8 Clauses to Look for in an Offer to Buy a House
Many home buyers choose to be represented by an attorney during the home buying process; however, it is not a requirement. Since real estate agents and brokers cannot advise you on legal matters, an attorney will be your advocate in contract negotiations and any disputes that may arise before or at a real estate settlement.
While retaining an attorney is an additional expense, attorney fees will be much higher in the event of any legal action. An attorney you retain represents your interests only and can provide valuable assistance and advice.
Shopping for an attorney is comparable to shopping for a real estate agent. Look for reliable recommendations. Choose an attorney who has experience with real estate transactions, has represented home buyers before and is right for you. Be sure to ask what services are performed and what they cost.
Offer to Purchase
You, as the interested buyer, may work with your real estate agent to prepare a preliminary document called a “purchase offer” for the seller to consider. An offer to purchase is a written preliminary proposal that states what you are willing to pay for the home, the estimated closing date and certain other terms that you might want included in the contract that the buyer and seller need to agree upon. (An example of this might be the inclusion of any appliances or light fixtures.) Remember, the terms of the offer to purchase may become a part of the actual contract of sale if your offer is accepted and a contract is signed.
Along with this offer you will typically include an earnest money deposit, a nominal amount to show that a buyer is serious about the purchase. This deposit will become part of your down payment, the total amount of cash for the home purchase that is not financed. This deposit should be placed in an escrow account — in this case, a monetary trust maintained by a third party (an escrow agent) to hold money safely while a sale is in progress.
The seller may accept your offer to purchase, reject it, or make a counteroffer.
If a seller wants to change any part of the offer, you may receive a counter-offer specifying those changes. You have the option to accept the counter-offer or you may respond by presenting one of your own.
These counter-offers are sometimes verbally communicated between the agents and their clients, but should be memorialized in writing within 24 hours. Copies should be provided to all interested parties. Typically, this document and its contents are subject to the parties entering into a full contract and are not legally binding. In such cases, it is only when the contents of the offer to purchase become a part of the terms and conditions of the contract of sale that they become legally binding.
If, for some reason, you decide that you want to revoke your offer, you should immediately notify your real estate agent and/or your attorney if you have one.
Contract of Sale
A contract of sale is a legally binding document that sets forth the terms of the home purchase. If you started the negotiating process with an offer to purchase, the contract of sale will include the contents of the offer to purchase, as finally agreed upon by the parties, plus any additional details and terms.
In some states, if the contract of sale is prepared by a real estate licensee, it must contain a provision known as the “attorney review clause,” which provides that the buyer and seller have three (3) business days from the date that the completely signed contracts are delivered, to consult with an attorney. During this three-day period, if you choose to use an attorney, he or she may propose revisions to the contract on your behalf or render it null and void.
A contract should set forth the following eight terms:
- The total price you agree to pay.
- The amount of down payment you will make.
- Any and all escrowed deposits to date.
- Anything in the house or attachments that you would like to be included, such as appliances, drapes, chandeliers, fireplace tools, etc.
- The amount of time after the offer is accepted you will have to arrange financing.
- When the transaction will “close” or title will transfer.
- When you will take possession of the property.
- Provisions for title searches, and insect, structural and other inspections.
Deposits or Earnest Money
An earnest money deposit is made with the initial offer to purchase to show that the buyer is serious about purchasing the property. During the settlement process, the deposit money is usually applied as a part of the down payment towards the purchase price. Typically an additional deposit is made sometime while the contract is being executed. A scheduled date for this deposit is reflected on the contract.
An escrow agent specified in the contract will hold the deposit money in an escrow account. If the offer is not accepted, you are usually entitled to a refund of your deposit. If the transaction does not settle, there could be a dispute over who is entitled to the deposit. The matter could wind up in court for resolution. The contract may contain terms for the return or forfeiture of any earnest money deposit. Therefore, you need to read and understand this section of the contract carefully.
|Everything You Need to Know About Buying a Home|
|Step 1: Shop for a Mortgage Loan It pays to shop when looking for a loan.|
|Step 2: Find a Home Create a list of must-haves and nice-to haves.|
|Step 3: Make an Offer: Get advice before you place an offer.|
|Step 4: Home Inspection, Title Search and More Buy your home with open eyes.|
|Step 5: Insure Your Home Insurance protects you from financial ruin.|
|Step 6: Seal the Deal Understanding your Settlement Statement (HUD-1).|