Buyers Purchase Agreement Review & Explanation

What does all this mean?




When you’re ready to make an offer on a new house, you might take a look at the eight page purchase agreement and wonder what the heck does all of this mean?!?! It seems like a lot of pages and a lot of text to tell someone you want to buy their house, but really the document is for your protection.  Within those eight pages are a whole lot of clauses that give you extra privilege, conditions and revocation, should you need it.

Below I am going to review in laymen’s term what all of those sections mean to you ~ the buyer, but please make time to read the Purchase Agreement document in its entirety and review it with your Realtor. My summation below should not be considered absolute, without first reviewing the document yourself and with your Realtor.

Sections A – K

Section A identifies who you are and if you are purchasing alone or with a co-buyer.

Section B is the exact property location and its particular contents. All items that are permanently affixed to the structure with screws or bolts are generally included in the sale and a short outline of such items appears in Section B. Here we would also include other items that may be listed on the BLC or we identify that you want. Other items could include things like basement or garage shelving units, bicycle racks, or a particular piece of furniture that is perfect for the home. Any item that is detached from the house, like a piece of furniture, we will put on amendment to the Purchase Agreement. This section is also where we exclude items from the purchase. For instance, if the house is listed with a hot tub or children’s play set and you don’t want either item, we will exclude it from the purchase, ensuring the seller removes both items from the property before closing.

Section C is the offer amount or  the dollars and cents of the agreement.

Section D outlines the earnest money or down payment towards the house. In Indiana, it is customary that the buyer offers at least 1% of the purchase price or more and we deliver it to the sellers’ agent within two days. This can be paid in the form of a personal check or cashier’s check and it will be applied towards the purchase of the house. Please know that this check will be withdrawn from your personal bank account, so please make sure the funds are available! If for some crazy reason the purchase of this house falls through, you will most likely get your money back, but there are some extenuating circumstances where the seller may keep your money. I will be working on your behalf to make sure that we don’t end up in a sticky situation where you don’t get your money back.

Section E describes how you intend to pay for the house. It is very common that the terms of your loan may change from what we write in the offer to the day we close and that is okay.  When a seller has multiple offers to choose from, he/she may look to this section to help determine which offer is better than another, based on its ability to close quickly.

Section F is about the financing of the property.  If you are not already pre-approved this section outlines how long you have to apply for financing and how long you have to obtain a firm approval. I highly recommend that if you aren’t already pre-approved, we start that process now.  I have a list of qualified mortgage professionals on my website under the Useful Websites and Links tab.

Section G outlines the date you would like to close and take possession of your new house and how the closing fees will be paid. In most circumstances, I recommend sharing the costs of those fees, but every situation is unique. If your offer is contingent on selling another property, we will note it in this section. Finally, this section addresses wire fraud, which is still an issue despite today’s modern technology. Let’s have a personal conversation BEFORE your wire money for the closing.

Section H determines when you will take possession of your new house, which is typically at the time of closing.  However, sometimes there are extenuating circumstances that prevent that immediate possession and we will ask the sellers to pay you rent for whatever days they remain in the house. This section also states that they are to maintain the upkeep and utilities until the day of possession.

Section H is also where home heating fuel is negotiated and is really only applicable in a rural setting.

Section I expresses if you want to have a property survey and who will pay for it. For most transactions within neighborhood boundaries, a location report is sufficient and it will cost a couple of hundred dollars. If the property tends to be larger or in a rural environment, we may want the more expensive boundary survey.

Section J gives you the option to terminate the agreement if we find out the property is in a flood plain.

Section K disseminates your intended use of the property.


Sections L – S

Section L outlines the number of days you have to find homeowners casualty insurance for your new house.  Typically we will ask for two weeks to get quotes for your new property, but the policy does not need to be in effect until you close on the house. I have a list of qualified insurance professionals on my website under the Useful Websites and Links tab.

Section M warns that the selling agent nor myself are experts on environmental contaminants and you should do your due diligence to ensure the house is satisfactory by having an inspection. See the next section!

Section N reserves your right to have a house inspection and I insist that you have an inspection! Typically, I will request 10 days for you to complete the inspection and an additional 7 days to respond to the seller about required repairs. Inspection prices vary based on the size of the house or extra items your want inspected, like a pool, termite damage or radon gas.  Here is a link to some highly qualified inspectors that will provide you excellent customer service. I have a list of licensed inspectors on my website under the Useful Websites and Links tab.

