Once you find your dream home and have an agreement as to its price, there is much more to smooth out. The contract that you sign for your new home should contain a minimum of six important conditions. Because there are so many details to real estate transactions, it’s crucial that you be sure that these are included. The contracts are generally drafted by the seller’s attorney and usually use a common form and a “rider” drafted by the seller’s attorney. Frequently the purchaser’s attorney will want to make some modifications and add his or her own “purchaser’s rider.” There will be negotiations between the parties’ attorneys with almost every deal.
Most likely you will take out a mortgage to pay for your new home. One of the conditions of the purchase could be getting financing at a specific amount. If you don’t adhere to all elements of the contract, the seller may get to keep your earnest money (contract down payment).
2. Payment of types of closing costs
The contract should clearly state who pays for mortgage tax, title insurance premiums for purchaser and lender, recording fees, various other search fees and other expenses that are often involved with transactional real estate. The Purchaser generally pays for all costs associated with the mortgage closing. In New York, the seller pays a “transfer tax” of $2.00 for every $500 of consideration. There are local transfer taxes in several other municipalities (New York City, Yonkers, Mount Vernon and several others). Some deals try to arrange for a “seller concession” to pay for some closing costs. These provisions cause a lot of problems since they can interfere with the underwriting standards of the lender. The better practice is to build any such adjustment into a modified price and not use such concessions.
3. Inspection of the home
It is a good idea to have an engineering inspection within your offer and it is best to get that out of the way and any negotiations as to physical condition before the contract is finalized. This way, you can walk away from the deal if the home needs too much work or is not structurally sound. You may not want a fixer-upper where you were not seeking one. Having an inspection contingency in the contract is generally not a good idea.
4. Appliances and fixtures
Do not rely on a verbal agreement regarding refrigerators, stoves or other appliances. It’s wise to negotiate and then put in writing in the contract specifically which appliances will remain and that they will be in working order at closing. Also, it is best to provide that the roof is free of leaks and the basement, if any, is free of standing water at closing. The contract should also clearly state what other items of “personal property” are included in the sale.
5. Sale of your existing home
If this sale is contingent on your selling your present home, it should be in the contract. Include a reasonable time frame, such as 60 or 90 days. Sellers generally resist putting such a contingency in the contract.
6. Closing date
Decide on how much time you need. You may need to sell your home or finish out your present lease. The date for closing a real estate contract is a “target date” only and will be set by agreement of the parties as you approach that date. Either side may have “reasonable” adjournments. It is only after the date set in the contract for closing that either party can set a “time of the essence” date, which will be a valid demand only if deemed reasonable. Determining dates can be a difficult part of the closing process.
When reading the contract for your new home, you may be confused by all of the conditions that are involved. Understanding the basics can help you make sense of the deal. It is critical to have an attorney who can bring you through the deal.