The Real Estate Contract
Contracts are legal documents that define the obligations and responsibilities of the parties to the contract. In the case of a real estate contract, these parties are the buyer and the seller. It is important that you understand the terms and conditions of the contract before agreeing to it and signing it.

When entering into a contract for the purchase of a house it is important to make sure that the contract contains all the provisions necessary to reach a successful closing.

The following tips may be helpful:

  • Make certain that all verbal agreements made during negotiations are written into the contract.
  • The contract should specify the maximum number of days the buyer has to obtain a mortgage commitment.
  • The contract should state that if a mortgage commitment cannot be obtained after a good faith effort, then the deposit must be returned to the buyer.
  • The contract should list which appliances and other items are to be included in the sale; for example, washers, dryers, refrigerator, draperies, window air conditioners, etc. Sometimes sellers intend to remove items that you might not expect, such as chandeliers, utility sheds, or special vanities. The buyer should ask the seller what items will be removed from the home prior to making an offer to purchase.

It is always a good idea to have the house inspected by a qualified inspector prior to purchase. If you intend to have the sale subject to the buyer's satisfaction with the report of a qualified inspector, then you must state this in the contract. You may also state in the contract that if the inspector finds deficiencies, the buyer may cancel the sale or re-negotiate with the seller.

Request a walk-through inspection prior to closing to verify that all electrical, mechanical and plumbing equipment is in good working order and that all deficiencies have been corrected. Request an inspection for termites and other wood destroying organisms if this is not a part of the pre-printed contract form. Typically, the inspection report should show that the property is free from active infestation or, if not, the seller must pay for treatment prior to closing. The report may reveal damage from a prior infestation and the contract should state what is to occur if old damage is detected. If any structural damage is found it should be corrected. Often lenders will not close the loan unless this has been done or funds have been held in escrow to assure that it will be done in a reasonable amount of time.

The contract should establish a date by which the closing must occur. Unfortunately, it is sometimes difficult to predict how long it will take to complete all loan processing and other requirements associated with the sale; nevertheless, both the buyer and the seller will want some protection in this regard. Try to be as realistic as possible and allow some time for unforseen delays. Although the seller may push for a quick closing, try to allow approximately six weeks if possible. The contract should specify the exact interest rate, or a maximum rate, other important terms of the mortgage, and the amount of any down payment assistance required, if any. If you are uncomfortable reading legal documents, it might by wise to have an attorney or someone familiar with contracts review the agreement on your behalf.