Making an Offer on a Home? Know What to Sign and What Not to Sign

So you’ve made an offer on a home. Nice work so far!

A formal offer is called a real estate purchase agreement. It’s a contract that names the seller and purchaser and states the price the buyer will pay.

Here, we discuss what to examine closely before you sign.

Check Your Offer Form

Are you looking at the correct purchase offer form when you’re ready to sign? Check that it states the price you’ve offered, as agreed with the seller. And don’t overlook these items in the contract:

• A description of the property and the fixtures included. You’ll check later, on your final walk-through, that everything that was promised is in place.

• The amount needed for your earnest money deposit and the date it is due. It represents your commitment to buy and could be something like one to three percent of your purchase price. This will come up later. At closing, the money moves from escrow and is applied toward your down payment and closing costs. It’s an amount you’re likely to forfeit if you don’t carry out your stated responsibilities under the contract.

• The key dates. Be sure to mark your phone calendar with the deadlines for completing your home inspection and obtaining loan approval, along with the closing date. Also note the terms under which you’ll take ownership and possession (the ownership and possession dates might differ in some cases). Understanding the expected timeline leading up to getting the deed in your name is a stress reducer—plus, it’s your responsibility as a buyer.

• Contingencies to satisfy before the final sale. Check the deadlines on the contingencies to be sure the time allowed to follow through on them is fair, reasonable, and sensitive to both parties’ needs.  

Between the time you sign and the closing date, you’ll watch all deadlines for contingencies in your offer. Contingency clauses enable you to cancel your agreement if the agreed-upon expectations aren’t met.

Some homes, such as those with an accessory dwelling unit, may require a higher down payment than single-unit homes. Be sure you’ve accounted for this if applicable.

Getting to Closing: Is Everyone on the Same Page?

Before closing, you and your agent are going to ask questions like: Has final approval for your mortgage come through? Has an appraisal contingency been included, and if so, did the home measure up to the price you’re offering? Did you condition your offer on an inspection, and if so, did the seller fix anything substantial that came up in the inspection? If not, your agreement may warrant further negotiation. Your inspection (whether it’s performed by a service you find or one your professional recommends) needs to be completed by the deadline. Otherwise, the seller could be within their rights to refuse to make needed repairs (although the lender might require them).

You should know the specifics of how you’ll be paying. The time to think this through is, of course, before you sign the offer. You, your mortgage specialist, the seller, and the agents must be on the same page about the payment terms for this home. Make sure that contingencies in your loan preapproval match what’s in your purchase contract. Don’t sign if the financing terms are not as expected.

For example, your purchase agreement shows that your down payment will be a certain percentage of the home price. If your loan preapproval states a higher figure, that higher amount will be required as a down payment.

And double-check the specifics:

• Will you be paying the full price in cash on closing day?

• Does your purchase agreement say that your obligation to complete the purchase is “subject to” final loan approval within a specific time frame?

• Is payment to be made after subtracting the balance of the seller’s existing home loan?

Some buyers agree to take on an existing home loan. This is rare, but possible—particularly when there’s an existing FHA loan. Learn more at the link below.  

Are you buying a home “subject to” certain limitations? Look for this phrase in your contracts and in the deed to your new home, and ask questions if you’re unsure of its meaning.

Should You Sign an Agreement to Use the Affiliated Companies Your Broker Prefers?

Real estate brokers and lenders often recommend other companies. You do not have to sign up to be their customer. Look for the document titled affiliated business disclosure or something similar. It’s a formal notice of your professionals’ relationships with third-party businesses. Companies share costs for recommending each other, and they must inform buyers how they make money.

Most buyers sign up with the referred companies. It’s fine if you do, but you don’t have to sign up immediately. You are permitted by law to shop around and ask questions. And if you do want to shop around before signing up with the company your broker recommends, don’t sign the disclosure form yet. You’re free to ask for your professionals’ written quotes and compare them before signing up for the services.

For example, you can, but do not have to, purchase a title insurance policy from the same title company used by your lender. You call the shots here—you’re hiring a company to provide insurance. So read the disclosure to see if you’re expected to pay for title insurance. Title insurance is generally recommended. Going with your lender’s choice of companies could save you a few bucks at closing if there’s a bundling discount.

Now, should you agree to pay around 10% more for an “enhanced” or “extended” version of title insurance? Associates Land Transfer Company suggests learning about the policy first. Decide for yourself whether enhanced coverage makes sense for your purchase. If not, after careful consideration, you can reject it.

An enhanced title insurance policy costs more than the standard policy. The extra coverage might not be worth the additional expense for you. Then again, it might!

Predict and Avert Complications

Buyers tend to think of the purchase price as the real core of the contract. Understandably so.

Still, it’s important to scour all other details in the document before putting your signature on it.

You’ll need to know that everyone’s on the same page about your loan and down payment, conditions on which the sale depends, and the deadlines for the seller to come through on each contingency. If you’re working with experienced mortgage and real estate professionals, these issues will likely be spotted for you. Still, you’re the one buying the home. Whether you’re signing on paper or electronically, review what you’re about to sign.

Be sure you know what you’re signing. Then sign with confidence, knowing you’ve carried out your due diligence.