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How a Purchase Contract works

So, I know shopping for a home is really exciting. You might be on Zillow or another site and maybe you're going to showings, and it's really exciting to look for homes.

But when you find a house that you love and you want to purchase it, how do you do that? You do that by submitting an offer, and that's also known as a purchase contract where basically you say to the Seller, Hey, we wanna buy your home and these are the terms that we want to use to buy your home.

Why Purchase Contract is important

So your purchase contract is gonna detail everything about the purchase price that you want. If you want seller credits if you're getting a home inspection, it also adds a lot of protection for you. In case there's a problem with the home or the appraisal comes in short. it gives you all of these different exits to be able to get out of a deal if you need to, and it makes sure that the Seller is gonna follow through with that deal.

Let's have a Purchase Contract walkthrough

Purchase Contracts are gonna be different in every area that you're looking to buy. So this probably is not gonna look exactly like your Purchase Contract, but it's going to be extremely similar with a lot of the different sections in this Purchase Contract.

So, we're gonna go walk through this line by line. There's also gonna be a scroll bar along the bottom where you can find different sections if you'd like to.

If you wanna follow along, here's an example of a Purchase Contract. We're gonna use these line numbers on the left to keep track.

My Disclaimer

Now, just a quick note before we dive into this. I'm not a real estate agent and I'm not an attorney. I'm a loan officer. My team works in all 50 states. If you'd like to work with us to get a prequalification, you can go to WintheHouYouLove.com.

1-6: Address, Parcel Number, Timelines

So first, just the basics. What are your contracts gonna show? What home are you purchasing, what's the legal address? It may also include a description or the parcel number of the property that you're buying or the home that you're buying.

This helps see what exactly are you looking to purchase. You know, what is the actual legal address that you can then look up on the county site if you need more information? What's interesting too, about the parcel numbers is making sure that you're getting all the land that you expect to, because you may look at a home and it looks like one property, but that may include several parcels. So it's something to keep in mind.

There may be one parcel that the home is on, and then an additional parcel that is just land. And maybe that's being conveyed with the property. That's something you want to talk to your real estate agent about.

Second, a really big factor that most people are focused on is what is the price in terms. So what is the Purchase Price? So if we were filling in this contract, let's just say our address is 123 Main Street and of course, you'd fill in a city and state and county and the whole deal. We're not gonna do that whole thing 'cause we're, this is not a real contract that we're doing.

Price and Terms

Next would be the Price and Terms. So let's say we're buying this home for, let's say we're buying the home for $300,000. So that would go right here.

Understand your Contract

Now most people kind of think that's the end. They see these first two lines, and then they forget that this contract goes on and on. And we're not gonna cover every single thing line by line. But I want to pinpoint the highlights that you need to know about your purchase contracts that are going to make up the deal of you buying this home because the rest of this contract can change how much money you're bringing to closing, and how quickly you have to close.

What a lot of people forget is that this contract is binding to both you and the Seller. So if you don't perform to the terms of the contract, if you don't follow the contract, the Seller could have the legal right to cancel the deal. Same thing with the Seller. The Seller has to follow the contract.

If they don't, then you have the legal right, most likely to cancel the deal. So, often what can happen is people don't follow a contract. The seller has wiggle room to get out of it if they want to, maybe they got a higher offer somewhere and they're able to take that deal. So understanding your contract, make sure that you can follow it and that the deal is going to go through just as you expected it.

Earnest Money

So the next thing that we wanna look at is Earnest Money. This can be called different things in different states. Some people refer to this as a good faith deposit, around us it's called Earnest Money. Some people call this an Escrow Deposit, it means the same thing.

What it is it's kinda like you're putting skin in the game to say, I'm gonna put money up front on this contract, and if I don't follow through with this contract, then I could potentially forfeit that money. Now, this is gonna be different depending on the market that you're in, but let's say that we're buying a $300,000 house and what would be fairly typical would be about 1% in earnest money. So what we might say is we're going to do $3,000 upfront. 

