Derek Morgan
Derek Morgan
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Derek Morgan
Derek Morgan
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Purchase Contracts: Everything You Need to Know for a Successful Home Sale

A purchase contract, also known as a sale agreement or real estate contract, is a legally binding document between a buyer and a seller outlining the terms and conditions of a property transaction. It sets forth the agreed-upon details such as the sales price, deposit, financing terms, and contingencies. This contract ensures that both parties are on the same page and understand their respective rights and responsibilities. Simply put, a purchase contract marks the beginning of the home selling journey by serving as a roadmap for navigating the process, from listing the property to closing the deal.

Why is Reviewing a Purchase Contract Important?

Reviewing a purchase contract is essential for protecting the interests of both the buyer and the seller. It illuminates potential pitfalls, such as discrepancies in property information, misunderstandings about the included amenities, or legal requirements. By scrutinizing the purchase contract, sellers can ensure that all details are accurate, and both parties are well-informed. Moreover, a thorough review can reveal any unfavorable terms, enabling the seller to negotiate better conditions, such as a higher sales price or reduced responsibilities.

An easy-to-understand, direct, and honest purchase contract review empowers sellers with the knowledge they need to stride confidently through the home selling process.

Key Elements of a Purchase Contract

Below are some essential elements to look for in a purchase contract:

  1. Property Description and Address: Verify that the property's legal description and address are accurate, leaving no room for confusion.

  2. Sales Price and Deposit: Confirm that the agreed-upon sales price and deposit are clearly stated and match the negotiated terms.

  3. Financing Terms: Review the financing terms, ensuring that they are in line with the buyer's pre-approval and the seller's expectations.

  4. Contingencies: Examine the contingencies, such as home inspections, financing, or the sale of the buyer's existing home, to ensure the stipulations are fair and protect the seller's interests.

  5. Closing Date and Possession: Verify the agreed-upon closing date and possession terms, taking into account any necessary repairs, inspections, and other closing requirements.

  6. Inclusions and Exclusions: Ensure that the contract accurately outlines any items included or excluded from the sale, such as appliances, fixtures, or window treatments.

  7. Warranties and Guarantees: Review any warranties and guarantees provided for the property or its components, making sure they align with local regulations and industry standards.

A comprehensive, deliberate, and candid review of the purchase contract creates a transparent and simplified home selling process.

Terms and Conditions

Sales Price and Deposit

When reviewing a purchase contract, the first key element to examine is the sales price. This is the agreed-upon amount that the buyer is willing to pay for your property. Ensure that this amount aligns with your expectations and the current market value. Also, pay close attention to the deposit amount. Typically, the deposit (also known as "earnest money") is an upfront payment from the buyer to demonstrate their commitment to the transaction. This deposit is usually held in escrow until the closing and then applied towards the purchase price. Confirm that the deposit amount is reasonable and reflective of the buyer's seriousness in completing the transaction.

Financing Terms

Next up are the financing terms. These outline how the buyer plans to pay for the property, whether through cash, a mortgage, or seller financing. Scrutinize these terms closely to ensure that the buyer has the financial resources and capability to fulfill their payment obligations. For instance, if the buyer is relying on a mortgage, verify if they have already obtained a mortgage pre-approval. If you're considering providing seller financing, carefully assess the risks and rewards, and make sure the terms align with your financial goals.

Contingencies

Contingencies are conditions that must be met before the contract becomes binding. Common contingencies include financing approval, satisfactory home inspections, and satisfactory appraisals. Your focus should be on making certain that these contingencies are reasonable and not overly burdening you as the seller. For example, a short timeframe for securing financing might put unnecessary pressure on the buyer, increasing the likelihood of the deal falling through. Balancing your interests with the buyer's needs is crucial in crafting fair and achievable contingencies.

Read What Does "Contingent" mean in Real Estate? for more information.

Closing Date and Possession

Finally, review the closing date and possession terms. The closing date is when the transaction is completed, and ownership is transferred from the seller to the buyer. Ensure that this date allows sufficient time for you to vacate the property and finalize any outstanding matters. Possession refers to when the buyer is granted the right to move into the property, and this typically occurs immediately after the closing. However, in some cases, the seller may negotiate a post-closing possession agreement, allowing for a specific period after closing to vacate the property. As a seller, confirm that you're comfortable with these dates and that they align with your relocation plans.

Reviewing Property Information

Property Description and Address

Accuracy is everything when it comes to the property description and address in a purchase contract. As a seller, you need to ensure that these details are perfectly correct. A mistake here could lead to financial and legal complications down the line. The description should include details like the number of rooms, square footage, lot size, and any unique features of the property. Pay special attention to the property's legal description, including the tax parcel number, to avoid confusion with nearby parcels. When reviewing the address, double-check not only the street number and name but also the city, state, and zip code.

