By Aileen Torrens, Real Estate Closings, Transactions, & Litigation Attorney
The Purchase and Sale Agreement is usually the first contract the Buyer will encounter in a real estate transaction. It is most definitely not a standard form. It is the blue print for the entire transaction, and in my opinion the most important document that will be signed until the day of closing. Review this document in its entirety. However, while every single line is important and should be reviewed, the following are some of the most important paragraphs:
a) Purchase Price, Deposit, Financing Amount, and Escrow Agent: Make sure that the purchase price is accurate and legible. Also, confirm the good faith deposit amount is correct. The good faith deposit is held by the Escrow Agent that is designated in the contract. Usually, the title company that is conducting the closing will hold the monies in escrow. The deposit can be forfeited if the contract is broken by the Buyer in a manner not allowed or set forth in the contract. If the contract moves to closing, the deposit will go towards the purchase price. The deposit is usually 1%-3% of the purchase price. However, this is your contract, and you can negotiate the amount and who will designate the escrow agent. It is important that the Finance amount be accurate, especially if the sale is contingent on Financing.
b) Time to Accept, Closing Date, and Extension of a Closing Date: Keep these dates and procedures in mind throughout the closing. It is a good idea to calendar the closing date and time lines set forth in the contract. Most contracts will provide that cancellation of a contract must be in writing. This is a very common mistake made by first time home owners. It is not enough to verbally cancel a contract. Get it in writing and make sure to obtain proof of delivery whether it be certified mail, fax confirmation, or email confirmation to all parties involved. If using certified mail, make sure to allow enough time for mailing and confirm that no time deadlines expire during said time. All extensions to the contract need to be in writing and signed by all the parties.
c) Financing: The contract may be contingent on obtaining Financing. The Buyer has the option to be as detailed as needed on this contract term. If the Buyer is looking into obtaining an FHA loan, this can be specified that the entire purchase and sale agreement will be cancelled if the FHA loan in a specific amount is not obtained. The Buyer may further indicate whether the loan interest rate will be fixed. This term usually requires a good faith attempt and communication with the other party to keep the Seller notified of the progress. Make sure that approvals and denials are forwarded to the Seller in writing. The Buyer has a right to cancel if the contingent financing fails, however, the cancellation must be done in writing and with the terms in the contract.
d) Closing Costs: The Closing Cost section is often overlooked. It is common to have a party arguing about a closing costs being on their settlement statement on the day of closing. For the Buyer, this means more money to bring to the closing table. The Closing costs are usually outlined on the Purchase and Sale Agreement with bullet points designated to the Buyer. Typically, the following costs are borne by the Buyer: taxes and recording fees on notes and mortgages, owner’s policy and charges, survey of the property, Lender’s title policy, HOA applications, and loan expenses. These can however, be negotiated and changed on the contract. Typically, the person selecting the title agent will pay title insurance. It is a good idea for the Buyer to select the title agent because the title insurance is what insures the Buyer as an owner of the property in the amount of the purchase price.
e) Inspection Period: The inspection period will set forth the time frame in which the Buyer can go into the property and look for any material defects. If the Buyer finds the roof is leaking or the air conditioning unit is in poor condition, written cancellation may be sent out within the required time period, and you can have your deposit returned. The standard amount of time is 15 days.
A useful tip to remember is that many times, the cost for a buyer to hire an attorney to conduct the title closing will be the same as hiring a title company. Hiring an attorney as a title agent will afford you the additional benefit of representation and legal advice throughout the purchase of your new home.