What's gonna happen is this is submitted for deposit with the listing realtor or seller. So this is held by another person. Now this money, if we legally cancel this deal, that's money that we get back. If the deal goes through and we close, that money is contributed to part of your down payment.

Earnest Money is not an Additional Fee

Basically what you're doing is you're saying, Hey, Seller, I promise that I'm gonna do my best to uphold this contract. And if I don't, I'm so confident that I'm gonna do that, I'm putting money up, I'm risking this money and potentially not getting back if I don't follow through.

Otherwise, the reason why earnest money exists, it'd because if it didn't, then it'd be really easy to just go put a bunch of contracts on a bunch of different homes, and a seller doesn't have any faith that you're gonna follow through with a deal. That's why earnest money exists in competitive markets, you may need more, but in less competitive markets, you might not need any.

I've seen markets and I've worked with realtors who never put any earnest money on contracts. Or they don't advise their buyers to, and if that works, that's perfectly acceptable.

Where your Earnest Money go?

Now, earnest money kind of has a lot of questions around it about what happens to the money. What if we don't have an agreement? And please read your contracts. Every contract is gonna be different in different areas. In some places, the buyer gets the earnest money back. In some places, the seller gets to keep the earnest money. It all depends on what's happening and you need to read your contract to understand this.

Earnest Money Contingency

So with this specific contract, we have an Earnest Money Contingency. It says the contract is contingent upon the buyer providing earnest money in the amount of, let's say, $3,000. The earnest money shall be submitted for deposit with, and in here it'd be who that's being held with. So, it's very typical that it's held with one of the real estate brokerages.

Here's another thing. A written acknowledgment of earnest money shall be provided to the listing realtor within x days. Often this is around three calendar days.

Keep in mind

Here's one point where the contract might not be followed. So keep in mind. Let's say you went under contract, and a written acknowledgment wasn't sent to the listing agent within those three days. Then the Seller could potentially back out of the deal and your Earnest Money could be in jeopardy already. We're just 14 lines in. And you can see there's already an opportunity where this contract could not be followed potentially, and that could put your earnest money at stake.

So it's something to keep in mind when you are looking through your contract and you submit an offer, making sure that these terms are favorable for you.

Also, it says here that if written acknowledgment of earnest money is not provided to the Seller anytime after the stated period, may by written notice to the selling Realtor or Buyer terminate this contract.

Earnest Money will not be dispersed?!

If the contract terminates for any reason, the Earnest Money will not be dispersed to any party. So this contract in Ohio is a little bit strange and what ends up happening is if there's a dispute with the Earnest Money, it gets, has to be held in a trust account for two years unless the Buyer or Seller goes to court, gets a court order for who gets money dispersed. So basically if there's a dispute where the seller's not willing to give the Earnest Money back, even though it met the terms of this contract the buyer would then have to go to a court to get that money awarded to them. Or if not, it's gonna sit in an account for two years, and at the end of the two years, it's given back to the buyer.

This will give you peace of mind

So I know it can be confusing, and a little overwhelming, but it's really helpful. You need to read through your contract to make sure you're aware of what's going to happen in different circumstances with your contract. That way if something happens, you're not shocked by it.

That's what you need to do, I feel like being comfortable with your contracts is making sure that you understand what are the different circumstances and what happens. I've seen people put 10, 20, $30,000 in Earnest Money, but they're not even aware of what happens to the Earnest Money or what rights they have with the Earnest Money, and it puts them in a rough situation in the future if they need to cancel a contract.

Below is just an explanation in even more detail about this whole escrow agreement with earnest money.

Seller Credits

Then what I wanna get down to is what are called Seller Credits. Seller Credits are where you negotiate for the Seller to pay a portion of your closing costs. So usually it's a percentage of the purchase price that is contributed towards your closing costs. And this is a really big part of a contract, especially for first-time home buyers who need some assistance with the money that they're bringing to closing.

