You’re buying a house! Congratulations. That’s amazing. You’ve been searching for weeks, maybe months, and you’ve finally found the house that’s perfect for you. What happens next? You make an offer. “Offer” sounds like a friendly term, but you need to keep in mind that your offer is a legally binding contract. Before you dive in feet first and sign something you don’t fully understand, there are some things to consider.
Who’s writing this legally binding real estate contract?
Your real estate agent will be writing the purchase agreement on your behalf. Your agent has a fiduciary responsibility to you, so you can assume it’s written with your best interest in mind. However, your agent will be using a boilerplate contract and writing in your stipulations.
Realtors are not attorneys, but they’re creating a binding legal document on your behalf. If that doesn’t make you feel 100 percent comfortable, you should consider enlisting the services of an experienced real estate attorney. He or she can guide you throughout the process and review purchase agreements and closing documents (or attend your closing with you) to ensure that you understand what you’re signing and that all the terms are in agreement with what you’ve negotiated.
Earnest money and the option period.
Along with your offer, you’ll be expected to put down earnest money. Note that earnest money is not the same thing as a down payment. Earnest money payments can be as little as $1000, or can range from one to three percent of the total purchase price of the home. These are funds that are promised to the seller and typically held in escrow for closing. The option period specifies the amount of time you, as the buyer, have to cancel the offer without losing your earnest money. Make sure the option period works for your situation.
Who are you paying?
One other thing to note about earnest money payments: Never make your check out to an individual! Your check should be made out to the brokerage firm, escrow firm or real estate law firm that will facilitate your transaction. Keep a copy of your check for your records and get a written receipt.
Other stipulations to consider.
Contingencies are other stipulations that should be included in your offer to give you the leeway you need to get out of the deal if things go wrong. If the contingencies you need aren’t properly written into your offer and you need to get out of the deal, the seller may be entitled to keep your earnest money. Therefore, it’s essential to review the purchase agreement thoroughly prior to signing it and writing your earnest money check. Here are some contingencies you should consider for your home buying transaction:
- Must sell current home first. If you’re in a situation where you need the funds from the sale of your current home to able to buy a new one, make sure this contingency is specified in your offer. If there are multiple offers on the house you want, your seller may give your offer lower priority based on this contingency, but it’s better than losing your earnest money AND the house of your dreams if your current home doesn’t sell.
- Financing. A financing contingency states that your earnest money must be returned if your loan is denied for reasons that are deemed “beyond your control.”
- Clear title. A title search will ensure that the seller has a legal right to sell the property and that there are no liens on it. If the property does not have clear title, you’re entitled to a refund of your earnest money.
- Home appraisal. If the home you’ve made an offer on is appraised lower than your agreed upon price, this contingency enables you to renegotiate the price or back out of the deal altogether.
Get experience on your side.
People buy houses every day. Many of those transactions go off without a hitch. However, there are also plenty of ways a simple home purchase can get complicated, quickly. Especially if you’re a first-time home buyer, having an attorney who’s experienced in real estate law by your side through the process can give you peace of mind and potentially save you money and headaches down the road.
If you’re buying or selling real estate in Jackson County, in or near southern Indiana or central Indiana, and need the services of a trusted and experienced real estate attorney, contact Zach Miller today. His offices are in Brownstown, Indiana and he serves clients in Indianapolis, Bloomington, Columbus, Jeffersonville and Seymour, as well as neighboring towns. Zach can also help with other legal matters, like personal injury claims, estate planning, criminal record expungements, divorce, He’s just a phone call away.
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