When you find a home you want to buy, your offer will contain many important terms and conditions. It will state your offer price and many other clauses that could be crucial to the success of the purchase. Before making an offer on a property it is vital to understand what you will be agreeing to in a real estate contract.
When you are not buying or selling a home everyday some of the terms may be foreign to you. When you understand these terms and conditions, you're more likely to structure your offer in a manner that will be appealing to the seller. The goal of getting your offer accepted will be higher.
Let's look at the most common contingencies in an offer and what they mean to buyers and sellers.
One of the most common terms in an offer is the home inspection contingency clause. This contingency gives you a way to back out of the deal with your earnest money if the home inspector finds some serious issues.
When the home inspection finds some problems, the seller might agree to cover the cost and have the problem fixed. But if this can't be negotiated, this clause will be very important to you. The language in the offer to purchase will allow you to escape the sale with your money back.
Keep in mind though that you need to follow the response time noted in the offer. You can't decide to let the seller know you're backing out after the inspection clause expires. Some buyers are forgoing an inspection if they know there are multiple offers on a property they would love to purchase. They do so to get any edge they can over other buyers, even though it could be risky.
Most home buyers do not have the finances available to buy without a mortgage. So financing is one of the common contingencies in an offer.
Before you apply for a mortgage, you'll need to do some research with lenders to find out what interest rate will be available to you. Your credit score, income, and debt will contribute to the financing that is offered by lenders.
The offer you make to the seller could include a contingency to ensure you get a mortgage at the best available interest rate. If, for example, you can only afford the monthly payments if the interest rate is at 5%, you could have that written into the contract.
So if you are only able to get a home loan at 5.25%, you can walk away from the deal with your earnest money deposit. Most standard financing contingency language, however, will include the amount your financing and when you need to get your commitment. Adding additional terms could make getting your offer accepted more challenging.
Due to the overwhelmingly strong seller's real estate market some buyers are making their offers more attractive. They will remove the appraisal contingency that is inherent with getting a mortgage.
Instead, they will offer the seller an appraisal gap guarantee, saying the will make up the difference if the home appraisal comes in lower than the sale price.
Due to bidding wars, many homes are selling way above the asking price. There can be appraisal issues at times because of this.
If you need assistance from the seller to pay closing costs, you can add that as one of your offer terms and conditions. Closing costs are fees that need to be paid on top of the home's purchase price, and they can be between 3% and 6% of that price.
Sometimes a seller will be willing to pay some or all of these costs to sell their home. If you can negotiate a seller concession like this, it needs to be written into the contract as either a dollar amount or a percentage of the home purchase price.
Another way of doing this is to specify who pays the various fees involved in the closing. So it might be agreed that the seller takes care of escrow or title search fees, with a buyer dealing with the rest.
There might already be a typical way of dividing these expenses in your area. Your real estate agent will be able to advise you about this, and it can be added to the offer agreement.
If you need money from selling your own home to buy a new property, a home sale contingency can be added to the offer. A time frame of 1 or 2 months can be added to the offer terms and conditions to allow you to sell your home.
While a contingency like this may be necessary for the buyer, it's unlikely to be too popular with the seller. The seller isn't going to be happy about taking their home off the market for an indefinite period while you try to find a buyer for your home, but 1 or 2 months might be more acceptable.
Home sale contingency clauses are more common in buyer's markets. Rarely do you ever see one accepted in a hot seller's market. What seller wants to put their sale at risk when they don't need to. Forking over the buyer's escrow deposit months later would be a very unpleasant reality if they're home doesn't sell.
A verbal agreement isn't good enough if you want some fixture or appliance to be included in the sale. If the seller says they are happy to have that item included in the sale, put it in writing. Otherwise, you may find it isn't there when you move in.
Every now and then a seller will remove something out of the home that is considered "real estate" or part of the property.
A closing date should be included in the purchase offer. Many things can affect how long it takes to close, including if the seller needs time to find a new home, or if the buyer needs to move by a certain date for a new job. There can be many reasons why a certain closing timeline is required.
If a very short amount of time is needed to close on the home, it is very easy to run into problems. If closing is required in just a few weeks, it will be difficult to complete a lot of contingencies, and there can also be delays from the lender, the title company, or real estate attorneys.
Generally, standardized forms can be used when making a real estate offer. While this normally means just filling in the blanks, your real estate agent should ensure that nothing important is left out of the offer contract.
Even though sellers typically don't like a lot of contingencies, it could be important to make sure you don't end up losing a lot of money if things don't go to plan.
Understand a real estate offer to purchase with all it's terms, conditions, and contingencies are essential. Lean on your real estate agent for their expertise. Someone with years of experience will provide valuable assistance in educating you on the process of putting in an acceptable offer that makes sense.