So, this contract starts in line 40, and this is talking about the Seller agreeing to pay actual settlement charges or fees due at closing on behalf of the buyer. This is including but is not limited to, discount points, closing costs, pre-paid, and other fees allowed by the Buyer's lender in an amount not to exceed.

And let's say we're going to do 2% of the purchase price. So this would be $6,000. For most people, this is probably gonna cover a good portion of closing costs, if not all of the closing costs leaving you with just the down payment.

So right here you can see there's a lot of structure going on in this purchase contract. Just from this first page, we already defined what's legally being conveyed with the property by the parcel number. The purchase price that we're buying this home at the earnest money that we're putting down, what happens with our earnest money, and then also if we're getting any credits from the Seller to go towards our closing costs.

Financing Contingency

So then let's move down to financing type. This is also where your offer has an option to be more or less competitive. This is based on the type of financing that you intend to use. So first you do have to notify the seller if you're choosing this as your primary home or a rental.

You know, the seller if they want to I know some people have done this, they don't want to sell to people who are just investors, and that's perfectly within the right to do.

What's the most favorable type of Loan?

Also, this shows them, are paying in cash. Are you doing in, or what type of loan are you using? The most favorable for a seller tends to be cash and conventional loans.

Then, the next favorable would be FHA, USDA, or VA loans. These are mainly because they have different inspection requirements and appraisal requirements that may make it more difficult for a deal to go through with an FHA, USDA, or VA loan. So sellers tend to like cash and conventional loans better.

Financing Timeframe

This is another important part that you need to keep in mind with your contract. That way you're following it to a T. And this is just saying, if the buyer fails to provide written confirmation to the seller that the buyer has completed any other requirements of the financing timeframe set below then the seller may terminate the contract. These are options where the seller can back out of the deal if they want to, and you don't want them to have the ability to back outta the deal if you wanna continue moving forward with the contract.  So right here it's gonna show when a prequalification letter has to be given to the seller from your lender.

If you are using financing, it also shows that you need to complete a loan application with the intent to proceed with a lender. And this is basically where you tell a lender, Hey, we wanna work with you. We're ready to move forward, and you need to notify the seller with payment of the appraisal within a certain amount of days.

So this can change, but I've seen this typically around the 10-day mark. It could be shorter, it could be a little bit later, but somewhere around there is pretty average for a purchase contract.

Basically what this is saying is It's helping the seller know that while you're going through the purchase contract that you're not just kind of dragging your feet.

They selected a lender. You told them you wanted to work with them. You filled out a loan application, and you paid for the appraisal to get everything rolling. Otherwise, It could be seen as you delaying the contract which the seller doesn't want. Also here this is saying that the buyer or the buyer's lender shall provide written notification to the seller that conditional approval has been obtained.

This is usually going to be within 14 to 20 days. Usually, I see agents write things a little bit longer than shorter. That way they don't run into any issues with the contract deadlines.

Clear to Close

Then the final stage of loan approval that the loan is clear to close needs to be obtained. This is usually for as long as the contract is. So usually around the date of closing, if not shortly before that period. So this usually ends up being around 25 to 30 days. So I often see that around 30.

This is to protect you 

Now what's interesting about the financing contingency and timeframe here is that all of this is serving to protect you. So let's say that you are looking to purchase a home. We put $3,000 in earnest money. We already gave that to the listing agent to be held in their brokerage. So that's held until closing happens.

Now let's say that we look to get a loan and for whatever reason you're not able to get qualified for a loan. Well, this adds protection for you to be able to get your earnest money back. In that event, this is protection for you and the seller to make sure everyone's doing what they're supposed to do. But if financing falls through, if you're not able to get financing for a mortgage, then you can get your earnest money back.

Appraisal Contingency

Now, another huge protection for you is the appraisal contingency, and a lot of people have a ton of confusion about how an appraisal contingency works. So when you buy a home with a mortgage, the lender is going to require an appraisal.

