"VIP took the guess work out of everything... Tammy under-promised and over-delivered, and always within the timeline she gave us."
Understanding the Contract When You Buy a Home in Central Indiana
Understanding the Contract: Terms of Sale, Legal and Binding, Purchase Price, Financing Terms, Earnest Money, Settlement, Possession, Contingency Clauses
When you are ready to make an offer on a home in Central Indiana, as your agent we will provide you with documents that list the terms of the contract, and review the contract with you. Your VIP Realty real estate agent will explain each line item in detail before you sign the contract and submit your offer.
Once you sign the document, and the seller accepts your terms, you are legally bound by the agreement. So make sure you include items that are important to you.
Understanding the Contract: A Legal and Binding Obligation
A contract, once agreed upon by both parties, is considered a legal and binding document. It is vital that you are aware of, and have a completely understanding of, all sections of the contract before signing it.
Some key components that you will find in a typical real estate contract include:
Purchase Price - the price you are agreeing to pay for the home
- You should offer what you think the house is worth
- Consider any negatives that could potentially devalue your home in the future
- Sellers generally add some padding in their asking price
- In a tight seller's market, you may have to bid close to that asking price
- In a buyer's market, you can negotiate that price down
Terms of the Sale - the contract generally lists all items that become part of the sale. Be sure to specify exactly what you would like included; this prevents the seller from replacing the item with an inferior substitute. These items include:
- Personal property and fixtures that will remain part of the house, such as:
- Doors, storm doors and windows
- Attached lighting, heating, cooling, plumbing fixtures, and equipment
- Ceiling fans
- Window treatments and hardware
- Built-in kitchen appliances and range
- Outdoor lighting fixtures
- All landscaping and related lighting
- Security system components
- Garage Door Openers and all remote controls
- Other attached items
- You may also list other items in the contract that you want to remain with the house after you close. These items may include:
- Window treatments
- Shower curtains, bathroom fixtures and mirrors
- Wall ornaments
- Wall-to-wall carpet
- Satellite dishes, rotors, and control devices
- Pool equipment and accessories, if any
- Other items listed by the buyer and agreed to by the the seller
- The seller may not agree to your terms and strike them out of the contract. But it wouldn't hurt to list these items if you feel they should remain with the house. The seller may be willing to negotiate these items as part of the sale.
- The terms of the sale may include a portion of the closing costs that should be paid by the seller. You will be provided a "good faith" estimate of your closing costs upon completion of your financing application.
- If your closing costs are going to be high, you may want to negotiate the asking price down or ask the seller to pay a portion of the costs.
- Sometimes the seller may be willing to pay a portion of the closing costs if they are less likely to negotiate downward on price.
Financing Terms - the contract is usually contingent upon the buyer obtaining, within a specified number of days, a written loan commitment from a lending institution.
The contract usually states that the buyer will make a loan application within a few days from the effective date of the contract, and that the buyer will use all diligence to obtain this loan at a reasonable interest rate and terms as defined in the contract.
If the financing doesn't come through, then the contract is no longer binding. This is why sellers prefer to negotiate with pre-approved buyers
Earnest Money - a cash deposit made by the buyer "as a security" when you enter into a contract with the seller. This cash deposit will be paid to the seller in the event the buyer fails to honor the contract
- The deposit will be set aside as payment on your closing, or returned to you if the seller doesn't accept your contract terms
- If both buyer and seller agree to the contract terms, and then the buyer breaches the contract, the earnest money is paid to the seller as compensation for potential losses the seller may have incurred
- Earnest money is not required in most states. But an earnest deposit signals to the seller that you are serious about your intent to buy. Most sellers will not enter into a contract unless the buyer deposits earnest money
- The amount of your earnest money may vary. Most experts recommend a deposit anywhere from 1-2% of the total purchase price. In a seller's market, a sizable earnest deposit could swing the sale in your favor
- Earnest money is usually deposited into a third-party trust account such as a bank or with the listing real estate agent.
At closing, the earnest money will be applied to any cash down payment required, then to the buyer's closing costs, with any excess amount refunded to the buyer. In most cases, no interest is paid while your money is in escrow.
Settlement and Possession - The contract will list settlement and possession dates and terms
- Settlement date (aka Closing Date) - when you close on the contract and both parties fulfill the contract terms.
- Settlement date is usually 45-60 days after you sign the initial contract, but that may vary depending on how fast both parties want to move.
- Make sure you allow enough time to sell your current house if you are using the proceeds from your sale on your new home.
- Possession date - when buyer takes possession of the home. The possession date and settlement date are usually the same day unless otherwise noted.
- Occupancy date - the date when the buyer can move into the home.
- Some contract terms may allow the seller to stay in the home after possession date. For example, the seller may request more time to move out of the house.
- Usually the seller will pay the buyer some rental fees for the seller's time in the home after possession date. Check with your closing attorney on possession and occupancy terms and agreements.
Pro-ration and Sale of Current Residence
- All real estate taxes for the current year will be prorated at the closing date, including homeowner or condominium fees and maintenance fees, and rents, if any. These annual expenses will be divided between the seller and buyer.
- If the contract is conditioned on the buyer selling their current residence, you must include this provision in the contract. The terms of the agreement must be clearly stated so the buyer and seller understands what constitutes the sale of the current residence. Discuss these terms with your agent or closing attorney.
Home Inspection - contract should include provisions for structural inspections
- You should state in the contract that the buyer has the right to withdraw from the contract if the inspection report is not satisfactory
- The seller agrees to deliver the plumbing, heating, electrical (including light fixtures and ceiling fans), air conditioning, fireplace, all built-in appliances, and if one exists, swimming pool in working condition
- The roof must be free of visible leaks at the time of closing
Environmental, Termite and Other Tests - other tests that may be included in
the contract are:
- Environmental Inspection, including Flood Zone map
- Termite Inspections:
- Home must be free from active termites or other wood destroying insects
- The seller agrees to furnish a letter or report from a reliable licensed termite control operator stating that the home is termite free
- In older homes particularly, you may want to test for:
- Lead paints, and
Contingencies Clauses - clauses that allow you to withdraw from the contract if certain events do not occur. To be enforceable, make sure all contingencies are fully noted on the contract. Some of the most common contingencies include:
- Inability to obtain adequate financing to purchase the home from a lending institution
- A full inspection be performed and that the inspection report dissatisfies you
- You do not receive the job offer that allows you to buy the home
Home Warranty Provision - protects you against costly repairs for one full year after the sale. Ask the seller to add a warranty provision as part of the sale terms.
- Usually covers the plumbing, electrical, built-in appliances, heating and air
- Sellers are not obligated to offer a home warranty. But you can make it part of the contract. It's worth the price of the home.
Your contract should include a provision that everything should be in working order on the settlement date. All personal items that belong to the Seller should be removed from the house and property and the house should be thoroughly cleaned before taking possession.
Once an initial contract has been prepared and reviewed, your VIP agent will Make an Offer to the seller's agent and begin negotiations on the specifics of the sale.
For more information about how VIP Realty can help you buy a home in Central Indiana, call Tammy Bookout at (317) 345 - 8269 or toll-free at 888-VIP-0002 (888-847-0002), or send Tammy an e-mail, or submit the Request for Information form below.