When you find a house you'd like to buy, you'll want to present the property seller with an offer to purchase the home. The form this offer takes depends on real estate practices followed in your state. It might be a very short document, which serves to open negotiations and hopefully leads to a full contract later. Or (as is more often the case), it might take the form of a complete agreement, which the seller could simply sign in order to create a mutual binding contractual obligation.
Your real estate agent or broker will likely have a standard purchase offer or purchase agreement form for your use. In some situations, or if you live in a state that requires attorney involvement in real estate transactions (as is the case in Alabama, New York, Massachusetts, and North Carolina, for instance), you might want to hire a real estate lawyer to prepare or review the contract.
Typical Real Estate Purchase Contract Clauses
The typical home purchase contract should include:
- Property address and/or legal description.
- Purchase price the buyer is offering.
- Amount of down payment (how much cash the buyer will put down, if taking out a loan for the remainder).
- A mortgage contingency provision, which allows the buyer to be released from the contract if unable to obtain a loan in a specific amount at a specific interest rate within a specific amount of time, usually between 30 and 60 days.
- Amount of earnest money deposit or contract deposit, which the buyer will forfeit if they breach the agreement.
- How long the offer will be open. You can, for example, limit the seller to not more than 48 hours to respond to your offer, to keep them from waiting for better bids from other buyers. (Of course, if the seller came back to you later, you might still want to accept.)
- The date the sale will be finalized ("closed").
- The date you will be able to move in ("take possession"). In some situations, you and the seller might negotiate to let the seller rent the house back from you beyond the closing date, especially if the seller hasn't yet bought another house and could end up in a time crunch.
- Who will hold the earnest or deposit money (usually an escrow or title agent) and who will be the closing agent and/or escrow or title agent for the closing.
- Items to be included in the sale beyond the basic land and structures, such as carpeting, lighting fixtures, appliances, and so forth.
- Items not included in the sale (but which you might have thought would be included), for the sake of clarity and avoiding unwelcome surprises upon move-in.
- A guarantee from the seller that they will provide clear title to the home, through an abstract of title, certificate of title, or a title insurance policy.
- A provision stating that the home seller is responsible for paying utility bills, property taxes, insurance, and other house-related expenses through the closing date.
- An inspection-contingency clause, which allows you, the buyer, to have the home inspected by a professional, usually within a few days of the date of signing the contract. This provision should make your purchase offer contingent on a satisfactory inspection report. (If you find issues you're unhappy about, negotiating for repairs, a credit in escrow, or a price reduction is also an option.)
- Language that details when you can do a walk-through inspection of the property, usually a day or two before the closing date, in order to make sure everything is ready, according to the guarantees made in the contract; in other words, that the place is reasonably clean, the seller has moved out, and the seller hasn't taken property that was supposed to stay behind.
- A provision requiring the seller to pay a certain amount of money for every day beyond the date of your occupancy that the house is not available for you to move into.
- A clause making the offer contingent on you selling your current house, if you'll need to do that before you can complete the purchase and move. Sellers don't like agreeing to such a provision, for obvious reasons.
- Language that requires the canceling of the deal (and return of your earnest money deposit) if the sale isn't completed due to other contingencies not having been fulfilled (for example, if you've made the deal contingent on checking out local crime rates or obtaining homeowners' insurance on the house).
Even with a standard form contract, you should be able to cross portions out, insert addendums, or customize the contract to your (and the seller's) needs.
Counteroffers on a Real Estate Purchase
A property seller isn't required to accept any particular offer, not even if it's at the full asking or list price. In fact, the seller will typically respond to a buyer's offer with a counteroffer that accepts some of the terms but proposes changes to others.
Common counteroffer proposals include:
- A higher purchase price.
- A reduction of the time the buyer has in which to remove contingencies, such as the inspection contingency and one conditioning the deal on selling their current home.
- Removing certain contingencies altogether.
- Excluding certain items from the sale, such as the seller's antique heirloom chandelier, which the seller wants to take to the next house.
- More time for the seller to vacate the house after the sale is closed.
- That the seller's attorney approve the contract as a contingency of the sale (if the seller hasn't had the time to have an attorney review the agreement).
- A "liquidated damages clause," which details how much money the buyer will owe to the seller if they back out of the deal for reasons other than the contingencies listed in the contract. In some states, laws limit liquidated damages to the amount of the earnest money deposit or to a percentage of the purchase price (as in Washington State and California).
Pre-Signing Negotiations Between Home Buyer and Seller
If the buyer is not satisfied with the seller's counteroffer, the buyer can reject the counteroffer and submit additional changes in a buyer's counteroffer. The parties can go back and forth, negotiating the terms of the contract until they reach an agreement and ultimately both sign it.
Role of Brokers in a Home Sale
If the seller or the buyer is using a real estate broker, the broker or brokers will ordinarily negotiate the terms and conditions of the contract, as directed by their clients. However, the final decisions are made by the seller and the buyer, and they both must sign the purchase agreement or contract of sale.