Unless there is an appraisal waiver from the lender saying an appraisal isn't required, that's very rare, and not super common. Your lender will tell you about it if it happens. But for most people, a mortgage lender is going to require an appraisal, and an appraisal just helps the lender make sure that if you're buying a $300,000 home, it's worth $300,000.

They're not going to let you buy a $300,000 home if the home is only worth a hundred thousand dollars. They need to make sure that their investment, the mortgage that they're giving to you isn't super risky by you buying a home that's worth less than what you paid for it. So the appraisal contingency is saying that the buyer's obligation to close. So you're need to close is based on the real estate appraising at, or above the final sales price of the home.

How and when a Seller and Buyer can terminate a contract

Now, if the real estate does not obtain an appraised value equal or greater to, so if the home appraises lower than what we purchased it for you, the buyer has the right to terminate this contract by letting the Seller know within x period of days. So this may be, let's say 20 days. Because this would have to happen after the appraisal. So this is a huge protection for you because again, let's say you bought the home, or we're offering to buy the home for $300,000 and we get an appraisal on the home and it comes in at $250,000. You don't get to buy it for $250,000 if you waive the Appraisal Contingency.

So in that event, you agreed to pay 300,000 for it. The lender will only give you that loan up to 250, minus the down payment. So you're then on the hook for coming up with $50,000. That's where the appraisal contingency protects you.

If the home appraises lower than what you agreed to buy it for. Then at any time, you can say, you know what, we're not gonna go through with this anymore. The home is worth way less than we thought it was. So either we're going to renegotiate this contract and change the purchase price, or we're going to back out of this deal.

Appraisal Contingency Waiver

Now, some people this happened maybe about more common about a year ago when the market was even more competitive than it is now where people were doing appraisal contingency waivers, where they were saying, Hey, all this, we don't care if it comes in short, we'll pay the difference.

This is a really risky place to be unless you have a ton of cash on hand, because let's say it does come in $50,000 short, you're on the hook for that. You signed an agreement that you would pay 300 and it came in at 250, The lender's not going to give you a loan for that difference. So you need to pay the $50,000 or renegotiate with the seller.

If you waive the Appraisal Contingency then you're on the hook for that money. So it's something to be mindful of here. 

Inclusion/ Exclusion of Sale

You're also gonna have a section in your contract that shows you what's included, right? Do you just get the walls, or do you get the furniture inside? Do you have any personal property?

Did you get the microwave the refrigerator and the oven? This is showing you everything that's included. I'm not gonna go through every single thing but you can see everything that's gonna be included is pretty, you know, this is pretty extensive and this can all be changed in the contract as well.

What a lot of people are interested in is making sure that they have things like their microwave, refrigerator, dishwasher you know, those more common appliances that are gonna be included in here. That way you don't buy the house expecting the refrigerator and then you move in and you're like, oh my gosh, we have to buy a refrigerator 'cause it's not here anymore.

So it's something to be mindful of, what is the actual property that's being included? You can in your contract include personal items. I've seen people want to put like I don't know a couch or a home stereo system. They see the Seller had it and it may be it was a surround system that the Seller had that was installed and like, we want that and we don't wanna buy it.

It's already installed it. So we will include that again, if the Seller is willing to agree to that or if there's anything that's excluded from the contract as well. 

Home Warranty

The next thing I want to cover with you that's important is the Home Warranty. So we can see that on line 204.

This is saying a buyer has been informed that the home warranty, or home warranty programs may be available to provide additional benefits to the Buyer. Then you can choose whether you're going to purchase one or not. Often what can happen is a seller may purchase a home warranty for you.

And this is just kind of just a credit that they give you. It can be an incentive for a Seller to sell their home. In more competitive markets. It's not likely that's gonna happen. So you can choose to pay for that on your own. You also don't have to purchase it, at this time you can also purchase it later.

