Whenever I meet with new real estate clients – whether they are buyers or sellers – one of the first things I like to present to them is our Northwest MLS (NWMLS) real estate contracts.
These documents are the “standard” attorney-reviewed contracts used by licensed agents in the Puget Sound area for many types of real estate transactions: buying a house, condo or multi-family home, leasing, or even buying or selling a business.
While it may not be EVERYBODY’s cup of tea to read real estate contracts at length, both of my parents are attorneys (and so were my sister, and my uncle, and my grandfather…) and they always advised me to never SIGN anything without reading it.
This is especially important when it comes to buying and selling real estate, because this is a MAJOR financial transaction. We are not talking about a permission slip for your kids to go to Wild Waves with his classmates, we are talking about hundreds of thousands of dollars.
I always want my clients to be up-to-speed on their contracts in advance, because when you’re in the heat of the moment – getting a huge offer on your home for sale, or sending in a huge offer on your dream house – emotions are running high and your brain literally cannot handle the logistics at all well when it’s flooded with emotion.
So first things first. Let’s review those contracts!
I always go over these TOGETHER with my clients so they don’t get bored and abandon ship halfway through the process…
Why Do We Need A CONTRACT – Isn’t That A Scary Word?
The purchase contract is an essential part of a real estate transaction because it lays out all the pertinent details such as price and terms. In fact, in a well drawn-up purchase contract, every element of the transaction is addressed, from earnest money requirements to well disclosures. The purpose of such a contract is to make sure that all terms and expectations are clearly delineated and to protect both the buyer and the seller. And that’s also why most contracts are, for the uninitiated, difficult to read and understand and more than a little overwhelming. To help you get a handle on this, here’s a step-by-step purchase contract guide for buyers and sellers in Shoreline, WA.
Purchase Contract Overview
You may also hear a purchase contract referred to as a real estate sales contract, a home purchase, a real estate purchase contract, or a house purchase agreement. Whatever you call it, every one of them has some common elements and a similar job.
A purchase contract, then, “is a binding contract between a buyer and seller that outlines the details of a home sale transaction. The buyer will propose the conditions of the contract, including their offer price, which the seller will then either agree to, reject or negotiate. Negotiations may go back and forth between buyer and seller before both parties are satisfied. Once both parties are in agreement and have signed the purchase agreement, they’re considered to be ‘under contract.’”
The buyer’s agent usually writes (or, more specifically, fills out) the purchase contract/agreement. Because only attorneys can draw up legal contracts, agents typically use standardized contract forms and then just fill in the pertinent information and specifics of the sale.
The specifics in purchase contracts vary in almost every case, and legal requirements vary from state to state. There are, however, some common elements in all such contracts . . .
- Information about buyer and seller (Name, phone number, etc)
- Necessary property details (address, legal description)
- Pricing and financing information (How much are you paying, earnest money deposit, installments or rent-backs)
- Items to be included in the sale such as fixtures and appliances (Usually this includes curtains, lamps, etc.)
- Closing costs and who pays them (Here in Washington, these are usually split between buyer and seller)
- Conditions that allow contract termination (Escape clauses… can you get out of the contract if you change your mind or something falls through?)
- Contingencies on which the sale hangs (Examples: Whole House Inspection, Septic inspection, well, inspection, etc.)
I am happy to provide you and help you interpret the agreements we use here in Washington State.
Major Components of Purchase Contracts
When we sit down together, I will go through the purchase contract with you page-by-page. Here are some of the things to look out for that cause the most confusion among buyers and sellers in Shoreline, WA.
Most people still get a loan to buy a property. If you want to have a “financing contingency” in your contract – that means you can “escape” from the deal should your financing fall through no fault of your own.
However, some offers are “cash” offers and people don’t need to get bank financing to complete the deal. They may have a cool million sitting in their bank account, ready to go.
In order to make their offers “more competitive” in comparison to an all-cash offer, some buyers will choose to waive their financing contingency, meaning if the bank doesn’t complete their loan on time, the buyer will lose his earnest money deposit.
This is your “skin in the game.” The earnest money deposit is a good faith deposit that demonstrates the buyer’s seriousness, allowing the seller to know that she isn’t wasting her time. In this hot market, many buyers in Shoreline, Bothell, Lynnwood and elsewhere around the Seattle/Bellevue marketplace are choosing to go with very large earnest money deposits… sometimes as much as 10% of the value of the house.
Another tactic that some buyers are using is to make their earnest money non-refundable. This means, if the deal doesn’t go through, the buyer will not get their earnest money back. In addition, buyers with non-refundable earnest money will sometimes “release” earnest money early – instructing the title company to send the earnest money to the seller just a day or two after closing.
Sellers sometimes highly value this cash if they have been paying for repairs on the home, or need extra money to move.
Contingencies, as the name indicates, are conditions that must be met before the sale can actually go through. And there are several kinds of contingencies, on either or both the buyer’s and seller’s side, that may be included in purchase contracts.
Contingencies keep the buyer safe. They make the offer more conservative. In today’s market, many buyers are choosing to forgo some or all of their contingencies in order to make their offers more attractive to sellers.
Some of the most common are:
- Financing contingency – Stipulates that sale depends on the buyer’s ability to obtain financing
- Appraisal contingency – “States that the home must appraise at a value equal to or higher than what the buyer agreed to pay”
- Inspection contingency – Allows buyer “to back out of the sale without penalty if they aren’t satisfied with a professional inspector’s assessment of the home”
- Sale contingency – Stipulates that the sale is contingent on the buyer’s selling her current home
At closing, certain fees and costs that are part of preparing and finalizing the transaction must be paid. This part of a purchase contract states who (buyer or seller) pays which fees. “How much each party will pay will depend on what was negotiated in the contract.”
Get the Needed Assistance
Buying or selling a home is a big step with a lot of money involved. It’s critical, then, to have the safeguards that a purchase contract provides in place. The problem, though, is that these contracts are complex, filled with legal jargon, and difficult to understand. That’s why you need the assistance of an experienced Shoreline, WA agent. So if you really do want to make sure your purchase contract protects you as a buyer or seller, contact us today at (206) 578-3438.