Real Estate Contracts: What to Look For
When you finally receive an offer on your home, you’ll receive a contract with several pages of terms, conditions and multiple additional documents. Most real estate contracts are prepared in such a way that they protect both the buyer and seller, especially in California where the typical contract is provided by the California Association of Realtors®. But often the buyers and sellers don’t know what to look for. The following are some clauses you should look for in an offer, including some that should be viewed with scrutiny. As experienced real estate attorneys in Temecula and throughout Southern California, we can help you locate these clauses and explain them in detail.
Financing. One very important component of the contract is the financing paragraphs. A buyer wants to protect the earnest money deposit in the event the buyer does not obtain financing to purchase the property. Likewise the seller wants to make sure that the buyer is financially qualified to complete the purchase. If the buyer is unable to obtain financing and the loan contingency is still in place, the parties have agreed that the buyer can cancel the transaction and the buyer’s earnest money will be returned. If the loan contingency has been removed, and the buyer cannot obtain financing, then the seller may be entitled to retain the earnest money deposit to compensate the seller for the buyer’s inability to close escrow. Since the deposit can be at risk in the event of a default IF the liquidated damages provision if initialed by the buyer and seller (they typically are), then the amount of the deposit is important. It is not only the amount at risk, but it also signals to the seller just how serious the buyer might be about the offer.
Inspection. During the process of a home sale, the buyer usually will conduct various inspections including a professional home inspection to assure that it is in a condition acceptable to the buyer. However, the home inspection contingencies included in sale contracts can vary, so it’s important for both buyers and sellers to read them carefully so that the inspections are conducted within the contingency time frame. The home inspection may also detail some defects in the property which the buyer can request that the seller repair. While the seller is not obligated to make any repairs, if all of the issues regarding repairs are negotiated and the buyer cancels in good faith based upon the property condition while the inspection contingency is still open, the buyer should still be able to get their deposit returned.
Sale of Existing Home. The Sale of Existing Home contingency allows buyers to make an offer on a home, contingent on the sale of their current home. While this is a common situation, sellers who need to make a quick sale might not want to accept an offer with this contingency or will ask for a time frame in which the buyer must remove this contingency during escrow.
Closing Costs. Buyers often ask sellers to pay closing costs, in order to reduce the cash on hand needed at closing time. But they should always consult with their lender to determine what the actual closing costs will be before entering into the final purchase contract. In some situations a seller may agree to pay some or all of the buyer’s closing costs but the seller should always review the financial impact that this may have on the overall proceeds that the seller receives in the sale before accepting the buyer’s offer.
Items included/excluded from the sale. There are many items in the property which are considered personal property of the seller and may not convey with the property. As a buyer if there are certain items (i.e. washer and dryer) that you would like the seller to include in the sale, then your offer should make specific references to those items. As the seller if there are items that you want to take with you, make sure that the accepted offer, excludes those items. If there is ANY doubt about whether an item might stay or go, spell it out in the contract to avoid confusion.
Real estate contracts can be confusing, but you should fully understand the entire contract before making or accepting any offer. Contact our Temecula or San Diego real estate law team for more information. We can help you understand the contract and its many provisions.