So, you’ve found a home that is everything you need. Now what? Well, you make an offer, of course! This post covers some important details about residential sale agreements that you should brush up on before writing that offer.
Getting to Know the Sale Agreement
Once you’ve found a house you like, you must make a written offer to buy it. If the sale agreement (a.k.a. Earnest Money Agreement) you submit is accepted (meaning that is approved and signed by the seller) as it stands, it will become a binding sales contract. It’s important, therefore, that it contains all the items that will serve as a “blueprint for the final sale.” These sale agreement items include such things as:
- Address of the property
- Offer price
- Terms — for example, all cash or subject to your obtaining a mortgage for a given amount
- The seller’s promise to provide clear title (ownership)
- A target date for closing
- Your earnest money amount accompanying the offer, and whether it’s a check, cash or promissory note
- Method by which real estate taxes, rents, and utilities are to be adjusted (prorated) between you and the seller
- Property inspection period
- Seller disclosure laws
- Designation of title company that will be handling escrow
- Whether a deed or contract will be given
- A time limit after which the offer will expire
- Agency Disclosure - Tells who represents the buyer and seller in the transaction
Some Important Sale Agreement Points - Knowledge is Power!
There is quite a lot of information on the sale agreement form; that’s why the current form is 8 pages long! However, there are 4 very important points on the Oregon Residential Sale Agreement that you should be aware of:
Inspection period
It’s always a good idea to hire an independent professional home inspector before you buy a house. A home inspection is a visual examination of the structural, mechanical, electrical and plumbing systems of the home and is designed to identify material defects. Most inspectors will charge extra for services such as radon testing, termite inspections and well or septic inspections.
The default inspection period on a standard Oregon Residential Sale Agreement form is 10 business days, but the time can be shorter or longer depending upon what the buyer and seller agree upon. This means that after the parties have mutually accepted an agreement, the buyer has that amount of days to have a home inspection performed. In addition, any repair addendums or contingencies must be hammered out and agreed upon, in writing, by the end of the inspection period.
Seller’s Property Disclosure Period
Upon acceptance by both parties in the transaction, the seller should provide a copy of the Seller’s Property Disclosure Statement to you. The seller’s agent (or seller, if he or she is not using an agent) should send it over (fax, email, mail, hand delivered) after an agreement has been accepted and the offer is moving forward. After the document has been received by your real estate agent (or by yourself), you have 5 days to look over the disclosures and gain any necessary clarification from the seller. If the seller’s disclosures are not acceptable to you, you may withdraw from the deal without penalty (again, done in writing). If the seller discloses all defects and you decide to purchase the home anyway, the seller is usually not held responsible for the consequences.
Types of things the seller should disclose to you in the disclosure form:
- Plumbing and sewage issues
- Water leakage of any type, including in basements, termites or other insect infestations
- Roof defects
- Heating or air conditioning system issues
- Property drainage problems
- Foundation issues
- Problems with title to the property
Contingencies
Many offers contain contingencies, which state that “this offer is contingent upon (or subject to) a certain event”, such as obtaining specific financing or the sale of your current home. You are saying that you will only go through with the purchase if that event occurs. Contingencies must be very clearly written to make sure that everyone understands what needs to happen before the sale can move forward.
Earnest Money
Generally, you will need to put down earnest money when you make an offer. This is essentially a good faith deposit towards the purchase of the home that tells the seller you are serious about the deal. Any amount can be offered, but many times 1% of the purchase price is acceptable. Sometimes sellers will require a certain amount of earnest money before they will even consider a deal (this happens more often in a sellers’ market).
Your earnest money check does not go directly to the seller. It is put into an escrow account (usually a title company specified in the purchase agreement) and is held there pending the outcome of the offer. If the offer is accepted, the check will be put towards the price of the home. If the offer is refused (or falls through from no fault of you) then it should be returned to the you.
Stay tuned for the next installment in the First Time Home Buyer Guide series: Negotiation Tips
Further Reading:
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