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 the final price. In fact, there are plenty of details that can be intricate and confusing.
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.
1. First things first: Do you have the correct purchase offer form in front of you?
A real estate purchase offer typically includes the following items (that can be viewed on this sample form):
- 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.
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. If you’re buying property that’s in probate, your state might require additional paperwork.
2. Cash offer or mortgage loan: How does the buyer plan to pay?
You want to make sure that the purchase price 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.
3. Does the buyer meet the minimum down payment requirement for their mortgage?
Another big thing 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 cough up 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, said Santiago Valdez, a Chicago, Illinois, agent of 15 years. 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 said. “The buyer and seller may engage and go through the routine only to get out of the contract within two weeks. And then the seller is maybe losing some valuable market time.”
4. 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 Realtor for 24 years in the Fort Myers and Naples areas. Conventional financing differs from FHA (Federal Housing Administration) and VA (Veterans Administration) loans.
VA can cover up to 100% of the financing; FHA is geared toward first-time homebuyers or those looking to put down as little as possible.
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 person’s not approved for what they want to buy,” Valdez said. “If they don’t have the other 10%, you may be in hot water. Sometimes the buyers don’t even realize they’re not connecting the right dots.”
5. Which contingencies has the buyer penciled in, and what are the deadlines?
A contingency is anything that buyers must do for the deal to move forward. Common ones include getting mortgage approval, the home inspection, a home appraisal, or selling the property they currently own.
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 that must be met, so see if there’s anything unusual in the deadlines, such as the inspection period dragging out a bit long or the buyer having several months to turn in a deposit.
“There are a lot of red flags that sellers can sometimes spot,” Valdez said.
For instance, “the contract itself may not say that there’s a sale contingency, but the preapproval letter says that this preapproval is contingent on the sale of a property. You want to make sure that the preapproval matches the contract as closely as possible.”
6. 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. (In an aggressive seller’s market, some sellers will ask for 4% to 5% to narrow down serious offers.)
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.
At the time he spoke with HomeLight, Fonseca represented sellers where the buyer’s inspection and second deposit wasn’t brought in. “Technically, we’re out of contract, and their deposit is at risk right now,” he said.
7. 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 the:
- Earnest money deposit (typically within 48 hours of the purchase offer signatures)
- Home inspection period
- Financing approval period
- Closing date
“That’s where I think there’s a big disconnect. They 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 were.” Fonseca said. “A lot of times, the 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.”
Be sure that there is sufficient time between the buyer’s mortgage approval and the closing date, when the buyer takes possession of the property. In some cases 60 days may be reasonable. In other cases, a 90 day timeline may work better for both parties.
You need time to pack—but don’t pack too early, in case there’s a problem on the buyer’s end.
“Because if the (deal) falls apart, now they’re back to square one, and they’ve already packed their stuff and are paying rent somewhere else, or moved into a new home,” Fonseca said. “A lot of agents do 45 days for the mortgage contingency and then 45 days for closing.”