Ask these questions before you
decide to go ahead with a contract.
The natural focal point of a real
estate purchase contract is the selling price of the home, but the price isn't
the only factor that determines the net bottom line for both the buyer and the
seller. Is a bargain for the buyer really a bargain if he or she is paying all
the transaction costs? Is a top price for the seller really a top price if the
buyer wants all the furniture to be included in the purchase price? Or if the
buyer they can't come up with the downpayment or qualify for a mortgage?
Before you decide to go ahead with a
great price, here are five other bottom-line points to consider:
1. What are the estimated
transaction costs and who will pay for what? Typical costs include the brokers'
commission, a home inspection, a termite inspection, escrow or attorney's fees,
a title search, an owner's title insurance policy, transfer taxes and recording
fees. The price tags on these items vary greatly around the country. Who pays
for what is a matter of both local custom and negotiation.
2. How much money is the buyer
putting into escrow and how soon? A big deposit -- called "earnest
money" -- and a substantial down payment are generally seen as a sign that
the buyer is serious about completing the transaction. From the seller's point
of view, the more money the buyer places in escrow and the sooner the money is
transferred, the better.
3. Is there a mortgage financing
contingency and how specific is it? The mortgage escape clause is a must for
buyers, unless they're paying all cash for the home. Without this contingency,
buyers can be legally obligated to purchase the home even if they can't obtain
financing. Further, an open-ended statement that says the buyer will obtain a
loan "at the prevailing rate of interest" leaves the buyer completely
exposed to interest rate fluctuations. A statement that says the loan must be
at an interest rate "not to exceed xx percent" and on specified terms
is preferable.
4. What furniture, fixtures and
appliances, if any, are being sold with the property? Technically, anything
that's permanently affixed to or installed in the home is real property.
Everything else is the seller's personal property. This distinction is a narrow
one and it naturally leads to a fair amount of confusion. Are built-in
appliances real property or personal property? What about a shelving system? A
chandelier? Window coverings? Potted plants in the backyard? Sellers who intend
to remove anything that's attached to the home should have that spelled out in
the contract. And the same goes for buyers who expect to acquire any of the
furniture or other movables.
5. What will happen if either side
breaches the contract? Unless an unmet contingency triggers the abandonment of
the contract, it's a binding legal document. Buyers who fail to perform can
lose their deposit money. Sellers who try to back out can be sued for
"specific performance," which forces the sale of the home to the
buyer. Many contracts also specify that disputes must be brought in
small-claims court or presented for arbitration or mediation.
Tip: Ask your real estate agent to
go over the standard contract with you before you receive or make a purchase
offer. That way, you'll know what to expect and be prepared to negotiate the
best deal you can get.
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