The contract between a buyer and a seller usually contains a long list of clauses and terms. It may be a combination of a preprinted form with the appropriate legal language in your state and customized provisions that the parties determine. Even if a seller notifies you of their acceptance, you should be aware that the agreement is not a legal contract until it is signed.
This is a summary of some of the common terms and provisions that you will find in these types of agreements.
The People and the Place
The agreement will contain the names of the parties (the buyer and the seller) and a description of the physical property with any notable structures or features that it contains. It will identify who will serve as the closing agent or escrow holder. Potentially an attorney or a title company, this is the party that will handle any deposits by the buyer or the seller and assist them with moving toward closing.
In addition to the price on which the buyer and the seller have agreed, contracts contain many types of financial terms. They will cover the buyer’s earnest money deposit, which will be forfeited to the seller if the buyer breaks the contract for a reason that is not permitted. They also provide the down payment that the buyer puts toward the purchase price, as well as the amount of the buyer’s loan and any restrictions on it. Your contract should list the fees that will be paid before the closing and at the closing, stating which party will cover them. If the fees will be prorated and split between the parties, the agreement should provide specifically how they will be divided. It also should provide the commissions that the buyer’s agent and the seller’s agent receive.
Earnest money = a deposit paid to the seller, usually when the purchase agreement is signed, and held in an escrow account until the closing, which may be refunded or forfeited under certain conditions
What Each Side Must Do
Before the deal can be finalized, each side will need to resolve certain matters. The buyer will need to get approval for a loan and resolve any other contingencies that the contract may provide. For their part, the seller may be required to make promises about the condition of the property, such as the absence of faulty structural elements or any problems with mold. The seller generally will need to guarantee that they are legally able to sell you the property without any liens on it.
Understanding Your Rights
A buyer usually has the right to take possession of fixtures on the property, which are features that are permanently attached to it, such as fences. By contrast, the seller has the right to take any personal property with them, unless the parties reach a different agreement. The contract also will contain the date that your right of possession takes effect. A contract for the sale of a townhouse, a condominium, or another type of shared property should clarify which of the jointly owned parts of the property the buyer can access.
If it is written by the buyer, the contract also will provide the expiration date, which is the time in which the seller must accept the buyer’s offer. It will contain the closing date as well, which is the date on which the transaction becomes final, and the buyer takes possession of the home. This may be a time window rather than a specific date. If this date or another date is very important, the parties should write it into the contract so that it becomes a required part of the agreement, and failing to meet the date becomes a breach.
Preparing for Future Problems
If a fire, flood, or other form of damage affects the property before possession transfers, the buyer and the seller will want to know who bears the responsibility for the loss or repairs. They also will want to arrange a means for resolving any future disputes between the parties, such as an alleged misrepresentation by the seller. Finally, the parties may want to include an entire agreement clause, which provides that this agreement is the only agreement between them and cannot be altered except by a signed written document.