So this is only if the Seller's gonna be paying a home warranty for you again, just to make their offer more attractive. They wanna sell their home quicker and they might say, Hey we're gonna offer a $400 home warranty with it as well. So that's something to keep in mind and can be helpful.

Property Disclosure

So most contracts have a separate property disclosure form, and this is gonna tell you more details about the condition of the home. However, the condition of the home in the property disclosure is only based on the Seller's experience and observation of their home. So it's not a home inspection.

Basically, the Seller just has to go through and say what they believe about the condition of their home there. You still wanna have your independent inspection, but this is showing you if you have received it or not.

Inspection Contingency

Another huge part of the contract that you really wanna make sure you understand is the Inspection Contingency. So in this contract, it says the Buyer acknowledges that they have been advised by a realtor to conduct inspections of the real estate that are concerned to the Buyer, and have been provided the opportunity to make this contract contingent upon the results of such inspections.

Don't skip Home Inspection

Please get a home inspection. Do not waive a home inspection. I know in really competitive markets, a lot of people were waiving home inspections. And the reason why is because Sellers frankly, were just getting greedy and had tons of offers and they wanted the least amount of hassle possible. A home inspection is going to protect you so much, especially if you're not aware of all the issues that can happen with a home.

Home inspection is where a third party is gonna come out and, gives you information about the condition of the home, everything from really minor details up to bigger issues that may need to be referred to a specialist. Like somebody to inspect the foundation or the structure of the home if needed.

Inspection protects you from future home issues

An inspection is really important because it gives you a period in which you can back out of the contract if there are large issues with a home. So picture this, you bought a home and you move in and then as soon as you move in, your furnace goes out. Or you have other issues with the home and that costs you thousands of dollars that you weren't prepared for or don't have the money for.

In inspection, the goal is to help you understand what issues could lie ahead with you buying this home to make sure you don't buy a home that's just a money pit.

Now you may be buying a home that you want to fix up and you're perfectly fine with it having issues. That's fine for most people. They wanna buy a home and know that they're not going to have to spend tens of thousands of dollars as soon as they buy the home to make sure it's up to a livable condition.

That's what an Inspection Contingency does it gives you a period where you can hire a third-party home inspector who can then inspect the home for you and then give you a report. And then depending on what it says in this contract you can then renegotiate for the Seller to either make repairs, give you a credit, or you could potentially back out of the contract if the repairs are too great that you don't want to take on.

Waive the Inspection

This is gonna give you the Waive the Inspection, or to elect having an inspection. Now if you choose to have an inspection, you can't just do it anytime that you want. There is gonna be a stipulation to when you have that inspection in the all the things that you can negotiate with it.

Also, we'll see, if the buyer shall have a period of X calendar days for an inspection period. Often, this is around 10 to 14 days, which is what I see as common. So what ends up happening here is it says the buyer shall have a period of, let's say 14 calendar days, the inspection period. Beginning on the day following the contract acceptance conduct and complete any inspections of real estate before the end of the inspection period.

The buyer shall provide the seller a written request for the seller to correct any conditions or matters adversely affecting the real estate in what's called a Defect Notice.

Defect Notice

The Defect Notice shall identify conditions to which the buyer is requesting correction by the Seller and shall include relevant portions of inspection reports, which describe conditions to be corrected.

The Buyer agrees that minor routine maintenance and cosmetic items are not to be considered material and Buyer may not object to these in the Defect Notice. So option one is saying, we have 14 days to get a home inspector out to the home and inspect the home. They're gonna give us a report. Let's say they come back and they say everything looks great.

Let's say there are no issues at all. Maybe there's a little drip from the faucet in that instance, If you give a defect, you can't give a defect notice to the Seller and say, We want it painted this color, and we want the drip fixed. Those are minor routine maintenance and cosmetic items that we can't change.

Now, if the inspector comes back and says here are the problems with the furnace. This is why it's about to go out, or here are the issues with it, Then you can come to the seller with a defect notice and say, Here is the issue with your furnace. This either needs to be fixed and we need to see evidence that it's fixed.

