So, you’ve finally found the right home, or perhaps you’re the seller and looking forward to the offer from that nice couple that came and looked at your home twice over the weekend. In either case it’s pretty exciting for all concerned. Then reality hits, with 15 to 20 pages of paperwork plus a booklet or two containing a dozen or more contingencies and clauses such as “Termination of Contract” and “Forfeiture of Earnest Money”; honeymoon over, right?
Early in my career we used a two-page purchase agreement form. The second page contained mostly blank lines to be filled in with the buyer’s list of wishes and concerns. Clearly times have changed but I think the fundamentals of the process still exist. In my mind there are only five components of a purchase and sale agreement that require well-thought decisions; let’s break it down.
· Price: Technology has made this decision much easier to make. Today we can drill down to details of past sales and current inventory in real time. Fears common to buyers such as “Did I pay too much?” or “Did I miss the right house?” are typically alleviated with the information available to most agents. Several rules still hold true in almost every case. A $5,000 price reduction will be quite tangible to a seller, directly affecting the bottom line, whereas a $5,000 increase will cost the buyer around $40 per month if financed at today’s rates. Sellers: location, property condition, and competing inventory will almost always determine your fate.
· Terms: Here is where things get a little foggy. As a buyer you might choose to write a “clean” offer with costs and fees split as would be typical for our area. 50/50 being a good rule of thumb. This type of offer would direct the focus towards a lower price in most cases. Conversely, should you write an offer requesting seller assistance with your purchase costs? It is likely that you’ll see very little or no reduction in the sales price. In a balanced market, price and terms seem to find their equal balance and we rarely see both in any one transaction. When market conditions are particularly favored in one way or the other, it’s anyone’s guess.
· Performance Dates: These are the mundane details that often make or break a transaction. Closing date, performance of inspections, loan approval and clear title are all important considerations with associated deadline dates. Let’s face it, we would all like to close in a week and have our personal property magically transported to our next home. In this case I would urge you to think conservatively by negotiating realistic deadlines whenever possible. I try to live by the words of my carpenter-father: “Measure twice and cut once”. This philosophy will almost always lead to a smoother, less stressful transaction.
· Inclusions: You may think of this in terms of whether or not the refrigerator stays; inclusion of personal property is certainly one instance of this category. Perhaps more importantly, the topic also covers the clauses and contingencies included in your contract. As a buyer will you be getting a loan and conducting inspections? I’m sure you’ll want to review and approve the rules and regulations governing a Common Interest Community. These are just a few of the typical “Subject To” conditions inserted into most purchase agreements.
· Exclusions and Waivers: Similar to “inclusions” but these are the fixtures or contract clauses that may be removed or waived during the transaction. Distressed sellers often request that the buyer purchase the home in an “As-Is” condition subject only to the buyer’s approval of inspections. In some cases, the seller may want to remove an item that would be considered a fixture. If your decisions are well informed this is not likely to be of great concern.
Many of the remaining documents are simply disclosure-oriented and you’ll find many clauses and addenda’s to be strictly informational, requiring no action from either party. A good agent will help you separate the details of the process from the big decisions. If they do that in a clear, knowledgeable and honest manner, trust them to manage the important yet minor elements of the transaction.