The real estate purchase contract, also known as a purchase offer, or offer, is meant to be binding and spells out in detail your obligations and responsibilities. Some key points are:
- The purchase price should be looked at as part of the strategy for negotiation.
- Are there multiple offers?
- Is it priced low?
- Is it priced high?
- How long has it been on the market?
- What have other similar homes sold for?
- What is the condition of the property?
- Is it unusual in the marketplace (i.e. is this a one-of-a-kind property)?
Ratification / in contract / in escrow
These are the terms used to convey that you are in the process of purchasing a property. It means that buyer and seller have agreed to price and terms and are moving toward transferring ownership of the property.
Deposit / Good faith deposit / Earnest Money Deposit
A good faith deposit is most often a personal check made payable to a title/escrow company, which accompanies your offer; an offer must have ‘consideration’ to be valid. The check is deposited after you get into contract and is applied toward your down payment and closing costs. You will generally make three deposits to escrow prior to closing.
Your offer should be made contingent upon your obtaining, reviewing and approving thorough and professional inspection reports so as to be satisfied with the properties condition. These may include reports by inspectors such as licensed pest control and general contractors, underground storage tank specialists, and additional reports by structural engineers, roofers, sewer inspectors, and chimney sweeps if applicable.
Most sellers of residential properties and involved agents are required by law to disclose any information, which may materially affect the value of your property. A few exceptions to this requirement are probates and foreclosures.
If you are obtaining a loan to finance the purchase of your property, you will most likely need time to obtain a loan from a lender at terms acceptable to you.
Close of Escrow and Physical Possession
Close of Escrow (COE) and physical possession of the property are negotiable and may not occur on the same day. A typical COE is scheduled for 30 to 60 days after the contract is accepted. If the property is tenant occupied, or if the sellers request to rent back the property after the COE, your possession of the property would occur after your ownership begins.
Liquidated Damages, Mediation, and Arbitration of Disputes
These three sections of the purchase contract address what happens if the buyer and seller get into a dispute and have difficulty coming to agreement. You should review these paragraphs prior to writing a purchase offer. If you are unclear as to what they mean, or how they may impact you, please consult with a real estate attorney to better understand these clauses.