Let’s say you’ve done the exciting part: You've gone out and found a house to buy at the right price! Once your offer is accepted, you’ll be presented with a real estate contract. This is something that your lawyer looks over, and often negotiates terms of—but you need to understand it, too.
Let’s take a look at a typical contract and see what’s inside.
Terms Of The Deal.
The contract, at its most basic, names the buyer and the seller. The buyer and the seller are called parties to the agreement, which may further identify them with specific details—address and Social Security Number are two, and you might be asked if you had any former names—if you’ve changed your name because of marriage or divorce, your old name might still go on the contract.
Then the contract describes what you are doing. If you are buying property, the contract will describe where the property is, what condition it should be in, what appliances should come with it, how much you’re going to pay for it, how the transfer is going to take place—in a co-op sale, the seller will transfer his shares to you—and when the deal is going to happen.
These are technically terms of the deal, but since they basically allow for loopholes I’m putting them in a separate section. In a U.S. sales contract there are typically two contingencies: One is a financing contingency which states that the buyer will apply for a mortgage in good faith, but isn’t obligated to buy the house if she can’t get one. The second is an inspection contingency, which allows you to bring in a third party to look for red flags and make sure that the major systems of the property are in working condition.
Responsibilities Of The Parties.
The contract sets out the responsibilities of each party to the deal. For example, the seller’s responsibility to pay property taxes on the home might be in the contract. If you’re the buyer, the contract might ask you to state (or in more formal legal language, “represent”) that you’re of legal age to sign a contract and that you haven’t been bankrupt in the past seven years. If there are closing costs, the contract will set out which ones will be paid by the seller and which ones will be paid by the buyer.
What if the buyer or seller gets cold feet? That’s called a default, and there’s usually a section of the contract indicating what the other party can do if that happens. For example, the contract might say that if the buyer decides at the last minute not to purchase the home, then the seller can keep the security deposit.
Since a contract is negotiated, each side can throw in different terms as long as the other side agrees to them. This added material is called a rider. It could contain anything, such as “seller requires buyer to bring six packages of M&Ms to closing.” Most likely, however, it will contain things that your attorney has learned from experience are missing from the standard contract. For example, in places where there is high bedbug activity, there might be a rider allowing the buyer a bedbug inspection.