Written Notice of Buyer Satisfaction

Or maybe you request a credit for that money for the repair when you decide to move in or after the contract is up. Or provide to the seller assigned written notice of buyer satisfaction with the quality and conditions of all aspects of real estate. Now please keep in mind here that this section is negotiating.

This is something that you do actively to negotiate in the contract because if your inspection report comes back, and let's say there are some issues, but maybe it's not gonna cost you that much money, maybe it's gonna take you a few weekends and a trip to a hardware store to get some of the things fixed.

That's going to be better for you to do on your own than to send the seller a defect notice because at this period, which we'll cover here in just a minute. If the Seller doesn't agree to it, then it stalls the contract and it could get you to the point where the contract gets terminated because the Seller doesn't have to agree to your demands.

You're saying, these are the things that I want fixed. But the Seller gets to counter, and if you both don't agree, then the contract may be terminated and not go through.

Don't risk the Home over tiny little things

So you don't really wanna risk a home that you love over minor things. I see people do this all the time. They're like, this is my dream home. I wanna move in. I can picture myself being here forever. But then they go and give the Seller a list of all these tiny little things that don't matter. It may cost a few hundred dollars for them to fix, but they act like that is the thing, it has to all be fixed by you before I move in.

And just know that even new homes are likely going to have issues that come up during the inspection. Homes are complex. They're exposed to the elements. There's going to be issues of the home. No home is perfect and will stay perfect for its entire duration. If you love the home, don't risk it over just tiny little things.

Don't skimp on your inspection period

This also says delivery of either notice in the section shall designate the end of the inspection period. If the Buyer fails to timely provide any required written notice to the seller, the buyer shall be deemed to have waived any further inspections and provided a notice of satisfaction to the Seller. So don't don't skimp on your inspection period. You need to make sure that you're following this contract to protect yourself.

So then it says, in the event, the Buyer has timely delivered to Seller a Defect Notice. The Seller should have a period of up to x calendar days. Usually, this is a pretty short period around three calendar days beginning the day following the delivery of the Defect Notice to evaluate the buyer's request for corrections before the end of the consideration period, The Seller shall either provide to the Buyer, signed written agreement to correct all defects in the manner detailed and requested. Or provide to the buyer, a signed written counteroffer detailing the Seller's agreement to correct defects identified in the Defect Notice. Delivery is the end of the consideration period.

If the seller has timely delivered the buyer, a written counter offer, the party shall have up to, and again, this is usually three to five is, is pretty common here, calendar days, the settlement period, beginning on the day following the delivery to reach a mutual signed agreement detailing the Seller's correction of defects, if any.

Then it goes on to say, that delivery of any mutually signed, written, and accepted counteroffer for correction of defects or no correction of defects during the settlement period shall end the settlement period. If the parties fail to reach a mutually signed written agreement under the section, this contract shall automatically terminate.

Sellers are not our enemy

Again, this is where I'm saying if you really like the house, don't kill the deal over really small things. Of course, if there are structural problems and issues with the roof, and there are thousands of dollars of repairs that you can't afford. Absolutely don't move forward with a purchase. But don't kill a deal if it's just a couple hundred bucks of things that you can go fix or you can hire somebody to fix.

I see people do this all the time. They wanna fight with a Seller. It's like this weird ego battle between people and it's so weird. Don't do it. Now, there is a section that says, provides limited circumstances in which a buyer may elect to not provide a defect notice and may terminate the contract without the opportunity for the Seller to correct any items.

There are only a few ways in which this can happen. This would be in the event the buyer's inspection reveals the real estate conditions were not disclosed by the seller prior to contract acceptance. And that evidence of one or more of the following conditions adversely affect the structural integrity of buildings presence of asbestos, presence of lead-based paint, presence of any other hazardous material as defined below.

And of course, you also have hazardous toxic materials that also can cancel the deal.

