Once you decide on an offering price for a house, you will be asked to sign a legally binding purchase contract. If the seller accepts your offer, this contract commits you to buy the house at the price offered and under specific terms.
Any purchase contract should be drawn up or carefully reviewed by an experienced real estate attorney before you sign it. An attorney protects your interests and can save you money and problems. At the very least, include on the document the words, subject to my attorney's approval. Make sure you understand every clause of the contract before signing.
A deposit (earnest money) towards the down payment must be submitted with the contract to the seller. Insist that your real estate agent place the deposit in an interest bearing escrow account until closing. The contract should specify whether the deposit is to be returned to you or kept by the seller if the sale is not completed. It should also spell out what happens to interest earned on the earnest money.
Be sure that the contract is written in your name(s) (for example: John J. Jones and Betty B. Jones). A contract can be sold or transferred to a third party before closing if circumstances change (job relocation, divorce). It is advisable to restate this contingency clause in the contract.
A home purchase contract agreement should include:
- The names and addresses of both buyer and seller.
- The legal description of the property (address, lot and block number).
- The mortgage amount needed to finance the house.
- The deposit amount and the party who will hold it in escrow until closing.
- The approximate closing date.
- Provisions to extend the closing date in case either the buyer or seller cannot meet the terms of the contract.
- Conditions for disposition of the deposit in case either party fails to close.
- The amount of broker's commission (if any) to be paid by the seller.
- Who will pay specific closing costs.
- Adjustments to be made at the closing (property taxes, "points" paid by buyer, seller, or builder).
- Items included in the sale such as: area or room-size rugs, draperies and window treatment hardware, a wood-burning stove, fireplace equipment, lighting fixtures, outdoor or indoor furniture, etc.
- Special conditions of the sale. For example, if the house has problems, what will the seller do to correct them?
- Mandatory and optional inspections the buyer can make before closing such as termite, home inspection, radon, and water.
- Property easements (the rights of others to use the land).
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