Understanding the Purchase and Sales Contract

Often called a Sales Agreement, a purchase offer is a Real Estate contract required for the sale or purchase of Real Estate. The purchase offer contract is something the Buyer really needs to understand. The Commonwealth Real Estate Companies is the company you want in your court when making your offer.

The main thing to remember is, it’s your document, and you can control what it says or doesn’t say. It’s only fully executed when all legal parties have signed and dated the document. If you don’t like some provision on the form, mark it out or modify it to meet your needs.

The Statute of Frauds requires all real estate contracts be in writing to be enforceable. The days of a handshake or a gentlemen’s agreement are long gone. While certain elements are required, the terms are usually negotiable. Once you submit an offer, and it’s accepted as it stands, it becomes a binding sales contract.

What is typically included?

The name of the buyer(s): (Obviously). After your name it’s usually good to add; and/or assigns. This allows you substitute or add another buyer without the need for creating a counter-offer and redoing the agreement.

The street address and legal description. Be as specific as possible. You can get some info from your local Title Company. Unless you’re buying a recorded urban lot, specify that your offer be subject to your approval of a survey (every state has it’s own guidelines about this).

Personal property included in the sale: Be specific! If they’re including a washer/dryer, name the brand etc. now on the premises. Anything not permanently attached to the property is eligible for this clause. If in doubt, list it.

List the amount of the Earnest money down, and whether it’s check, cash, promissory note or credit card. This is generally 1% of the sales price. In every area the average can vary. Here in Oregon it is usually between $500.00 to $3000.00

Don’t let the seller hold the deposit: Specify who will hold the deposit, and how it will be returned if the offer is rejected. Having your deposit held by a neutral Escrow office, title insurance company, registered Realtor, law firm, or Bank is recommended.

Specify the exact purchase price and terms of the sale: Indicate every detail relevant to the transaction as thoroughly as possible. Don’t hesitate to ask for seller financial concessions/contributions or seller-held financing. If conceded, spell out the terms and conditions.

Require the seller to provide proof of clear title: Specify what type of deed will be given. A “general warrantee deed” offers the fullest protection. Any “added, deleted, or different wording” may limit the seller’s guarantee. For instance; a “special warranty deed” does not offer protection from title defects or liens caused by a previous owner.

Require that the property is maintained in its’ current condition until closing.

Limit the time for accepting your offer: 24 hours is customary, never give them too much time to make a decision.

Target a date for actually closing. Use the words “on or before” prior to the actual date you need to close. If you can close earlier, you will. Unless you’re ready to close immediately and all conditions are met, don’t impose unrealistic deadlines.

Other Important Provisions:

• Make sure you the buyer can make a last minute walk-through inspection of the property.
• Specify who will pay for Title Insurance, any Surveys, Pest inspections, closing costs or points, and repairs etc.
• Delineate the prorating method between buyer and seller for property taxes, insurance, utilities, rents, etc.

4 Common contingencies you should include:

That the buyer obtains specified financing. If the loan isn’t approved and funded, the buyer is not bound by the contract.

• A satisfactory home inspection report (within 10 days) by the buyer after acceptance of the offer. The buyer should pay for the inspection but expect the seller to pay for any “necessary” repairs. If the seller insists the property be sold “as is”, minimize your risk exposure by setting a dollar limit on repairs. For example, “buyer will only accept an inspection report with no more than $1500 in repairs”. If this is agreed to and the home inspection shows excessive repairs the buyer can void the contract on those grounds.
• Approval of the seller’s disclosure. Require the seller to disclose any known defects of the property in writing.
• The “all inclusive” Clause (not the Santa Clause). This purchase agreement is contingent upon the buyer’s attorneys’ or advisors’ satisfactory inspection and approval of the purchase contract within 10 business days.
  1. If your printed form includes an arbitration clause, it’s generally better to mark it out. Arbitration is unpredictable and too many things can go wrong. Protect your rights.
  2. Be “cautious” of forms with the printed name of the Realty Brokerage in the contract. Some clauses may obligate the parties to use brokerage-affiliated services for mortgages, insurances, or inspections.
  3. If any changes are made to the offer you made, it’s considered a counter-offer. You can then decide to accept or reject it, or make your own counter to their counter; the 1st offer is null & void. The document becomes binding only when one party signs an unconditional acceptance of the other parties offer. You can take back an offer right up until the moment it is accepted.

[Some purchase contracts generated by Government Resale or other parties are seller-generated and don’t allow for negotiation. It’s frequently take it or leave it and in those cases you could risk losing the transaction if you don’t accept the terms.] There’s almost always some exception to every rule.

This has been intended to be a preliminary “guide” for you and not intended to be a complete legal formula for a purchase agreement for real estate. Consult your Commonwealth Real Estate professionals for more information. The real estate industry is continually in a stage of growth and change and becoming more complex daily.