Conveyance and Closing

Let's move on to the title company. This is showing us who is gonna be the settlement agent or title company that's going to organize this together. The title company is gonna do a couple of different things. They're first gonna do an inspection of the chain of title and give you a title report basically showing and certifying that when you buy the property, you're going to be the sole owner. They're gonna make sure there are no other issues with the title of the home, that the seller has a legal claim to sell the property, and that there isn't anyone else who has an ownership interest in the home. And they'll also ensure that as well.

So if anyone down the line, let's say there was an heir to the property and that got mixed up in closing documents. If you buy the home and then someone claims that they have ownership property in your home, then title insurance will kick in to help protect you in that event, making sure that someone else doesn't get to just have ownership access to your home. So what's gonna happen is the title company's gonna be selected.

So this could be selected by you or the seller, really doesn't matter. It kind of, there's kinda like a common courtesy in different areas. Sometimes it's the seller, sometimes the buyer, but ultimately, you can always negotiate who the title company is going to be.

Date of Closing

Next, this is really important, is the Date of Closing. A lot of people think of this as a suggestion. It's not this is part of the contract, the Date of Closing. If the Date of Closing is missed that can be Potential for the contract to be terminated. So, Date of Closing, you would put in a date that is mutually agreed upon by the parties.

Not with sending anything to the contrary. In the event that the buyer and seller are proceeding in good faith performance under this contract closing cannot occur due to occurrences or circumstances outta direct control of either party. The Date of Closing shall be extended for a period of up to seven calendar days unless otherwise agreed.

Read your contract, we don't want your contract to be void

Such extension shall extend the terms of Possession and Occupancy. Now this is a recent change the 7-day period here of extension. This contract used to just have a hard closing date, meaning that date was missed, the contract is void, and it's terminated at that point. So, read through your contract and make sure you understand this and why this is important is making sure that you know, you can't just go and kind of like ease through all of these steps in the purchase contract here, because if you miss your closing date, then you could lose out on being able to purchase the home.

The seller can pull out, go relist the home, and potentially find a better offer if they want to. So you obviously don't want that. You need to make sure that you hit the stage of closing. Also, if the deal gets terminated, you could lose your earnest money, and that's something to be mindful of here as well.

So that closing date is really important. It's not a suggestion. It really is something that you both agree to. This contract just happens to have a grace period of seven days. Again, assuming that everyone's proceeding in good faith but not a lot of contracts have that. It is a hard closing date.

Possession and Occupancy

Now for most people, they buy a home and then close on it. So they have the date of closing. And what happens with the closing is, you know, you paid your down payment and closing costs, money was exchanged. You signed all the paperwork, and all the contract terms were satisfied. And usually what happens is you'll get keys to the home as well.

You'll get occupancy. However, in some circumstances, you may not have occupancy at the same time of closing. So for instance what can happen in several cases is you may close on the home, everything's satisfied, everything's completed. You know, you paid the money you needed to buy the home.

But you may give the seller a period to move out of the home. They may have a week to be able to move outta the home and into their other one. And really, this again, is all just negotiated here in the contract. So this is just saying in this section Possession and Occupancy that either you as the buyer are going to be given access to the home at closing.

So, you know, sign your paperwork, you get the keys, go rush over the home, and do whatever you want. Go run through the hallway, or maybe you give the Seller a period. In which they're able to vacate the property.

You can ask the Seller to rent the home, how?

In some instances, what people have done as well is may be a longer possession period where maybe they have a month or two, and then the Seller rents back the home from the Buyer.

So you purchased it, but maybe you're giving the Seller, you know, the Seller's like, we'd love to sell you the home, but we need a month after we close to be able to move out. Because, you know, maybe they're moving or they have whatever else going on. And so they want that.

And so you say, we'll do that, but you need to pay us X amount and rent per month for days. While you own the home, you need to rent it back from us. That's also a very common thing. If your possession period or your occupancy period is longer, or, you know, after your closing date.

