What Goes in a Purchase Agreement to Buy Your First House?
As a first time home buyer you may get a little confused about how to write an offer to buy a home, so we will try to explain the basics of what goes in to a purchase and sale agreement.
For any offer to buy a home to be valid, it will need to cover the following at a minimum:
- Who – Who are the buyer and the seller.
- What – What is being sold? The property address and assessor’s parcel number are usually listed to specify the location of the property.
- When – When the transfer of ownership will take place.
- How Much – What the sale price is.
- Where – Where the sale is taking place. In case something goes wrong and you need to go to court, this will determine what court will hear the case.
If you have at least these items in your offer, you can buy a home. However, there are some other critical issues that you need to cover as well.
Earnest Money Deposit
Earnest money is money you are putting up to show the seller that you are serious, putting your money where your mouth is. If you change your mind about buying the house after the seller has agreed to sell it, you may not get your earnest money back.
It is important that in your offer you specify what occurrences can allow you to get this refunded, such as you did not get the loan through no fault of your own. How much you offer to put up as earnest money depends, there is no standard amount but your Realtor will be able to offer you guidance.
Financing
If you are planning on getting a loan to buy the house you will need to say what kind of loan it is (FHA, VA, Conventional), and how much money you will be putting down. Your offer will be contingent upon you receiving this loan, meaning that if for some reason the loan is not approved you can cancel the offer and get your earnest money deposit back.
Title/Escrow Company
You can specify which title or escrow company you wish to use. A good Realtor will have a title or escrow company they work with on a regular basis. Escrow companies handle all the paperwork for the deal, so working with a competent escrow officer means less stress in your life.
Close of Escrow
This defines when the sale is going to occur. Typically it is 30 – 45 days from the time the seller accepts the offer. Loan processing typically takes 30 days so you want to allow enough time to get the loan, and work out any issues that may come up.
Due Diligence
Doing due diligence means checking everything out, such as having a home inspection done, reviewing the title report for an liens that may be filed against the home, and anything else needed to be reviewed to ensure that when you buy the home you do not have any surprises. During the due diligence period you will have time to negotiate with the seller who will pay for repairs to issues the home inspection turned up.
Closing Costs
There are fees associated with getting the loan and title insurance, transfer taxes, home owner association transfer fees, appraisals costs, home inspection fees, and home warranty plans. These costs can add up to approximately 3 – 4% of the sale price, which can be substantial. Who is going to pay for these costs is negotiable and needs to be factored in to your offer. Again, a good Realtor will be able to offer guidance here.
Fixtures and Personal Property
If there is something in the house that you want to remain with the house after you buy it, specify that. Typically anything permanently attached to the walls or ceilings are considered real estate fixtures and are supposed to stay, but specify that in your offer. If you love the dining room chandelier, say it stays. The more you spell out, the less potential for confusion. A seller may assume that you understand that the lamp in the corner goes, but you think the lamp makes the room and expected it to stay. By putting it in the contract you avoid any misunderstanding and potential lawsuits.
How Long Your Offer is Good For
Always put a expiration date on your offer. You do not want to sit around for weeks wondering if the seller is going to accept your offer. We suggest 5 days as being sufficient. If you have not heard from the seller in that time period, start looking at other houses. If, after the expiration of the offer, the seller accepts your offer, you can still agree to the deal. You do not want to be a in position where you made an offer 30 days earlier, never heard from the seller, found another home you liked, made an offer which was accepted, then the seller of the first home accepts your offer as well and now you have two offer accepted.
Standard Offer Forms
When you are working with a Realtor, they will have a standardized offer form for you to use which will incorporated all of the above, as well as many paragraphs of legal language that cover issues that have resulted in lawsuits in the past.
You do not have to use a standardized form and are free to write an offer on a cocktail napkin by hand. But if you do that you can expose yourself to unnecessary liability. It is prudent to use your Realtor’s standardized form because you get the benefit of the years of experience that went in to creating that form.
As you can see there are many issues to contend with while writing an offer to buy a home. For your first time we highly recommend you use the services of a real estate agent.
It Is Easy to Find The Right Real Estate Agent For You
When buying a home, the real estate agent you chose to work with will be the person you depend on the most.
To find a right real estate agent we have found using the following sites to be highly effective.
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For more information on what to look for in a real estate agent, check out find the right real estate agent for you.
Good luck!
A Realtor is a real estate agent who is a member of the National Association of Realtors.