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Ready to Sign the Purchase Offer for Your House? Here’s How to Read the Fine Print

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Now that you have a purchase offer in hand, you’re in the home stretch, so to speak, of selling your house — but don’t sign the paperwork or pop the champagne just yet.

An offer to purchase real estate, also called a real estate purchase contract or a residential purchase agreement, is a legal agreement that identifies the seller(s) and the buyer(s), but it stipulates much more than just the final price.

There’s a lot to review, but our real estate experts have helped break down the most common areas where real estate purchase offers can go awry and what to read closely before you sign.

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Do you have the correct purchase offer form in front of you?

A real estate purchase offer typically includes the following items:

  • A description of the property and its condition
  • What fixtures and appliances are included (or not)
  • The amount of the earnest money deposit
  • The prospective closing date
  • Terms of possession
  • Any contingencies that must be met before the sale is finalized.

Here’s a sample form, but these documents can vary depending on the type of property and where you live. The purchase agreement for a new construction residential purchase is different from one for a manufactured home purchase. Or if you’re buying property that’s in probate, your state might require additional paperwork.

How does the buyer plan to pay?

You want to make sure that the purchase price listed is what you’ve agreed upon with the buyer, but you also want to know the conditions of payment.

Some purchase contracts offer several variables, such as:

  • The buyer paying the entirety of the price in cash at the time of closing
  • The price being paid in cash subject to the purchaser’s ability to obtain a mortgage within a certain amount of days
  • The buyer paying the purchase price after deducting the balance of the existing mortgage
  • The buyer purchasing the property and assuming the existing mortgage

The buyer’s agent will fill out the appropriate field depending on how their client is able to pay.

Does the buyer meet the minimum down payment requirement for their mortgage?

Another important aspect to check for is the down payment percentage. Depending on your location, loans for certain types of properties or from specific lenders may require a minimum down payment, and if the buyer can’t come up with the funds, then you’ll have to start the process of marketing your house all over again.

For instance, in the Chicago area, some houses have small apartments within them similar to in-law suites, making the house a two-unit building, according to Santiago Valdez, a Chicago, Illinois, agent with 21 years of experience. A buyer with a loan for a single-family house might put down 5% for the purchase, as that type of loan requires, but the property is technically a two-unit building and requires a 15% down payment.

“Sellers, a lot of times, may not be paying much attention to that,” Valdez says. “The buyer and seller may engage and go through the whole routine, only to get out of the contract within two weeks.”

Do the financing terms match the conditions of the loan?

“Know what kind of financing the buyer is obtaining,” and how many days for the loan approval, advises Paul Fonseca, a top-selling agent in Fort Myers, Florida. Conventional financing differs from FHA (Federal Housing Administration) and VA (Veterans Administration) loans.

Also, look at the financing terms. Let’s say that a contract requires a 10% down payment, but the preapproval for the loan requires 20%. “Basically, the buyer’s not approved for what they want to purchase,” Valdez said. “If they don’t have the other 10%, you may be in hot water. Sometimes buyers don’t even realize they’re not connecting the right dots.”

Which contingencies has the buyer penciled in, and what are the deadlines?

A contingency is a clause in a real estate contract that allows a buyer to rescind their offer if certain conditions are not met.

If the buyer has an FHA loan, contingencies can include additional repairs that the lender requires, Fonseca said. “The banks want to make sure that the buyers aren’t going to walk into a major money pit.”

All contingencies have deadlines, so you’ll want to make sure there isn’t anything unusual about the dates, such as the inspection period dragging out or the buyer having several months to turn in a deposit.

“There are a lot of red flags that sellers can sometimes spot,” Valdez warns. “The contract itself may not say that there’s a sale contingency, but the preapproval letter says that preapproval is contingent on the sale of the buyer’s current property. You want to make sure that the preapproval matches the contract as closely as possible.”

How much is the buyer’s earnest money deposit?

Sometimes called EMD or simply a deposit, the earnest money deposit is cash that the buyer puts down on the property to commit to the sale, usually 1% to 3% of the purchase price.

The deposit may be held by a seller’s brokerage in a trust fund or with an escrow or title company. If the deal finalizes, the money goes toward the down payment and closing costs. But if the buyer doesn’t follow through on their end of the bargain to complete the required steps to closing, then the deposit may be forfeited.

What’s the closing timeline?

Sellers should be aware of the same deadlines facing buyers, so they know what their obligations are — and if the deal still holds.

If a buyer hasn’t had an inspection completed on time, for instance, there’s no obligation on the seller’s part to make any repairs that come up after the fact, unless it’s a requirement by the lender. Sellers should be very clear on the dates and deadlines for:

  • Earnest money deposit
  • Home inspection period
  • Financing approval period
  • Closing date

“That’s where I think there’s a big disconnect. Buyers sign the contract electronically sometimes; they probably don’t review it as thoroughly as they should, so they don’t remember exactly what the dates are,” Fonseca says. “A lot of times, buyers are depending on their Realtors to call them every time before there’s something due or something’s going to expire. I know that we’re on top of it, but I’m not sure if everybody’s on top of it.”

Review all the details

While a home’s sale price is often the focal point of a real estate purchase offer, you’ll want to diligently assess every detail — from the buyer’s financing method to the contingencies and associated timelines — so you can avoid unforeseen complications. An experienced real estate agent will guide you through the process, ensuring that when you do sign, it’s with complete confidence.

Offer to purchase real estate FAQ

Header Source: (Matthew Addington / Death to the Stock Photo)