Action and Certification by the Seller

Then finally, we move down to how this contract works. This is the Action by the Seller. So everything that we covered here was part of our offer

If you need some help

So again, let's back up. Let's say you were shopping for some homes, you toured a house and you fell in love with it. You want to buy this house, and so you talk with your real estate agent and you say, Hey, we wanna purchase this home. Which by the way, if you're looking for a quality real estate agent in any city in the US, you can go to WinTheHouseYouLove.com/agent. We have an agent referral program. We can connect you with a great agent if you're looking for one.

Your agent will assist you

So let's say you talk with your agent. You say we wanna buy this house, you wanna write an offer on it. So you would go work with your agent to fill in all of these sections of this contract, and likely your agent's gonna help you through a lot of it and give you, you know, some of these general rules of thumb of different dates, you different inspection periods, appraisal periods, things like that.

More common dates there. So you don't have to do all of every single line by yourself. So what you're gonna do is fill out this whole contract with your real estate agent and submit it to the Seller or the listing Agent of the Seller. So your agent will take the contracts or the offer and hand it to their agent and say, Could you review this and get back to us?

Now, usually what ends up happening is there's going to be a period for the seller to consider the offer. So that's what's happening, is you as the buyer are gonna have all this created all the terms that you want. And this is where you get to make your offer competitive if you're in a competitive market, maybe you're putting down more earnest money. Maybe you're shortening some of these periods, or you're offering a higher purchase price. You're not asking for seller credits, you're trying to make your offer more attractive.

Or maybe you're not in a super competitive area and you're like, Hey, we want closing costs and we want a lower price and we want a longer inspection period, and you're listing everything that you want. So you then give that to the Seller, you know, your agent does, and you're allowing the seller to look it over and either accept it, reject it, or give you a counteroffer.

So that's what's happening in this section. The Seller, along with their agent, is going to review through the terms that you offered them, and they're either going to accept everything in here, they're going to just completely reject it, or they're going to give you a counter offer and in a counter offer, they can modify any single thing in this contract.

So maybe, you submitted this and we submitted this at $300,000 and the Seller is like, we agreed to everything, but we want this to be $305,000. So they'll submit that back to you and then you have the opportunity to accept that, or again, counter that if you want to, and it can go back and forth several times if needed.

In simple terms

That's really how the negotiation process works with this offer. You find the house, you write up the terms that you want to submit, and you want an offer that gets sent to the Seller. The seller reviews it and they either accept, reject, or give you a counteroffer with their terms, and you get to choose to accept those, reject those, or counteroffer those yourself if that's something that you want to do.

Contracts can give you confidence and peace of mind

Ultimately, contracts, they're long, they're complex and boring, but understanding them is gonna give you a lot of confidence moving through, knowing exactly what's going to be happening as you're buying a home. It gives you options to see if you need to back outta your contract. You have different ways that you can do that.

Talk with an expert

Talk with your real estate agent about ways that you can get out of your contract legally if you need to, and make sure that you don't lose your shirt in the process of buying a home if things don't go the way that you expect them to go. We work in all 50 states. We'd love to help you with a prequalification on a loan.

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Kyle Andrew Seagraves is Federal Mortgage Loan Originator (NMLS 1701021) licensed in all 50 states with the Dan Frio Team at Servbank, sb (NMLS 203463), an Equal Housing Lender. Separately, Kyle owns Win The House You Love LLC, an education company. Win The House You Love LLC is not a lender, does not issue loan qualifications, and does not extend credit of any kind. This website is only for educational usage. All calculations should be verified independently. This website is not an offer to lend and should not directly be used to make decisions on home offers, purchasing decisions, nor loan selections. Not guaranteed to provide accurate results, imply lending terms, qualification amounts, nor real estate advice. Seek counsel from a licensed real estate agent, loan originator, financial planner, accountant, and/or attorney for real estate, legal, and/or financial advice.

Servbank, sb is not affiliated with the VA, FHA or any other government agency. This site has not been approved by any government agency.

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