Purchase Contracts: Everything You Need to Know
Purchase contracts are legal agreements between a party selling real estate or another form of property, like a co-op apartment, and the party making the purchase. 3 min read
2. Finance Terms
3. Closing Cost Details
4. Fixtures and Appliances
5. Closing Date
6. Sale of Existing Home
7. Termination Options
Purchase contracts are legal agreements between a party selling real estate or another form of property, like a co-op apartment, and the party making the purchase.
What Is Included in a Purchase Contract?
Real estate purchase contracts should cover information like:
- The names and other identifiers of the buyers and sellers (especially when there are multiples of either)
- Basic details including the rights and obligations of the parties involved
- Property conditions (necessary repairs, location or foundation issues)
- Certain items or parts of the property included or not included in the purchase
- Details of pricing and financing
- Insurance information
- Dispute resolution
- Termination options
- Party signatures
- Property possession terms
Most home buyers will need a bank loan or mortgage in order to afford the purchase of property, so the contract will need to specify that the offer is contingent on whether or not a loan is obtained. Buyers will want to do research to find the best interest rates and possibly obtain pre-approval for a loan or mortgage.
It is a good idea to figure out exactly what type of interest rate you can afford and put that in the purchase agreement so that you don't get stuck with an unaffordable mortgage. If an offer is accepted without a specified rate, and you are unable to find the rate you need, you may need to back out of the offer and therefore lose your earnest money deposit.
Some buyers will be dependent on obtaining specific types of loans like FHA or VA loans, so they'll want to stipulate that in their purchase contract as well. In the case that a home buyer can make the purchase with cash, they should specify that in the contract, because many sellers will find that particularly attractive. When mortgages and loans aren't necessary for the purchase, everything happens a lot quicker and with less chance of anything falling through.
Closing Cost Details
Sometimes buyers require sellers to cover closing costs or at least a portion of them. If this is the case, it will need to be specified in the contract. Closing cost coverage should be stipulated in either dollar amounts or a percentage of the property price.
Certain fees are considered a part of closing costs including:
- Escrow fees
- Title search fees
- Title insurance
- Notary fees
- Recording fees
- Transfer tax
A real estate agent will help decide who should be held responsible for which fees depending on the state and local practices and real estate law.
Fixtures and Appliances
Certain fixtures and appliances may be included in the buying or selling of a home. These inclusions should be detailed in the purchase contract. Regularly included items are:
Closing dates usually allow 30 to 60 days to finalize the purchase of a home. Any issues or situations that will change the closing date should be specified in the purchase contract. The desired closing date will be included in the contract and held to unless there are any allowances for a change.
Sale of Existing Home
Frequently the purchase of a home depends on the sale of the buyer's current home. Most home buyers cannot afford to own two homes at once, so they make the purchase of their new home contingent on the sale of their current home. This is often taken into consideration for the closing date, and buyers should allow themselves a realistic amount of time for selling their home, usually up to two months.
Usually, the seller won't want to take their home off the market while the buyer waits for their home to sell, but there are agreements that can be made to keep things fair for both parties. A real estate agent can help to work out these details. Sample agreements are available online for the area in which you are buying or selling a property and should be reviewed before creating an offer.
Sometimes buyers will need to terminate the agreement before the sale is complete and will need to give adequate notice to the seller. The purchase contract may stipulate specific options and consequences for termination.
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