What does all this mean?
When you receive a purchase agreement on your 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 for someone to tell you they want to buy your house, but really the document is the start of the negotiations between you and the Buyer.
Below I am going to review in laymen’s term what all of those sections mean to you ~ the seller, 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 is buying your property and if they 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. This section includes other items that may be listed on the BLC or the Buyer identifies that he/she wants. This section is also where the Buyer will exclude items from the purchase. For instance, if the house is listed with a hot tub or children’s play set and he/she doesn’t want either item, he will exclude it from the purchase, ensuring the seller removes both items from the property before closing.
Section B is also where home heating fuel is negotiated and is really only applicable in a rural setting.
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 delivers it to the us within two days. The earnest money will be held in escrow by Century 21 Scheetz until closing.
Section E describes how the Buyer intends to pay for the house. If we receive multiple offers on your house, we may look to this section to help determine which offer is better than another, based on its ability to close in a timeframe that meets your personal goals.
Section F outlines how quickly the Buyer has to secure the financing of the property.
Section G outlines the date the Buyer would like to close and take possession of your house and how the closing fees will be paid.
Section H determines when the Buyer 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 the Buyers may ask you to pay you rent for whatever days you remain in the house. This section also states that you are to maintain the upkeep and utilities until the day the Buyers take possession.
Section I expresses if the Buyers 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, the Buyer may want the more expensive boundary survey.
Section J gives the Buyer the option to terminate the agreement if he/she find out the property is in a flood plain.
Section K outlines the number of days the Buyer has to find homeowners casualty insurance for his new house.
Sections L – R
Section L warns that the buying agent nor myself are experts on environmental contaminants and the Buyer should do his due diligence to ensure the house is satisfactory by having an inspection. See the next section!
Section M reserves the Buyers right to have a house inspection. Typically, the Buyer will request 10 days for him to complete the inspection and an additional 7 days to respond to the seller about required repairs. Once we receive the Inspection Response from the Buyers, you and I will review all requested repair items and determine what we are willing to fix prior to closing.
Section N is where the seller may ask you to pay for a home warranty. Generally we can get a home warranty for $450-$750 dollars, depending on what items you include in the coverage.
Section O acknowledges disclosures the Buyer should have received during the showings from his Realtor.
Section P 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 Q 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 see a debit on the closing disclosure for your taxes that are due and the title company will submit them to the county and state. The Buyer will be responsible for the taxes that are due on a go-forward basis from the day you close on the house.
Section R acknowledges any special assessments on the property will be prorated and you will be responsible for the fees up to the date of this agreement (not the closing date).
Sections S – Z
Section S 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 T gives the Buyer the right to review the HOA documents before this offer is accepted. Typically, the Buyers Realtor will ask for us to provide the HOA Covenants, Conditions & Restrictions (CCRs) within a few days of accepting this purchase agreement and the Buyer will then have an additional number of days to review them. If the HOA requires an approval to sell this property, the seller will also have a few 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 U ~ 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 V ~ This section has 16 line items of additional protections or additional cautions that I will be happy to review with you as needed.
Section W is where we the Buyer 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 states that the Buyer is 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 a Buyer can use if his offer is pending the sale of another offer. This Contingency would give the Buyer first right to fulfill the purchase agreement if another buyer makes an offer on your house. It also could force him to own two houses at the same time, pending appropriate financing, but would ensure he gets your house.
Section X reminds you that you and the Buyer that you are welcome to consult a real estate attorney or tax advisor for further peace of mind.
Section Y provides notice of Limited Agency, which is when I am also the Realtor for the Buyer.
Section Z determines the expiration date of the Buyers offer and is where you will sign the agreement. Typically, the Buyer 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 what it means to you as the Seller. 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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