Do You Understand That Real Estate Contract?
Do You Understand That Real Estate Contract In Front Of You?
Do you understand that real estate contract in front of you? Or, while reading it, do you feel like you are learning another language?
Let’s paint the picture: You have just found the home of your dreams and would love to put an offer in on it. The question is – what do you do now?
Can I Just Tell The Seller What I Want To Pay?
First off, everything needs to be in writing. The law is very clear about that. You need a residential sales contract that spells out the terms, conditions, and any special requirements you may need or want in order to get this deal to the closing table.
Unless you are a seasoned investor, you should always be represented when it comes to transactions in real estate. This is where an agent will come in handy. If you do not have an agent, you may always use a real estate attorney. The agent will assist you in preparing all the correct documentation and filling out the real estate contract to present to the listing agent who is representing the seller. If you do NOT understand the contract, your agent may read it to you, but can NOT interpret it for you. You MUST bring it to an attorney to review if you do not understand what you are signing.
So, your agent has prepared your offer and you have signed it. It has been sent to the listing agent and is being presented to the seller. The seller ha three choices:
- The offer can be accepted.
- It can be rejected in its entirety.
- The real estate contract offer will be countered, with different terms.
If the seller opts for option three, then the buyer has the same three choices. This goes back and forth until the real estate contract is executed and delivered.
What Is Important In The Real Estate Contract?
There are certain things which must be included in any sales contract.
- The property must be clearly identified by street address and property description.
- The contract must be contingent upon your obtaining financing 30 days. — in which to make an application from a mortgage lender and get a written commitment that you have been approved for the loan, unless you are paying cash.
- Unless you are an experienced contractor, it is advisable you make the contract contingent on your obtaining a satisfactory home inspection. This is your due diligence period, usually 10 – 15 days. Depending on the type of contract you have will determine your next steps. If you are not satisfied for any reason after you receive a written report from the inspector, your agent should send over the issues to have the problems corrected, or, if you have an AS-IS contract, terminate the real estate contract, and get back your earnest money deposit back.
- How much earnest money should you put up when you sign the offer? If you are not a seasoned investor, usually it’s 1% of the purchase that will go into escrow within three days of the offer being executed. These funds will be held by the real estate broker, the settlement attorney until settlement takes place, or the title company. This earnest money deposit will go towards your down payment. So, if you are an FHA buyer that needs 3.5% down, you will put 1% into escrow and then bring the remaining 2.5% to the closing table.
- Finally, the dates are VERY important. The clock is ticking once a contract has been executed and it ticks down in calendar days, not business days. If one party misses a deadline, it does not mean your contract is canceled. It means you are in breach of the real estate contract and could face a lawsuit. Mark down all your dates on a calendar and put reminders in your phone. You — as the buyer — have so many days in which to get financing and so many days in which to complete a home inspection and a WDO. Mark your calendar with these due dates, and make sure you act on these contingencies before the time expires. Your agent will remind you and hound you about it, but ultimately, you are the adult and will be held responsible. Once you sign a contract, you will be legally bound to comply with the terms of the real estate contract.