As your Realtor, we will use a standard form of Purchase Agreement, developed by the California Association of Realtors®. You can make changes – but the seller must agree to each of the changes you make.
In the United States, oral contracts are not enforceable – real estate contracts must be in writing. Even if you give your agent permission to bargain on your behalf, he or she must have a Purchase Agreement signed by all buyers before presenting your offer.
When you read the Purchase Agreement, try to imagine yourself as an independent party who has no knowledge of the transaction other than what is included in the contract. Is the meaning of each clause clear? For example, to avoid miscommunication list all personal property you expect to be included in the transaction. Also, it is a good idea to stipulate the exact date and time of possession – if you are not specific, you and your moving van could arrive and find the seller still inside the home!
Elements in the Purchase Agreement
Self-explanatory, but still the most important term.
Along with your Purchase Agreement, you will submit earnest money to demonstrate your seriousness about the home. This is a deposit that you give when making an offer on a house. A seller is understandably suspicious of a written offer that is not accompanied by a cash deposit to show “good faith.” The escrow company usually holds the deposit. “Earnest Money” is generally between 1-5% (typically 3%) of the purchase price. If your offer is accepted, the earnest money becomes part of your down payment or closing costs. If the offer is rejected, your money is returned to you. If you back out of a deal against the terms of the contract, you may have to forfeit the entire amount.
“Title” refers to the legal ownership. The seller should provide title, free and clear of claims by others not acceptable to you, the buyer. Title insurance will assure that the home is free of “unacceptable liens” or “encumbrances.” It is negotiable who will pay for the title insurance policy.
A clause which specifies that the obtaining of a mortgage loan on the property on terms and conditions acceptable to you is a condition of the sale, and provides for the refund of your deposit if you fail to get the mortgage loan.
This clause provides for a pest control inspection and report by a licensed pest control operator. Sometimes sellers will provide this report prior to the purchase agreement. If not, it provides for a method of allocating whether seller, buyer or both will pay for the repairs disclosed by the report. Your lender may require a certificate from a qualified inspector stating that the property is free from termites, pests and dry rot.
We strongly recommend a home inspection and written report by a home inspector who is a licensed general contractor to determine the condition of plumbing, heating, cooling and electrical systems, the structure of the home, the grading, roof, siding, windows and doors. Most buyers prefer to pay for inspections (generally between $300 – $500) so that it is clear that the inspector is working for them, not the seller. We also strongly recommend that you request any such additional inspections as may be recommended by your home inspector, such as a separate roof inspection, foundation or soils inspection, pool inspection, etc. These additional inspections may reveal conditions or defects beyond the ability of a general home inspector to ascertain.
You can specify in your Purchase Agreement that certain conditions must be met before the sale goes through. Contingencies are crucial, so be sure to speak up and tell your agent what is important to you so that all of your concerns are reflected in the offer. They may include:
Your ability to obtain specific financing from a lending institution. This contingency will ensure that if you cannot find the loan, you will not be bound by the contract.
That the home inspector you hire provides a satisfactory report within 10 days (for example) after the seller accepts your offer. With the proper contingency, if the report does not satisfy you, the contract becomes void.
The sale of your existing home.
Obviously, in a slower home sale market, sellers are more willing to accept contingencies than they are during more active circumstances. Too many contingencies in a strong real estate market may prevent your offer from being accepted. Make sure your contingencies are clear.
You can negotiate which closing costs you will pay and which will be paid by the seller. However, be aware that longstanding custom regarding the handling of the allocation of these costs makes many of them hard to negotiate on terms different from local custom. If a seller was obligated to pay a certain closing cost when he or she bought the property, they will expect you, the buyer, to pay the same cost on your purchase.
Withdrawing an Offer
In most cases the buyer may withdraw an offer right up until the moment the offer is accepted. Consult your agent as to the best and safest way to withdraw your offer.
The Seller’s Response to the Offer
You will have a binding contract if the seller, upon receiving the written offer, signs an acceptance just as it stands, unconditionally. The offer becomes a firm contract as soon as the signed offer is delivered to you or your agent. If the offer is rejected, then the offer is no longer valid. If the seller likes everything except the sale price, or the proposed closing date, or the terms of your offer, you may receive a written counteroffer, with the changes the seller prefers. You are then free to accept or reject the counteroffer, or even to make your own counteroffer.
Each time either party makes any change in the terms, the other side is free to accept or reject it, or counter again. The document becomes a binding contract only when one party finally signs an unconditional acceptance of the other side’s proposal and that final, unchanged document is delivered to the other party or their agent.
How the Seller May Counteroffer
The buyer and seller can negotiate and agree about any of the terms, conditions, costs and who pays for them. Some terms and conditions that are negotiable include:
Termite inspection fee and costs to repair any damage
Points to the buyer’s lender
Repairs required by the lender
Repairs of conditions or defects disclosed by the seller, uncovered by inspectors, or required by governmental agencies
Date for the close of escrow
Date and time for possession by buyer
A holding over, or rent back, by seller after close of escrow