Any time you are looking at a residential purchase contract these are the 10 items to pay attention to. All clauses in a contract are important, but these ten are where the issues come up.
- Sales Price & Cash (item 3.C on the contract) How much cash is the buyer putting down, goes to how serious the buyer is and their strength. Larger down payments give the buyer more options for financing. The amount financed and with what type of loan effect the actual sales price and how loan it takes to close. If you are comparing multiple offers these details matter. Other clauses in the contract can affect the sales price.
- Exclusions & Convey (item 2.D on the contract) What Items is the seller not selling with the house. What items does the buyer not want? Is that fancy mirror, or chandelier included? Does the buyer not want the above ground pool? Meaning you must get rid of it! Refrigerators, washers and dryers as well as wall mounted TV’s are not included in a purchase. If any of these excluded items are expected to remain with the house, the contract must list them here or in an addendum.
- Type of loan (item 4.A on the financing addendum) V. A. Loans have items the buyer is not allowed to pay for, meaning the seller is often asked to cover these costs. The terms of any seller financing would be a consideration for both buyer and seller. The quality of the buyer’s pre-approval for financing letter might be important, has the buyer been through desk top underwriting or just had a phone interview?
- Earnest money (item 5 on the contract) How much money the buyer puts down speaks to their commitment. Which Title company to use is a matter of preference and convenience. Some title companies provide fast efficient service and some do not.
- Title Policy (item 6.A on the contract) Who pays the policy matters, as this fee runs about $850 per $100,000 It is a consideration. There are 2 schools of thought: often the seller pays as they are guaranteeing good title to the buyer, the opposing view is that the policy protects the buyer. The title policy fee is set by the state and is not negotiable. If I am selling I usually pay.
- Survey: (item 6. C. 1.2.3. on the contract) Is there an existing survey? Has anything on the property changed since the survey was drawn? Will the title company use the existing survey or require a new one? Who pays, regardless of who pays for the survey buying a property without a survey is playing with fire, it’s just a matter of time before you get burned.
- Residential Service Contract (item 7. H on the contract) Is the seller providing one? And if so how much will they pay. $450 to $600 will provide a year’s coverage of all major items in the house. Let the buyer pick the company, because of the exclusions better the buyer chooses.
My opinion: if the A/C and appliances are new, I do not provide a warranty. If the they are not new, I gladly pay for the first year’s residential service contract
- Closing Date: (item 9.A on the contract) Every time a new month rolls around the seller has additional cost for loan interest, insurance, maintenance and taxes. Because these monthly carrying cost can be substantial, the closing date is important. For income properties, there is the additional considerations of proration of rents. That is also why the type of loan is important, as a conventional loan closes faster, effecting the loan closing date.
- Seller Contribution (item 12. A (1) (b) on the contract) A full price offer where the buyer is asking you to pay all or some of their closing cost is not a full price offer. There are lenders that rebate closing cost and that do not charge V.A. non-allowable’s. When I see seller contribution, I request the buyer change lenders or pay this themselves.
- Option Period & Amount (item 23 on the contract) Traditionally it is $10 a day payable to the seller by a separate check. The option period is the buyers walk away for any, or no reason given. It is often when due diligence is preformed, but it is not a requirement that inspections, etc. be done during this time.