The purchase contract is the blueprint for the entire transaction, so make sure that everything you want is in the purchase agreement and that everything that’s in there is something you want. Don’t assume, just because a contract form is pre-printed, that it necessarily protects you or is written in your best interest. Read every clause. If you don’t understand something, ask for an explanation. Have your attorney read it before you sign it.
Buried in the Fine Print
Just because a printed form comes ready for you to fill in the blanks doesn’t mean that it’s written to safeguard your interests as a buyer. The forms may be drawn up by a real estate firm’s attorneys or may be recommended by the state Association of Realtors®. The document may or may not be neutral in terms of favoring the buyer or the seller; read with that caution in mind.
If the printed purchase offer forms were written by real estate firms, say some experts, you can count on their having been crafted to make life easier for real estate professionals — whose primary goal is to get the sale closed.
For example, many printed purchase agreement forms include a mandatory arbitration clause; in some jurisdictions this clause is optional. Real estate agents often urge their clients to agree to arbitration because it is a fast and cheap way to settle disputes without going to court. However, by agreeing to arbitration you give up your right to a jury trial and to court rules of evidence, and there is no appeal from an arbitrator’s decision. Most real estate attorneys recommend that you not agree to arbitration at this point in the process. If a dispute arises later, you can agree to arbitration or mediation if you wish to avoid a lawsuit. Mediation clauses are less onerous; you can file a lawsuit later if the problem was not resolved by mediation. Unless a clause is required by state or local law, you have every right to cross it out or change it to your satisfaction. Indeed, in some states, purchase offer forms specify that "handwritten or typed provisions herein supersede any printed provisions if there is a conflict.” You can also write in something that you feel has been left out altogether. Don’t forget to initial any changes.
Purchase Contract Summary
The essentials of a purchase contract include:
• Property address and legal description. In addition to the street address, there is a legal description of the property, or the tax parcel number. In rural areas it is wise to attach a property description addendum that includes boundaries or other landmarks. If the school district is important to you, make sure the house is located within the desired district before you make an offer on it.
• Names of the buyer and the seller. If someone in addition to you will be a co-owner — perhaps your parents will be helping with the mortgage, for instance — add the phrase "and/or assignee” after your name. By the same token, be sure that everyone who holds title to the property is named as seller and signs the final accepted offer. If someone named on the title has not signed the acceptance, he or she cannot be forced to sign over the deed.
• Earnest money deposit. This amount may vary according to custom in your area, but is usually modest (ranging from $1,000 to 1 percent of the purchase price). After your purchase offer has been accepted, the deposit legally belongs to the seller. However, you may specify where the deposit will be held until the sale closes — for example, by the escrow firm, by an attorney, or at a bank — at which time it becomes part of your down payment.
• Proposed purchase price and terms of sale. These terms must be as specific as you can make them. See financing contingency .
• Personal property. An itemization of what is included in the sale, such as kitchen and laundry appliances, window treatments, fans, and other fixtures. Also itemize any specific exclusions.
• Provisions for seller’s disclosures (of any defects that would materially affect the value of the property).
• Type of deed to be given (sometimes called tenancy and vesting). • The date for closing (the date the sale becomes final).
• Closing costs (an itemization of which party pays for fees associated with the sale).
• Occupancy, or possession, date. Sometimes the seller asks to remain in the house for a period after the closing date. In this case, the terms of the seller’s occupancy are specified. In other cases, the buyer may ask to move in ahead of the closing date; terms for this situation must be specified here.
• Contingencies (and time periods for satisfying them).
• Seller's obligation to provide clear title (ownership).
• Provisions about who will pay for title insurance, survey, termite inspections, etc.
• Provisions for adjusting (prorating) real estate taxes, rents, fuel, water bills, and utilities between buyer and seller.
• A provision for the buyer’s final walk-through just before closing. If the seller has agreed to make certain repairs, you may want to do the walk-through at least a day before the scheduled close to have time to address anything left undone.
• Other requirements that vary by state, such as disclosure of certain environmental hazards or a chance for attorney review of the contract.
• Expiry date. A time limit (preferably no more than one or two days) after which the offer will expire.
When in doubt, be as specific as you can. Conflicts involving purchase agreements are rare, but they do arise — usually because some term has been left incomplete or vague. As an attorney with the Minnesota Department of Commerce, which regulates real estate professionals, put it, "Problems often arise from user laziness: People don't want to pin themselves or the other party down.”
Builder/Developer Contracts
Builder contracts are designed to give the builder all the advantages. Buyers who are not represented by an agent or lawyer often sign them without being aware of the hidden land mines. For example:
• Vague phrases that allow the builder to "modify” your floor plan, making it "similar” to the plans you agreed upon or to "vary only slightly”; substitution clauses that allow the builder to replace certain components of your home with "similar or better quality” items. In all of such instances you'll want language in the contract that gives you — not the builder — the right to make those decisions.
• Mentions of additional fees due at closing. These may be special assessments for infrastructural elements such as sewer and utilities or for amenities such as jogging paths. Make sure you’ve agreed to the amount in advance and that it’s specified in the contract.
• Unspecified "closing fees” of 1 percent to 2 percent of the purchase price. Find out what expenses these fees cover. You may also want to insert some precautionary language such as "If seller does not presently hold title, this contract may be rescinded by the purchaser.”
In short, no matter how reputable the builder, you will be well advised to request a contract for your attorney’s review long before you sign it. If the builder won’t agree to this, walk away from the deal.
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