If you’re ready to pull the trigger on buying a home and are completely intimidated by the idea of it, we promise that you are not alone. What documents do you need? Who is responsible for what? And how are you supposed to make sense of it all in a sea of paperwork and contracts? The whole process seems complicated, confusing, and at times, nightmare-inducing — but only if you’re doing it without the right guidance.
With years of experience in real estate helping countless clients navigate this challenging but exciting time, we want to share some helpful insights that will turn your home buying nightmare into a dream come true.
First of all, what is a purchase agreement?
A real estate purchase agreement is a legal contract between a buyer and a seller that outlines the terms of the sale of real estate. This document typically includes details such as the purchase price, financing terms, closing date, conditions of the sale, and any other relevant information pertaining to the real estate transaction. A real estate purchase agreement helps protect both parties involved in the sale by ensuring that all parties understand their roles and responsibilities.
A real estate purchase agreement has 3 phases:
- The offer
- The acceptance
- The consideration
Let’s start at the exciting part: you’ve found your perfect house and put in an offer with the help of your real estate agent. Great! (Not sure what makes an offer great instead of good? Watch this video to find out.)
So, what now? Now you’ll negotiate with the seller until you land at an agreed upon purchase price. After your offer is accepted and signing a purchase agreement, it’s time for consideration.
Consideration is a vital component of legal contracts, which involves the exchange of value between two parties. This can involve money or something else of value, as well as a promise to do something or refrain from doing something in return for the other party fulfilling their contractual obligations. In the case of a real estate purchase agreement, the consideration is going to be your earnest money deposit.
What’s earnest money?
The technical definition is “money forfeited in order to establish a contract.” In reality, the earnest money deposit shows the seller you are a serious buyer, and you’re here to make a deal — no funny business. The money will be a portion of your cash to close at the closing table.
The amount of earnest money required for a real estate transaction can vary widely depending on the individual circumstances. Generally speaking, buyers will put up between 1% and 2% of the purchase price as earnest money. Buyers can often use earnest money as a bargaining chip in competitive negotiations by increasing the initial amount.
Forking over a chunk of your down payment right away can be scary, especially since most of the due diligence is still ahead. But let me be clear: I’ve NEVER had a client lose their earnest money. You can get it back in almost every instance. The only way you won’t get your earnest money back is if you decide to ghost everybody days before closing and don’t show up at the closing table. Spooky indeed.
What are contingencies in a real estate transaction?
Speaking of getting your earnest money back, that is exactly what contingencies are for. Contingencies are stipulations that must be met prior to legally closing the sale of a property, which means if any contingencies aren’t satisfied, you can get out of the deal without penalty. They’re designed to protect both sellers and buyers throughout the process.
Common contingencies can include:
- Getting approved for a mortgage loan
- Conducting home inspections and appraisals
- Resolving title issues.
Buyers can also include particular contingencies depending on their situation, such as a “home sale contingency,” which will make the home purchase agreement contingent on the buyer selling their own home before closing.
Your offer was accepted! What happens now?
Once your offer is accepted, a five to seven-business-day period is opened up called Attorney review. Your broker will ship off your purchase agreement to an attorney, and it’s their job to look over all of the terms and ensure that you are protected in every way possible. Your real estate broker should be able to refer you to at least one, if not more, real estate attorneys.
During this attorney review process, it’s also time for the home inspection while your attorney looks over the actual contractual documents.
At this time, you and your real estate agent will visit the property with a home inspector to look at all the physical property components. It’s important to remember that even during the cleanest home inspections, some amount of issues will be flagged.
Home inspectors are paid to find problems with the houses they’re in, so don’t be surprised when you get a long report detailing these issues. Your agent and attorney will then look at the inspection report and give you some recommendations about the items you should ask for credits or repairs. You will also have an inspection contingency which allows you to walk away from the real estate contract if the findings during the inspection are more than you’re willing to handle (with your earnest money deposit).
Once you’ve completed your home inspection and your attorney has taken a look at the contract, your attorney will send something over called an “attorney review letter” and enter into a new round of negotiations based on the findings. If the seller isn’t ready to negotiate the new terms, it’s necessary to understand your walkaway point where the deal no longer makes sense for you, and it’s time to start fresh.
The “Awkward Silence” Stage: A.K.A Securing Your Funds from the Lender
Imagine all goes well, and the attorney, the seller, and you agree to the new term set forth in the attorney review period. Be prepared for what some real estate agents like to call “the three weeks of awkward silence.” This is the period of time when your lender pushes you through the underwriting department and ensures you can obtain financing to purchase the property. At some point, your lender will reach out to everyone and say, “Congratulations, you’re clear to close.” That means the money is free and clear, and we can close whenever we want.
The Final Walkthrough
But we’re not done yet! Right before your closing date, your attorney and your real estate agent will reach out to ensure that we’re scheduling something called a final walkthrough, where we go and check the property out one last time. There, we’ll make sure that any of the repairs that were negotiated were corrected, and frankly, to make sure the place didn’t burn down or there aren’t any crazy new leaks or other surprises.
Closing Time! (Not the Semisonic song.)
After the final walkthrough, assuming all goes well, it’s finally time to head to the closing table. It might sound exciting, but in reality, it’s a pretty long process filled with hours of paperwork — fun, right?
But there is a light at the end of the tunnel once all the documents are signed and finalized and you get the keys to your new home.
