Real Estate Purchase Contract and Purchase Agreement
This blog will cover the real estate purchase contract and purchase agreement. A real estate purchase contract and purchase agreement is a binding contract for both the home buyer and the home seller. Once a buyer decides to enter into a real estate purchase contract and purchase agreement, homebuyers with their real estate attorneys should thoroughly review all sections, appendices, contingencies, and clauses in the purchase contract.
About Real Estate Purchase Contract and Purchase Agreement
The purchase agreement should be carefully reviewed before signing. If any modifications or changes need to be made, they can note them and return to the negotiation table. Otherwise, not only can the earnest money deposit be in jeopardy, but the home sellers can enforce the real estate contract and purchase agreement and go after the buyers for breach. The homebuyers can do the same and sue the home sellers if the seller breaches the real estate purchase contract and purchase agreement. This article will discuss and cover the importance of correctly writing up a real estate contract.
Contingencies In The Real Estate Purchase Contract and Purchase Agreement
The purchase agreement spells out the terms of the home purchase transaction, such as the contingencies, repairs needed, earnest money, tentative closing date, and other transaction terms. The purchase contract is a real estate purchase agreement in a legally enforceable format that is enforced by law which involves two parties.
What Is In The Real Estate Purchase Contract and Purchase Agreement With Example?
Let’s take an example where Mandy Miller will offer Jim James a $400,000 offer to buy the house with a 6% seller concession and $5,000 earnest money, and a 10-day mortgage contingency and home inspection period. This example would be the purchase agreement. Now, once unanimously agreed on the purchase agreement, this purchase agreement mutually agreed upon both parties will write it on the real estate purchase contract, which is enforced by law if either party were to breach the contract. The purchase agreement is part of the real estate purchase contract.
What Are Examples of Contingencies in a Real Estate Purchase Contract and Purchase Agreement
Contingencies are expected on the real estate purchase contract and purchase agreement. Contingencies are clauses in the real estate purchase contract and purchase agreement that gives the home buyers a certain timeframe to cancel the contract. Three of the most important contingencies home buyers need to make sure is on the Real Estate Purchase Contract and Purchase Agreement:
- home inspection contingency
- appraisal contingency
- mortgage contingency
If any of these contingencies are unmet, home buyers should be entitled to cancel the Real Estate Purchase Agreement and get their earnest money back with no questions asked.
Home Inspection, Appraisal, and Mortgage Contingency
Once home buyers get a pre-approval, the lender already has determined they will qualify for a mortgage for a specified amount because they already ran credit, reviewed income and asset documents, and got an approve/eligible per either DU FINDING or LP FINDINGS from the Automated Underwriting System.
The next step is to go and find a home. Once buyers select the right home and enter into a real estate purchase contract and purchase agreement. While a lender is working in underwriting, the first step is to get a home inspection. Home Inspections are optional but highly recommended for all home buyers.
Normally buyers have ten days from the date of the executed real estate purchase contract and purchase agreement to do a home inspection. If the home inspection is done within ten days, they are waiving the home inspection period unless buyers ask for an extension.
Home Inspection During The Contingency Period For a Mortgage
If the home inspection report does not meet buyers’ standards and a lot of work needs to be done, home buyers can cancel the real estate purchase contract and purchase agreement. They can cancel it because a satisfactory home inspection will have been a contingency upon proceeding with the home sale. Buyers can also renegotiate the purchase price if the home inspector finds flaws with the subject property. Suppose the home inspection reports state foundation or structural flaws with the subject property. In that case, it is best to cancel the real estate purchase contract and purchase agreement and look for a different property.
Home Appraisal Contingency In Real Estate Purchase Contract
An appraisal contingency is another contingency that should be on the real estate purchase contract and purchase agreement. If the appraisal does not come in at the purchase price, the home buyer can cancel the real estate purchase contract and purchase agreement. Dino Hasapis, a realtor and consultant for Gustan Cho Associates, explains cases where homes come in at a lower value:
When a home appraisal comes in lower than the purchase price, the buyer can cancel the contract, see if the lender can do an appraisal rebuttal, or renegotiate the purchase price. Most appraisal rebuttals are not successful.
In most of these case scenarios, the seller lowers the sales price to the appraised value of the subject property. Sometimes the seller and buyer agree to meet in the middle between the original purchase price and the appraised value. The home buyer needs to come up with 100% of the price increase above the appraised value. The home buyer’s loan amount will be based on the appraised value.
What Is a Mortgage Contingency and How Does It Work?
When homebuyer shops for a house and shows the realtor their pre-approval letter, they have been pre-approved by a mortgage loan officer at a lender. However, there are instances where a pre-approved borrower can get a last-minute mortgage loan denial during the mortgage process. This is why you need a mortgage contingency in the real estate purchase contract if you can no longer qualify for a mortgage. Mortgage contingencies are probably the most important contingency in a real estate purchase contract. Just because borrowers are pre-approved and got an approve/eligible per automated finding, it does not mean that borrowers are fully approved, and the mortgage loan will fund.
How Long Does It Take To Clear Conditions From Underwriter’s Conditional Loan Approval
Many things can arise during the mortgage approval process where a mortgage denial is possible. For example, if borrowers cannot provide conditional approval conditions, the loan is void, and a denial letter will be issued. In the event that borrowers are denied, then a denial letter will be issued. Due to the mortgage contingency, the real estate purchase contract and purchase agreement will be null and void. The home buyer is entitled to get their earnest money back. In the event that the mortgage underwriter is taking longer than expected to issue a loan approval, the home buyer will ask for an extension on the mortgage contingency, and normally, it is granted by the seller.
