Real Estate Purchase Contract And Purchase Agreement
This BLOG On Real Estate Purchase Contract And Purchase Agreement Was UPDATED On April 11th, 2019
A Real Estate Purchase Contract is a binding contract for both the home buyer and home seller and homebuyers should thoroughly reviewed. A Purchase Agreement should be carefully reviewed before signing it. Otherwise not only can the earnest money deposit be in jeopardy but the sellers can enforce the Real Estate Purchase Contract and potentially sue.
In this article, we will discuss and cover the importance of writing up the real estate contract correctly.
Contingencies In The Real Estate Purchase Contract And Purchase Agreement
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 not met, then 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, 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.
- Next step is to go and find a home
- Once buyers selected the right home they then enter into Real Estate 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 the ten-day period, they are waiving home inspection period unless buyers ask for an extension
- In the event 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 sale of the home
- Buyers can also renegotiate the purchase price if the home inspector finds flaws with the subject property
- If the home inspection reports state foundation or structural flaws with the subject property, it is best to cancel the real estate purchase contract and purchase agreement and proceed to look for a different property
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
- When a home appraisal comes in lower than the purchase price, the home buyer can either cancel the contract, see lender can do an appraisal rebuttal, or renegotiate the purchase price
- Most appraisal rebuttals are not successful
- The majority of these types of 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
Mortgage contingencies is 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 fully approved and the mortgage loan will fund
- Many things can come up during the mortgage approval process where a mortgage denial is possible
- For example, if borrowers cannot provide conditions on conditional approval, then the loan is void and a denial letter will be issued
- In the event, if 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, if 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