Names of the buyer(s) and seller(s)
The first line of most printed residential purchase contracts asks for the name of the buyer(s). If you think you might be adding a co-owner, such as a parent, to help you qualify for a mortgage, add the magic words "and/or assignee."
Property description
The next blank on most forms is for the street address, legal description, tax assessor's parcel number or other description of the property. Be as specific as possible, especially with rural properties. Attach a property description addendum, if necessary. Unless you are buying a recorded urban lot, be sure to specify the offer is subject to your approval of a survey.
Be careful when filling in the blanks for the county and city. If you are not certain the property is within the city limits, don't specify it is. When the school district is important, verify the home is within the boundaries of the school district you want before making a purchase offer.
The good faith earnest money deposit
Legally, you don't need to make any deposit with your home purchase offer. All that is required is the buyer and seller sign the sales contract. However, few home sellers will agree to sell unless the buyer makes a modest good faith deposit. When making a purchase offer that is substantially below the asking price, a large good faith earnest money deposit will often convince the home seller to accept.
There is no right or wrong amount for the earnest money deposit. Some real estate agents aim to get their home buyers to put up a big 10 percent deposit. But this is considered too high by most buyers. A popular alternative is to make a modest deposit to accompany your purchase offer, such as $1000 or 1 percent of the sales price, but include a provision to increase the deposit to 5 percent of the home's sales price upon removal of the contingencies such as mortgage financing and a professional inspection.
Don't let the seller hold the deposit. I prefer to have my deposits held by a neutral escrow holder, such as a title insurance or escrow firm. Local custom may determine your deposit should be held in the realty broker's trust account, by an attorney or at a bank or S&L. After your purchase offer has been accepted, the deposit legally belongs to the seller. But the buyer usually specifies where the deposit will be held until the sale closes.
Specify the purchase price and exact terms of the sale
Before making a home purchase offer, be sure your real estate agent prepares a written CMA for you. This form will show recent sales prices of comparable nearby homes as well as the asking prices of neighborhood homes currently listed for sale. With the help of your realty agent, add or subtract values for the features and drawbacks of the recent sales as compared to the market value of the home you want to buy.
When describing the purchase terms, don't specify "All cash to seller" if you require a new mortgage to provide that cash. Be sure your offer contains a clause making your offer contingent on approval of the mortgage. Even if you got preapproved for a mortgage, the lender can avoid making the loan by low-balling the appraisal.
The mortgage you want to obtain should be specified with detail, such as a new 30-year fixed interest rate mortgage of at least $100,000 with interest not exceeding 8 percent, a loan fee of not more than 2 percent, and a monthly payment not exceeding $733.76. If you want the seller to help finance the sale, by carrying back either a first or second mortgage, here is where you specify the terms you want.
Personal property
If you want any personal property included in the home sale, such as the kitchen appliances, be sure to specifically itemize them in your purchase offer. For example, specify the "General Electric side-by-side refrigerator with electronic monitor now on the premises." This stops the seller from substituting inferior replacement personal property at the last minute.
Time for acceptance of your purchase offer
Your purchase offer should contain a short time for the seller's acceptance. Twenty-four hours is usually sufficient unless the seller is out of town. Don't make your offer valid for a long time period because then it will be "shopped" by the realty agent to see if a better offer from another buyer can be obtained.
Additional items to consider
Try to keep your home purchase offer as clean as possible to increase its probability of acceptance by the seller. The fewer contingencies and conditions the better. Here are some additional purchase terms to consider:
- A professional inspection
The buyer should pay for the professional inspection because it's for the buyer's benefit. Accompany the professional inspector. When a defect discovered is serious, such as a cracked chimney, expect the seller to pay for the repair. If the seller refuses to pay for major necessary repairs, disapprove the report and get your good faith deposit refunded
- Seller's disclosure of known defects
Many states, led by California and Maine, now require home sellers and their realty agents to disclose in writing any known defects in the residence. If your state requires seller disclosure of defects, your purchase offer should be contingent upon your approval of the seller's disclosure.
- Liquidated damages clause
This clause specifies maximum damages a defaulting buyer must pay to the home seller if the buyer doesn't complete the purchase as agreed. Some state laws set maximum liquidated damages. As a buyer, you may want to agree to liquidated damages so you can't be held liable for more than the specified sum if you default.
- Arbitration of disputes clause
Most printed real estate purchase contracts now contain an optional clause whereby the buyer and seller agree to arbitrate disputes. Misguided real estate agents, blindly following recommendations from their real estate trade groups, often suggest signing the arbitration clause. I strongly disagree. Too many uncontrollable things can go wrong with arbitration of disputes. My recommendation is don't agree to arbitration. If a dispute arises later, at that time you can decide if you prefer to go to arbitration or mediation rather than become involved in a lawsuit.
- An all-inclusive weasel clause
Although the professional inspection contingency clause is sufficient, you might want to also include an all-inclusive weasel clause such as "This purchase offer is contingent upon buyer's attorney satisfactory inspection and approval of the purchase contract within 10 business days." This gives you a "free look" while your attorney, CPA or other trusted business advisor reviews the agreement.
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