Sales Contract
Once the seller has decided to accept your offer, the next step is to negotiate a sales contract (depending on where you are, this is also known as a purchase agreement or a purchase and sale agreement). This is a legally binding contract that defines the terms of the house purchase. The agreement also defines what types of inspections the buyer may obtain, the amount of money they must deposit, and the terms under which they can terminate the agreement. Unlike your offer, which simply outlines contingencies and inspections, these are now defined in detail.
When you made the offer, you probably deposited a small amount of money to secure the offer. This is again the case with the sales contract. However, this is now a much more substantial amount of money, such as 10% of the purchase price. In addition, should you breach the purchase agreement, your deposit money will be kept by the seller.
The major terms of the offer will be documented again in the sales contract. This includes the purchase price, and any items that the seller agreed to include. Examples of items you may have asked the seller to include are a refridgerator, dishwasher, curtains, furniture, and other like items.
Most of the time the purchase agreement will require the buyer to appply for financing. The seller may ask you to apply for financing with more than one lender. This protects them in case one particular lender declines to give you financing, but another one agrees to do it. The sales contract may also require you to make your initial applications within a certain timeframe. Sellers usually ask for this to insure that your lender has enough time to review and approve your loan and get the money together in time for the closing date.
Another reason to work with multiple lenders is to get the best possible rate. Online services all you to use a simple form to get rate quotes from multiple lenders to get the best possible price.
As with the offer, the sales contract will also provide you with the right to have a professional home inspector come and perform a detailed inspection of the seller's house. The purpose of this inspection is to protect you in case there are hidden problems with the seller's house that you did not discover during your visits to the house. The home inspector will look over the seller's house in detail and find all the little things that may be wrong with it.
Once the inspection is done the chances are good that you may ask the seller to correct some of the problems found during the inspection. Make use of this right, and also take advantage of the inspection to learn all about the house you are about to buy. This can be ab invaluable way to learn about your house, including items such as heating systems, plumbing, electricity, and other systems in your house. It also happens that the inspection finds major problems that the seller cannot fix. If this happens, the purchase agreement will provide you with the right to terminate the agreement. Of course, you can always choose to make a new offer, now that you have beome aware of the problems uncovered in the inspection - but only if the seller can't fix it. The sales contract will always give the right to "cure" the problems found.
The agreement will also be contingent on your obtaining financing. This protects you and the seller from being in a situation where you are obligated to buy the house, but don't have the money to do it. Make sure that you apply for the financing when required and pursue it diligently, because if you fail to do so, you could lose your deposit money as a penalty.
Another contingency is the title contingency. Your attorney will perform a title search to determine whether or not the seller does in fact own the house, and that there are no liens against the property. An example of a lien might be if the seller had not paid all of their real estate taxes, in which case the town or city where you live will place a lien on your property. The lien means that they get paid their past due tax money before the seller sees any money from the house sale. These types of issues are uncovered by a title search, and if not properly addressed, can end up in the purchase agreement being terminated.
It also happens on rare occasions that the seller actually does not own the house. This could happen if the attorney that did their title search for them missed something in their investigation. For example, somewhere along the way, someone "bought" the house from someone without the legal right to sell it. Bear in mind that this is very rare, but a title search will protect you from this happening to you.
There are other items that can end up being contingencies to the sale. For example, the sales contract will permit you a final walkthrough of the property on the day of the closing, and if major problems have been introduced to the house since the original home inspection, you can terminate the agreement. There are several other inspections and checks, which include:
- Lead paint disclosure
- Smoke Detector Certification (to make sure the smoke detectors are working)
- Radon inspection
- Natural Hazard Disclosure
- Plot Plan or Land Survey
All of these items are a part of the contract. Once the agreement is done, the rest of the process is execution oriented. Your most important job as the buyer is to focus on satisfying the needs of the bank by providing them all of the information that they need, so that they can approve your request for a loan. Most of the time, everything works out, and you are on your way to completing the purchase of the house.
