Buying and selling a house isn't like walking into a store and purchasing a candy bar. Given the size of the purchase, the sale period is usually drawn out to last weeks or months, giving the buyer an opportunity to inspect the property and obtain financing. The sale and purchase agreement spells out the details of the process, going well beyond just listing the final closing date and the purchase price.
Most agreements give the buyer the right to inspect the property. Typically, the inspection contingency offers a set amount of time from when the contract is executed during which the buyer can do any non-destructive inspections she wants. It's the seller's responsibility to make the property reasonably available to the buyer, although, usually, the buyer pays for her own inspections. After the inspections, the buyer has the right to walk away from the purchase if the property's condition doesn't pass muster, continue purchasing if everything looks good, or negotiate for repairs if they're necessary.
When a buyer is getting a loan to help her buy the property, she may choose to include a financing contingency in the contract. The financing contingency allows her to back out of the transaction and get her earnest money deposit back if she can't find a loan. Some financing contingencies have a "shortfall clause" that specify what happens if the appraisal comes in at a value below the contract's designated purchase price.
Reps and Warranties
Frequently, purchase agreements contain paragraphs in which the seller represents and warrants certain facts about the property. Some might seem relatively obvious -- like the fact that the seller actually owns the property he's selling. These representations and warranties are important protections for the buyer because, if any of them turn out to be untrue, she can come back and request compensation from the seller.
A sale and purchase agreement also spells out the time frames for the transaction. It defines the contract's effective date, which is the first day of the process, and the closing date, which is the day on which the property should change hands. Along the way, it also spells out when the buyer should submit her deposit and how long she has to inspect the property and to get a loan. It also details what happens if the buyer misses her deadlines.
Closings aren't always simple affairs, and they're controlled by the sale and purchase agreement. The agreement spells out how any remaining bills for the house -- like property taxes and mid-month utility bills -- get paid. It also details who will be responsible for paying the closing costs and any transfer taxes. Usually, the closing agent uses the agreement as a guide in allocating charges and preparing the settlement statement. Finally, the agreement can also describe anything that happens after the closing -- such as if the seller is going to remain past the sale as a short-term tenant.
- Redfin: Inspection Contingency
- Realtor.com: Contingencies Your Home Offer Should Include
- Bankrate.com: Guard Yourself Against Appraisal Shortfalls
- Michael Notaro, Esq.: Sales Contract Tug of War - Representations and Warranties
- Realtor.com: Terms and Conditions
- University of Missouri Kansas City: Guidelines for Closing Real Estate Sales Approved by the Real Property Law Committee of the Chicago Bar Association
- Realtor: How to Handle Seller Rent Backs After Closing
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