date. There could be consequences to closing late).
Broken down into its most simple components, it doesn’t seem as overwhelming, does it? It isn’t, as long as both parties enter into the contract with pure motives and good intentions. Buying a house isn’t a game although it can be an enjoyable experience. There are protections in place for both parties. For example, if your Home Inspection turns up terrible repair issues, the Buyer has the right to either ask for repairs or financial consideration…or withdraw from the contract…all within that important Due Diligence period. The Seller has the right, if requested to do so, to make the repairs or compensate the Buyer so they may make the repairs themselves. They also have the right to NOT make repairs, leaving the decision up to the Buyer to accept the house “As Is” if they choose.
Buyers and Sellers alike can feel empowered in this residential contract process, as long as they understand that both parties have put sincere promises into play and have both entered into the contract with a commitment to proceed towards a successful closing. Contracts shouldn’t be mysteries and all parties concerned should have a good idea of “What’s in a Residential Offer to Purchase and Contract?”, long before they enter one!