The Contract to Sell
Price matters ... but so do a LOT of other things!
You've had your home on the market, numerous people have visited it either online, or in person, or both, and someone (multiple someones if you're really lucky) has put their interest in writing Their offer may or may not be what you were hoping for, but the fact of the matter is they liked your home enough to offer you something. That being said, you now have someone to talk to...you can't sell your home to anyone without first having someone to talk to! So, congratulations!
Now, what makes up a contract? First and foremost, it most certainly should be in writing. While it is neither illegal or unlawful to make a verbal contract, the fact is it must be in writing to be enforceable. If you're working with a professional real estate agent, chances are the offer has been created properly, so it's a simple matter of considering the various components of the offer to decide what is acceptable, what is not, and how you want to respond.
While contracts to sell a home differ in various areas around the country, there are certain elements of real estate contracts that are pretty much common to most, if not all, offers to purchase. The ones covered here are items addressed in the contract to purchase that is used by the vast majority of agents practicing in north eastern Illinois. Most agents in northern Illinois use a "multi-board" contract which was designed in a collaboration between numerous contract attorneys with the intent being not to inequitably favor either a buyer or a seller, and to clearly represent what buyer and seller understand their agreement to be. You'll notice that the contract is mostly comprised of preprinted text with some "fill in the blanks" and checkboxes. In other words, for agents and consumers alike, it is not designed for "creative expression". Unless you are a lawyer (which most agents and consumers are not) strictly adhere to a policy of simply filling in the appropriate spaces, and leave the rest up to your attorney. To do otherwise opens the door to trouble.
First, take care of the basic "house keeping"
No, that's not referring to the house per se, but rather to the basic information for the contract itself. This is where the information about both the property in question as well the parties involved is recorded. This generally includes:
- Buyer/s full name
- Seller/s full name (if known). If the seller's name is not known, it's not uncommon to simply include "Owner of Record".
- Property street address, city, state, and zip code (which should appear on each page of the contract)
- Permanent parcel number - It's a good idea to find a copy of the tax record online which will give you the parcel number. This will help to insure that the property being identified in your contract is in fact the right property...you always want to be sure that the Property Address and the Parcel Number each identify the same property! Think about this for a moment...what if the street address and the parcel number each identify a different property? This is confusion you don't want to have to deal with!
- If there is specific parking that comes with the property (assigned spaces, garage units, etc.) the contract may have an area for identifying those spaces by number of spaces and where they are located
- Names, addresses, and contact information for the direct parties to the transaction (buyer and seller)
- Names and contact information for the affiliates involved in servicing the buyer and seller through the transaction (Buyer's Agent, Seller's Agent, Buyer's Lender, Buyer's Attorney, and Seller's Attorney)
Now that the housekeeping portion has been taken care of, take a look at some of the important components of the contract:
- Identifying of personal property, "fixtures", and systems that exist on the property and are included in the sale. This would include things like lighting fixtures, type of heating and cooling systems, furnishings, appliances, well and/or septic systems, etc. Having such a list isn't just to have a place for a buyer to say "this is what I want". It's also a place to clearly identify that those items do in fact exist on the property and will be conveyed at close of escrow.
- Are there other items not on that list that a buyer might want to ask that a seller would include? Possibly. Some contracts have a space for identifying such additional items
- How are items being conveyed...in "working condition" or are they being sold "as is". Generally speaking, working condition means that the item performs the task for which it was intended. For example, if a 5 cycle dishwasher is being conveyed, and it actually skips right through 3 of the cycles...but the dishes come out clean, the dishwasher would be considered in "working" condition, not necessarily "like new" or "perfect" condition.
- What is the Purchase Price of the property? While this is certainly the number that most buyers and seller focus their attentions on, it also serves other purposes. For example, it can influence what type of financing might or might not be available to the buyer. If a buyer purchases a home priced higher than the FHA limit for their area, they would not be able to get FHA financing for that home, even if it would actually be the best financing option for them.
- What is the actual Closing Date, the date when all the documents are signed and when the buyer becomes the new owner of the property.
- Is this a cash transaction or will the buyer need to secure a mortgage? And if the buyer does need to secure a loan, what are the specifics of that loan?
- Type of loan (ie. Conventional, FHA, VA), is it a fixed rate or adjustable rate, etc., what is the "term" (number of years) of the loan, and what is its maximum interest rate.
PLEASE NOTE: The loan information that is used on the contract is very important to the seller for a variety of reasons. First, find out whether the interest rate shown on the contract is currently available and likely to remain available for the near future? Think about it. If someone offers to buy your home, but there is no where to get financing at the rate represented in the contract, the buyer simply can walk away as "unable to secure financing" in accordance with the contract! Doesn't matter what price they offer if they cannot get financing. What this does is to create a "voidable" contract. It doesn't mean the buyer cannot still buy the house...it simply makes the contract less enforceable. Next, if the buyer DOES make an earnest attempt to secure financing but is unable to get approved, the Seller might have their own resources for getting the buyer financed. The terms of the contract are the terms the buyer has identified as acceptable, and if the seller is able to get them approved with those terms, the buyer would be obligated to complete the transaction. If they do not, they would be in violation of the contract putting, at the very least, their earnest money deposit at risk.
- Mortgage Commitment Date (if the buyer needs to secure a mortgage) is the date by which the buyer is supposed to have secured a firm loan commitment, generally without any "conditions". If the lender cannot provide a commitment date in accordance with the contract, it's critical that the seller (or their attorney) be notified in writing prior to the commitment date that it will not be met, and that, if the buyer wishes to continue with the contract, they request an extension of the commitment date to a new commitment date. Failure to do so is a breach of contract and could jeopardize the buyer's earnest money deposit if the buyer fails to close on the transaction. Contract dates are very important to monitor!
- Earnest Money - Accompanying an offer to purchase is the earnest money check (also called a Good Faith deposit). While there is no set or standard amount for that deposit, it is generally considered to be an amount high enough that a buyer is not likely to simply walk away from it. This check is actually part of the buyer's down payment of the home...therefore not an extra charge. It is deposited into a special escrow account, generally by the listing office, where it is held until either the transaction closes or is otherwise terminated. If the transaction closes, the deposit is credited to the buyer's side of the transaction. If the transaction is terminated, but the buyer and his representatives did everything in accordance with their agreement, but were for some reason unable to close, generally the earnest money deposit is returned to the buyer. However, if the buyer was in default, either by intent or negligence, chances are they could lose their earnest money deposit. There is no hard and fast rule about this...what happens to the earnest money in the case of default is negotiated and decided between the parties and their attorneys.