Conditions to Include in Your Real Estate Purchase Agreement in Today’s Competitive Market
The current real estate market is hot and generally favors the seller. It is largely driven by two factors: increased demand from buyers, and a low supply of available real estate listings. Once you’ve found your new home, the next step is to prepare a proposed real estate purchase agreement and present it to the seller. A thoughtfully-prepared purchase agreement can mean the difference between acceptance and rejection of your offer. By having an experienced real estate attorney prepare or review your purchase agreement, you can make your offer stand out and improve the chances that it will be accepted as well as your chances that you will have a successful closing.
What Is the Real Estate Purchase Agreement?
The real estate purchase agreement, also referred to as a sales contract, is a binding contract between the buyer and seller that identifies the terms of the sale. In general, the buyer proposes the terms of the transaction, including the offer price and any other terms, and the seller can either agree to the terms, reject them, or negotiate.
Once the parties agree to the terms and have signed the purchase agreement, the sale is considered to be “under contract.”
In today’s competitive market, buyers need to present an attractive offer that will get the seller’s attention, show the buyer they’re serious, and make a bid that will beat others in the event there are multiple interested buyers.
What Should You Include in the Purchase Agreement?
Every real estate transaction is different, but there are common elements that most purchase agreements should include. These include:
- Buyer and seller information
- Property details
- Pricing and financing
- Fixtures and appliances that are included or excluded from the sale
- Dates to have the property inspected
- Closing and possession dates
- Earnest money deposit amount
- Closing costs, transfer taxes and who is responsible for paying them
- Conditions under which the sale can be terminated
- Contingencies or conditions that must be met for the sale to go through
- If and how property taxes are to be pro rated to date of closing
- Whether the buyer has acknowledged receipt of the seller’s disclosure statement.
The art of the real estate transaction and making your offer stand out among other potential buyers lies in which terms you include, which terms you modify or exclude, and how you finance the transaction.
Make Your Real Estate Purchase Agreement Stand Out
There are many factors to consider when you’re trying to buy a house in a seller’s market. But by acting quickly and making your offer stand out, you improve your chances of having your offer accepted and getting your dream house.
Make Your Offer as “Clean” as Possible
A “clean” offer means that you will waive or modify certain contingencies in the purchase offer to make your offer more competitive. If possible, don’t make your offer contingent on the sale of another property. It should also be free of seller concessions, which are things the buyer asks the seller to do in order for the transaction to go through.
A common contingency that you can consider excluding e from your offer includes help with closing costs. You can also place a limit on the amount of money that you would ask for if your inspection of the property reveals issues or defects that should be addressed.
Obviously, a clean offer would include making your offer a cash transaction with no financing contingency. Nevertheless, even an offer that has a financing contingency can be attractive if you are making enough of a down payment so that a lower percentage of the sale price is financed. In such a case, the financing of the sale may be easier if your lender’s appraisal of the property comes in lower than the sale price.
Offer Above-Asking Price
In a competitive real estate market, you need to make an offer that is more attractive than other offers in a multiple-offer situation. In many cases, offering just $2,000 to $3,000 above asking can be enough to get the seller’s attention and outbid other buyers. And financing a few thousand dollars over 15 or 30 years won’t cost you that much in the long run. Be sure to keep your offer close to the market value of the home based on comparable properties that have recently sold, but offer enough over asking to get the seller’s attention and show you’re serious about buying the home. It is also important to understand that if you are financing your purchase, your lender will want an appraisal of the property that shows the market value of the property is at least as much as the loan amount
Include an Escalation Clause
An escalation clause means that if other bids come in, your offer will automatically increase to a maximum price that you set. Your initial offer is still the same, but if the seller receives another bid, your offer automatically increases to the higher amount. If you wish to include an escalation clause, be sure to consult with an attorney to ensure that the clause is properly drafted.
Make a Strong Earnest Money Deposit
Your earnest money deposit (EMD) is proof that you’re serious about buying the house. A title agency or your real estate broker will hold the money in escrow and it will be credited toward the sale price at closing. Earnest money deposits can be 1-3% of the total purchase price but there is no standard formula. If you put down a larger EMD, you show that you’re serious about buying the home and have the necessary funds to start the transaction.
However, it is important to understand that if you put up earnest money and back out for a reason that is not based on a contingency in the purchase agreement, you could forfeit the deposit.
Don’t Ask for Personal Property
If there are items in the house that you really like but the seller has excluded, it’s best to focus on the big goal and forgo some of the smaller items. Better to buy the house and purchase these items on your own than run the risk that your offer won’t be accepted.
Include a Pre-Approval or Pre-Qualification Letter from your Lender
A person’s preapproval or prequalification for a mortgage provides a rough idea of a person’s expected loan amount. A prequalification is a more precise measurement of how much mortgage a person can afford and usually takes into consideration a homebuyer’s financial status, including a review of W-2s, bank accounts and tax returns.
There can be confusion or these terms so your lender will need to be clear in the letter about what your preapproval and prequalification means. A letter from your lender stating that you have been preapproved or prequalified based on a review of your financials will definitely help your chances of a seller accepting your purchase offer.
Contact Ager Law Offices for Help with Your Real Estate Transaction
Buying a home is likely the largest investment you’ll ever make. And in today’s competitive real estate market, you want to take every step you can to ensure that your offer will be accepted so you can buy the house of your dreams.