You Have the Price, Let’s Write the Contract

You have decided on the offer price, now it is time to write up the contract to submit to the seller. This contract will be the first step in negotiations to reach an acceptable offer between the two of you. Because this is probably the most expensive purchase you will make, it is advantageous for you to build safeguards and contingencies into the contract to protect your investment and limit your risk.

The contract will not only list the price you are willing to pay, but a host of other details such as earnest money amount, financing, down payment, sellers contributions, option period, and closing date. It might also include items such as the conveyance of personal property at closing, terms of cancellation, how to settle any disputes and a list repairs you may want completed before closing. Some of these items may be handled using addendums to the contract once the major points of the sale have been agreed upon.

What they say is true, buying (or selling) a home affects how you live the rest of your life. It is a major financial event for both parties. Both the buyer and seller make plans based on the contents of the contract offer. You need to decide carefully how to make the deal that you present to the seller a win-win situation for the both of you.

Contingencies

Most transactions go smoothly, but if something does go wrong you want to make sure you have included contingencies in your contract to cover any problems. These will allow you to cancel the contract without incurring any penalty.

Take for example a ‘move-up’ buyer. These buyers should include a contingency in their contract offer which states they will purchase the sellers home on the closing of their own home. If you forget to include this contingency, you may end up making two mortgage payments instead of one!

There are several contingencies you should always include in your contract offer. These include; the condition that your offer is binding only if you successfully obtain financing, that the property appraises for at least the agreed upon selling price, and that you are given a specified period of time in which to perform inspections and that the home passes those inspections.

In other words, contingencies protect you in the event that you cannot fulfill or choose not to fulfill the contract offer on the home. If you default on a contract without these contingencies in place, you could forfeit your earnest money or worse.

Earnest Money

An earnest money deposit amount indicates to the seller how serious you are about your desire to buy the home. It will be deposited into an escrow account at the title company and credited toward the agreed upon purchase price of the home. The amount should be large enough to indicate your intentions but not so large that you place the funds at risk.

It is recommended that you offer between two or three percent of your offered price. This may vary depending on the location, area and listing price of the home. It is to your advantage, however, not to make the deposit too large in order not to attract the attention of the lender. If so, the lender may require that you show how you came up with the funds. Another reason to limit the deposit is if a problem arises during the transaction. If a dispute should occur between you and the seller, you will be placing fewer funds at risk.

Another factor which may affect how much earnest money you deposit is the current state of the market. If multiple offers on properties are the norm, a larger deposit may impress a seller and lead them to accept your offer instead of someone else’s. If the market benefits the buyer, a larger deposit may convince the seller to accept a lower offer. Giving them more money up front may save you money later on.

The Closing Date

Specifying a closing date in your offer is essential. Remember that both you and the seller are basing all your future plans on the statements made in the offer. Including a closing date allows you both to make plans for moving. Stay flexible, however, because although most transactions actually do close on the contracted closing date, a delay could require your flexibility. If, for example, you are renting, allow overlap of the end of your lease with the closing of your home. This way if a delay occurs you will have someplace for you and your belongings to stay.

Following Closing

You own your new home once the deeds have been recorded. At this time the transaction is considered ‘closed’. In order to occupy your home immediately and to avoid confusion following closing, the transfer of possession of the home should be clearly specified in your offer. If, for some reason, the seller does not vacate the home by closing, arrangements can be made for the seller to ‘lease back’ the property for a maximum of 90 days. If this becomes necessary, your real estate agent will assist in completing this agreement.

Writing an Offer - Safeguards Regarding the Property