All real estate contracts are not the same. Even though they may have the same basic template, the language is specific to the individual purchase. It is important to know, and understand, exactly what you are signing. If there are items you want changed or tweaked it is essential you do so prior to signing your name on the dotted line. Once the contract is executed you are bound to adhere to it. Just one oversight or missed date can end up costing you your down payment, or a chance to buy your dream home. Here are five important items on every real estate contract.
Earnest Money Deposit (EMD). Every seller wants to be assured that they will close. Getting the right price accepted doesn’t do much good if they don’t end up closing. One way a buyer can show they are serious about the transaction is in the down payment amount. Generally speaking the higher the earnest money deposit the more they stand to lose is the deal falls through. A buyer can put anywhere from $500 down to half the purchase price if they are confident enough. The deposit is generally held by the attorney in their escrow account and released at closing. A sizable EMD doesn’t guarantee a closing, but it does show the buyer is confident the deal will close.
Inspection Date. The first step after the contract is accepted is the inspection. Most contracts have a 72-hour window after acceptance for the buyer to have the property inspected. If something comes up during the inspection that is a red flag they have the right to back out of the deal. Depending on the scope of the work needed the seller may opt to make any repairs or modifications or there could be changes to the contract. The inspection will often dictate how the rest of the transaction goes.
Mortgage Commitment Date. As it sounds the mortgage commitment date is the date at which the loan should be approved. Ideally, it will be cleared to close but that is not always realistic. At a minimum, the loan needs to be preliminarily approved pending the title or the appraisal. Most sellers are willing to grant an extension if they are confident the deal is moving in the right direction. If the loan is not approved or the appraisal not ordered they have the right to void the transaction and possibly keep the EMD depending on the wording of the contract.
Concessions. There are several items unique to an individual transaction. Not every transaction will have concessions made by the seller. If there are property defects or the seller requests a credit they can ask for a concession. This could be a monetary concession, or something can be left or changed in the property prior to closing. Most transactions have some minor concessions, but they are not guaranteed on every sale.
Closing Date. The closing date is the expectation of when the transaction will close. As with the mortgage commitment date the seller needs to know what is going on with the transaction. They need to make arrangements to move out and if there is another transaction pending they need the proceeds of the sale to move forward. If there is a hold up on the buyer’s side they can ask for an extension of the closing date. The seller doesn’t have to grant it, but they would be foolish not to. If they don’t extend they will have to start the process from scratch with another buyer.
Between your real estate agent and attorney, you should know every aspect of your contract. If you have questions don’t be afraid to ask. Your contract is too important not to understand it fully.