Inclusions and Exclusions

Inclusions and exclusions become vital when you, the seller, need to make clear what's staying or going with the property transfer, to save both parties headaches later. List inclusions, such as appliances, fixtures, and fittings, that will stay with the property after the sale. For exclusions, mention any items you plan to take with you, like a favorite chandelier, outdoor furniture, or even specific plants. It's essential to be specific and detailed here to eliminate any potential misunderstandings and ensure a smooth closing process.

Property Disclosures

When selling your property, it's crucial to provide accurate and complete property disclosures, openly sharing known issues with the buyer. This information includes any previous or current problems, such as water damage, foundation issues, or pest infestations. Disclose material defects, like lead paint or asbestos, and ensure that local and state disclosure requirements are met. By providing detailed and honest property disclosures, you protect yourself from potential legal issues while contributing to a transparent and fair transaction.

Warranties and Guarantees

When reviewing the purchase contract, don't overlook warranties and guarantees. These can provide additional protection for both the buyer and the seller during the transaction. If you're offering any warranties, such as a home warranty, make sure the details are clearly specified in the contract. This ensures that all parties are on the same page. Additionally, if there are existing guarantees on appliances or systems, like heating and cooling, be sure to mention these in the contract and have the relevant documentation readily available. Providing clear information on warranties and guarantees contributes to a smooth and satisfactory transaction for all involved.

A home for sale

Legal Matters and Compliance

Title and Ownership

When reviewing a purchase contract, it is vital to verify the title and ownership of the property. Ensure that all details related to the title, such as legal description, property address, and any encumbrances, are accurate and clearly outlined. Confirm that you, as the seller, have the legal right to sell the property and that there are no undisclosed liens or other issues that could complicate the sale. A title search conducted by a professional title company or attorney can help identify any potential problems, allowing you to address them before finalizing the contract. In addition, pay attention to how the ownership is structured - whether as a sole owner, joint tenants, or tenants in common - and ensure that all parties involved are properly listed and have agreed to the sale.

Local and State Laws

Understanding and complying with local and state laws is crucial when selling a property. These laws govern various aspects of the sale, such as required disclosures, transfer taxes, and mandatory inspections. Familiarize yourself with the regulations applicable to your specific area, and ensure that the purchase contract contains all necessary provisions to satisfy these legal requirements. While a real estate agent may have knowledge of these laws, consulting with an experienced real estate attorney can provide an additional layer of protection and help ensure that the contract is in full compliance. Remember, ignorance of the law is not a valid excuse for non-compliance, so take the time to educate yourself and safeguard your interests.

Permits and Approvals

Before completing a sale, it's essential to verify that all necessary permits and approvals are in place for any improvements, additions, or modifications made to the property. Construction without proper permits can lead to fines, lawsuits, or even the requirement to demolish the unpermitted structure. To avoid potential issues, disclose any work completed on the property and provide documentation for all permits and approvals obtained. In some cases, the purchase contract may include a contingency that the buyer has the right to inspect and approve any permits or related documentation before closing. By being transparent about permits and approvals, you can ensure a smooth transaction.

Homeowners Association Compliance

For properties within a community governed by a homeowners association (HOA), it's crucial to ensure compliance with the HOA's rules and regulations. When reviewing the purchase contract, confirm that any relevant HOA information is accurately depicted, including fees, assessments, and other obligations. Be prepared to provide the buyer with copies of the governing documents, such as the Covenants, Conditions, and Restrictions (CC&Rs), as well as any recent meeting minutes or financial statements. Additionally, make sure that you are current on all HOA dues, and that there are no outstanding fines, violations, or unresolved disputes with the association. By taking these steps, you demonstrate your commitment to transparency, ultimately building trust with the buyer.

Navigating Inspection and Appraisal

Scheduling Inspections

Scheduling inspections is a crucial step in the property selling process. These inspections allow you to identify any potential issues and ensure that your property is in prime condition. To schedule inspections, consider the following:

  1. Do your research - Research the various types of inspections available, such as general home inspections, pest inspections, and specialized inspections for specific systems (e.g., HVAC, plumbing, electrical).

  2. Hire licensed professionals - Make sure to hire reputable and licensed inspectors to ensure that the inspection is thorough and accurate.

  3. Be proactive - Schedule inspections as early as possible to give yourself ample time to address any necessary repairs or improvements before closing.

Buyers appreciate honesty and, in turn, are more likely to trust you when any issues are openly disclosed.

Managing Repair Requests

Once inspections are complete, you may need to navigate the battleground of repair requests from the buyer. To handle these requests efficiently and effectively, consider the following:

  1. Evaluate the requests - Understand the severity of the repair requests and determine if they are reasonable or excessive.

  2. Negotiate with the buyer - If you find certain requests unreasonable, be prepared to negotiate with the buyer to reach a fair compromise.

  3. Use licensed contractors - When addressing repairs, hire licensed professionals to ensure quality work is done, as shoddy work may lead to further issues down the line.

