A contract of sale or a real estate purchase contract is the agreement between a seller and a buyer regarding the exchange of real estate. A contract of sale is also known as a purchase offer, contract-to-purchase, earnest money agreement and by many other names. However, no matter what you call it, the essence and the purpose of this document doesn’t change.
A contract of sale is the result of negotiation between the seller and the buyer through offer/counteroffer exchange. Once the agreement is reached and the final offer is signed by both parties, it becomes a legally binding contract. By legally binding we mean that if either party decides to back out of this deal after signing the contract for reasons not covered in the contract, they may be subject to prosecution for the breach of contract.
Who Prepares the Real Estate Contract?
Home purchase offers and real estate contracts are often prepared by real estate agents and are based on a standard set of terms the particular real estate agency commonly uses. Keep in mind that, while the agent does represent you, his or her payout directly depends on the success of the sale. This means the forms they supply to you may not always be prepared with your best interest in mind, but rather to facilitate a fast and smooth transaction. Always have your attorney or your trusted New Jersey title company review the documents before signing.
What to Include in the Contract of Sale
A typical contract of sale for real estate contains a lengthy list of provisions that cover all aspects of the home purchase and transfer of ownership. Besides the must-have clauses like financing terms, home inspection and closing date, here are a few other things you could find beneficial to include in your final offer.
Request for Special Disclosures
The seller is required to fill out a disclosure sheet that covers most disclosures you can think of from a leaky basement to unpermitted home renovations. Generally, it is in the seller’s best interest to disclose all important home defects and other relevant information to protect themselves from potential liability. However, there could be some facts that are important to you, yet overlooked by the seller. For example, you can request for disclosure about any mold issues, types and number of household pets or an unreasonably loud neighbor.
Inclusions and Exclusions
In order to avoid any misunderstanding, it’s a good idea to outline what exactly is included in the purchase price. The line between what’s personal property and what’s part of real estate is blurry in many cases. For example, lighting fixtures and other items physically and permanently attached to the house are considered to be a part of the house and should come with it. So if the seller wants to take that chandelier, you may let it go in exchange for another item you want to keep. Everything is negotiable and when you negotiate make sure to put it into writing in the contract.
Earnest Money Provisions
Earnest money is your deposit to the seller that shows that you are serious about the deal. It also provides money for some of the seller’s expenses at closing. If either of the parties breaches the contract, the honest money either returns to the buyer or stays with the seller to cover the damages. Make sure your contract outlines which circumstances will cause the earnest money to go to the buyer and how fast you can get it back if the buyer backs out. It typically makes sense to use escrow services to hold the deposit in an independent account, which may also earn you interest while the closing is in process.
Closing costs can be a big expense on a high-value property, so it’s smart to outline who picks up the tab. In New Jersey and in many other states, it’s customary to split the closing costs, so that each party pays their respective share. However, keep in mind that everything is negotiable and by giving up something else, you could get the seller to pay the closing expenses.
Mediation of Disputes
If something goes wrong with the house after the purchase is complete, how is it going to be resolved? For example, when the seller fails to disclose leaky siding and past attempts to fix it, the buyer is stuck with water issues, not to mention the expensive repairs. Going to court over a situation like this will not bring a timely resolution. By including a provision about how any potential disputes will be resolved, you can at least have a plan of action if such a misfortune happens.
Did your real estate agent give you a contract of sale you don’t understand? Our real estate experts at Armour Title can demystify this document for you and help you make sure your interests are being properly represented.