Getting to know your contract

By RealtyCrunch IncMay, 28th 2020
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Getting to know your contract

Contracts can get very complicated, which is why you should seriously consider hiring a real estate attorney even if you're in a state that doesn't require one. And if you're in a state that uses boiler plate contracts that your real estate agent can customize for you, it's important to know what to look for and what your obligations are in the contract and the common points you can negotiate, including:

  • price
  • timelines
  • contingencies
  • warranties
  • escrow & earnest money
  • closing costs
  • lease backs

Negotiating the Price

You can choose to offer, higher, lower, or asking price. It all depends on what you are willing to pay, can afford to pay and what you think the home is worth. Depending on the market conditions, you can take different approaches:

Timelines

Your contract will have a number of key dates, including:

  • Response Deadline: Date by which the seller should accept or counter
  • Escrow Date: Date by which your earnest money is due in escrow
  • Inspection Deadline: Date by which your inspection should be scheduled and complete
  • Inspection Objection Deadline: Date by which you must review your inspection report and come back to the seller with any fixes/changes to the home or contract that you require to proceed with the sale
  • Appraisal Deadline: Date by which you should schedule an appraisal
  • Closing: Anticipated close data if everything goes according to plan
  • Title Search Date by which you'll get a title report

When you can't budge on price, you can use these deadlines to your advantage. For example, you can waive the right to an inspection objection, meaning you won't come back with a lower offer if the inspection reveals things wrong with the house. You'll either walk away, or continue with the price as offered. An expert real estate agent is often very likely to help you with these strategies.

The deadlines set in your contract are very important and can result in your losing your earnest money, so it's important to make them realistic and abide by them. If for some reason you can't hit a deadline, it's important to update the contract.

What are contingencies?

A contingency refers to a condition of the agreement of sale that needs to occur in order for the transaction to move forward. As a buyer you can include these contingencies in your contract.

Below is an list of the top contingencies:

  1. Inspection Contingencies allows you to hire an inspection company to walk to property looking for issues to report on the condition of all the major items in the home, from roof, to foundation to leaks, mold insect/rodent damage
  2. Financing Contingency if you are getting a mortgage, you'll need to include this contingency, unless you can pay cash if the loan doesn't come through
  3. Appraisal Contingency a lender will most likely require an appraisal to make sure they aren't lending you more than the home is worth, but if you are paying cash, it's good for you to get a 3rd party's opinion on the value of the home.
  4. Title Contingency you'll need this to make sure your title is clear of any issues, such as liens or easements. (put a link to the title section)

What is a home warranty plan?

A home warranty plans is designed to protect your home's appliances and systems from breakdowns caused by normal wear and tear. Typical items included are:

  • Electrical
  • Plumbing
  • Heating and air conditioning
  • Home appliances
  • Well pump
  • Pool


How does a home warranty work?

Let’s say you just move into your house and 3 months later, your stove breaks. You realize that the stove is out of the manufacturer’s warranty date. If you don’t have a home warranty, it might cost you hundreds of dollars to replace or fix.

You can make home warranties a part of your negotiation with the seller where appropriate, again your real estate agent might be able to help you with these strategies.

What is escrow and earnest money?

Escrow is a 3rd party in a major financial transaction between the buyer and the sellers that holds a valuable asset until the transaction is complete. Often speaking, an escrow account is required for any home purchase to occur.

Most contracts will require the buyer to put a percentage of the purchase price in escrow called earnest money, while they complete their due diligence. The earnest money shows your seriousness as a buyer and proceed with the due diligence process.

It is common for the seller's real estate agent to hold the buyer's money in escrow, but this is something that you can negotiate.