Having open communication with the buyer will build trust and streamline negotiations.

Understanding the Appraisal Process

The appraisal process is vital in determining a property's true market value. To understand this process and ensure a smooth experience, consider the following:

  1. Know the purpose - Appraisals are typically required by lenders to verify that the property's value justifies the loan amount.

  2. Research comparable sales - Familiarize yourself with recent sales in the area to have a realistic expectation of your property's value.

  3. Prepare the property - Prior to the appraisal, ensure that the property is clean, well-maintained, and free of any significant issues.

Understanding the appraisal process will empower you during negotiations and streamline the overall selling experience.

Negotiating Appraisal Discrepancies

Unfortunately, sometimes discrepancies arise between the appraisal value and the agreed-upon sale price. When this occurs, consider the following strategies to negotiate discrepancies:

  1. Review the appraisal report - Look for any errors or inaccuracies in the report that may have impacted the appraisal value.

  2. Present additional evidence - If you believe the appraised value is too low, provide additional comparable sales to support your case.

  3. Consider lowering the price or offering concessions - If an agreement cannot be reached, you may need to lower the price, provide seller-paid closing costs, or offer other concessions to satisfy the buyer and lender.

Through these negotiations, it is crucial to maintain open communication to reach a fair resolution for both parties. Read more about appraisals in Decoding the Appraisal Process in Real Estate.

Woman looking over contracts

Closing the Deal

Finalizing the Contract

Double-check every detail of the purchase contract to ensure accuracy and completeness. Take note of any last-minute changes negotiated between you and the buyer. If you're uncertain about anything, don't hesitate to seek professional advice. After all, a well-executed contract is the foundation of a successful closing.

Don't be afraid to voice any concerns or request clarification. Everyone should understand the contract. Ask your real estate agent or attorney to address any discrepancies or ambiguities in the document. When satisfied with the terms, both you and the buyer will sign the contract and set the stage for closing. Be 100% confident in your decision, so take your time and make sure every element is in order.

Communication is key in finalizing the contract, so keep an open dialogue with the buyer, real estate agent, and other parties involved. This open line of communication will help ensure a smooth process and avoid any last-minute hiccups.

Preparing for Closing

As the closing date approaches, it's essential to stay organized. Keep track of any outstanding paperwork, repairs, and inspections related to the property. You'll also need to coordinate the transfer of utilities and services, such as electricity, water, and waste disposal, to the new owner.

Another essential aspect of preparing for closing is maintaining the property's condition. Don't neglect your responsibilities as the homeowner, even if you've already vacated the property. Keep the house clean, maintain the landscaping, and address any last-minute issues that might arise. Lastly, schedule a final walkthrough with the buyer to confirm the property's condition and discuss any remaining concerns or questions.

Be prepared for last-minute adjustments, such as prorations for property taxes, utility bills, or homeowner's association dues. This will ensure that neither party faces any surprises at the closing table.

Closing Costs

Sellers should be aware of the various closing costs they'll be responsible for, which typically include agent commissions, title insurance, escrow fees, and transfer taxes. These costs can vary depending on where the property is located and the specific terms agreed upon in the contract. Your real estate agent or attorney can help you get a clearer picture of these expenses and ensure everything is accounted for in the finalization of the transaction.

It's important to remember that some closing costs are negotiable, so don't be afraid to advocate for yourself during the negotiation process. For example, you might negotiate that the buyer covers a certain percentage of the closing costs, which can minimize your financial burden as the seller.

Check out Who Pays Closing Costs? for more information.

Post-Closing Steps

Once the closing is complete, and the property is officially transferred to the new owner, take a deep breath and congratulate yourself on a job well done. However, there are a few post-closing steps to consider:

  1. Ensure that all documents are properly filed, including the transfer of the deed, finalized mortgage documents, and local and state taxes.

  2. Keep a copy of the signed contract and closing documents for your records.

  3. Notify your insurance company of the sale and cancel your homeowner's insurance policy.

  4. Update your address with various organizations, such as the post office, financial institutions, and subscriptions.

  5. Reflect on the experience and consider any lessons learned that you can apply to future real estate transactions.

Selling a property can be a complex and emotional journey, but with proper planning and a diligent approach, you can successfully navigate the process and come out on top. 

Conclusion

In conclusion, navigating the home selling process can be a complex and challenging endeavor. However, by understanding the importance of reviewing purchase contracts, familiarizing yourself with key elements, and thoroughly addressing property information, legal matters, inspections, and appraisals, you can successfully fight gatekeeping with access, misinformation with transparency, and complexity with simplicity. Stay organized and maintain open communication with all parties involved, and you'll be well-equipped to close the deal efficiently and effectively. Don't be afraid to seek professional advice when needed, and remember, knowledge is power. Embrace the journey, and trust that your efforts will lead to a successful property sale.

Find your dream home today at unrealestate.com/search. If you're ready to sell, visit unrealestate.com/sell. 

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