Section O is where we can ask the seller to pay for a home warranty for you. Some properties may already be listed with a home warranty in place or we can secure one for you. A home warranty is a great idea to help with mechanical items inside the home that mail fail during your ownership, like your HVAC system, kitchen appliances or other specific items. Generally you can get a home warranty for $450-$750 dollars, depending on what items you include in your coverage. It’s a great back-up plan to your catastrophic homeowners insurance, providing you extra peace of mind.

Section O acknowledges disclosures you should have received during the showings. The Seller’s Residential Real Estate Sales Disclosure is the two page document that outlines the sellers’ knowledge of the working conditions of the equipment and such.  If the house was built before 1978, there is a good chance that the house was painted with lead-based paint and you will receive a disclosure acknowledging that possible condition.

Section Q states that you will be provided with a title insurance policy at closing and it specifies who will pay for the policy. It is customary in Indiana for the seller to pay for the Owner’s Title Insurance and you will pay for the Lender’s Title Insurance. The insurance policy rate varies based on the sale price of your new house.

Title Insurance verifies the property’s history of ownership, there are no local taxes due or any federal, state and local unsatisfactory judgements against the current owner. It protects you against any fraudulent or false impersonation of the real owner, forged deeds, releases or wills, undisclosed or missing heirs, or mistakes that were made when property was recorded in the assessors office.

Section R outlines how the taxes will be paid. Typically, the seller pays for the prior year taxes and prorated taxes for the current year until the day of closing. In Indiana, our taxes are paid one full-year behind. Taxes for January – June 2018 are paid in May of 2019. Taxes for July – December 2018 are paid in November of 2019. You will receive a credit at closing for the sellers taxes that are due and the title company will submit them to the county and state. You will only be responsible for the taxes that are due on a go-forward basis from the day you close on the house.

Section S acknowledges that any special assessments on the property will be prorated and you will be responsible only for the fees from the date of this agreement (not the closing date).


Sections T – Z

Section T reiterates the sense of urgency as related to this agreement and clarifies that if no time is specified in the offer, the buyer and the seller assume 11:59 p.m. is the expiration time.

Section U  gives you the right to review the HOA documents before this offer is accepted. Typically, I will ask for the seller to provide us the HOA Covenants, Conditions & Restrictions (CCRs) within three days of accepting this purchase agreement and you will then have three additional days to review them. If the HOA requires an approval to sell this property, the seller will also have three days to get that approval from the HOA. This section also warns that some HOA management companies require a fee to distribute CCRs to a potential buyer and they may also charge a fee to transfer ownership. Unfortunately, it is very common.

Section V  If for any crazy reason we have to hire an attorney to settle a dispute between parties, the winning party may be entitled to recover fees associated with the dispute.

Section W  This section has 17 line items of additional protections or additional cautions that I will be happy to review with you as needed.

Section X is where we would list any addenda that may be coupled with this purchase agreement, like a personal property agreement or an Escalation Clause or First Right Contingency.

An Escalation Clause is a great tool to use when there is limited inventory available in the market and the property you want to purchase may have more than one interested party. An Escalation Clause states that you are willing to pay a predetermined dollar amount over the best offer, but up to a maximum purchase price.

A First Right Contingency is a tool we can use if your offer is pending the sale of another offer. This Contingency would give you first right to fulfill the purchase agreement if another buyer makes an offer. It also could force you to own two houses at the same time, pending appropriate financing, but would ensure you get the new house you desire.

Section Y reminds you that you are welcome to consult a real estate attorney or tax advisor for further peace of mind.

Section Z provides notice of Limited Agency, which is when the sellers’ agent is the same as your agent. For instance, if you are buying a house I have listed with another client, I am serving as your agent and as the sellers’ agent.  It also determines the expiration date of your offer and is where you will sign the agreement.  Typically, we will ask for a response between 24-48 hours.


Are we done yet?

Shew!  That’s a lot to cover in one document, but I hope you have a better understanding of the Purchase Agreement and the protections it provides you.  See! It pays to work with a Realtor.  We are here to help you!

Again, please make time to review your purchase agreement in its entirety and counsel with your Realtor! I am happy to personally elaborate on any section that you want more clarification on. Call me directly!


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