What you should know before signing a contract

Every real estate contract meets four requirements to be valid:

1. A valid home purchase agreement must be in writing

2. The contract must contain an offer and an acceptance

3. The purpose of the agreement must be legal

4. There must be an exchange of things of value (usually, it’s money for property)

In addition, all parties signing must be legally competent. If you sell a house to a 12-year-old and he backs out, you probably won’t be able to enforce your contract.

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A real estate contract is the key to your transaction

Buying a home is serious business. It involves a lot of money and a valued property. Hence, it’s important that legal safeguards are in place. A purchase and sale agreement/contract provides these protections for both the buyer and seller.

Is it safe to waive contingencies when making an offer on a house?

But these contracts can be complex. They can be hard to read and understand. Your real estate agent and/or attorney can serve as guides. Yet it’s crucial that you understand what you’re committing to.

Learn how this contract works. Know what to look for and what your duties as the buyer are. Be mindful of deadlines. Ask questions about anything you don’t get. Remember: it’s easy to sign your name. But it’s hard to break a contract.

Defining a purchase and sale agreement

A purchase and sale agreement is a real estate contract. It’s a written agreement between buyer and seller to transact real estate. The buyer agrees to pay an agreed-upon amount for the property. The seller agrees to convey the deed to the property.

The deed is a legal instrument.

A real estate contract often includes:

• Price

• Sales/closing target date

• Deadline by which the offer expires

• Earnest money deposit amount

• Details about who pays for inspections, survey, title insurance, etc.

• Details about adjusting utilities, property taxes and other fees

• For example, an attorney must review and the buyer must have a final walk-through inspection

• Contingencies, known as conditions that must be fulfilled for the contract to proceed.

Contingencies give buyers a chance to back out of the purchase. For instance, an offer is subject to the buyer obtaining financing. Another is getting a favorable report from a licensed home inspector.

How the contract works

In California, the initial offer is in the form of a contract. If the seller accepts, that converts the offer into a binding agreement. If rejected, the seller can counter the offer. Both parties can counter as many times as they want until they sign a mutual agreement or one party stops responding.

How long does it take to close on a house?

When buyer and seller each sign, the contract becomes legally binding for both.

A contract is important. It aims to prevent possible problems. Without clearly defined terms, the agreement can turn south. By creating a solid written contract, much confusion is cleared up.

What to look for in a contract

It’s important to review a contract thoroughly. If anything is unclear, ask your agent and attorney.

The key info to watch for has to do with buyer contingencies. These allow the buyer to make up their mind on the purchase based on two things. The first is their own investigation of the property.

The second is formal disclosures the seller gives the buyer through escrow. Once contingencies are removed, the buyer can no longer back out of the purchase without penalty.

How to get out of a real estate contract

There are many red flags to watch for in a contract.

Be wary of custom contracts. Look closely at contracts with lots of additional stipulations. Extra provisions can strip away your rights, too.

Consider deadlines carefully as well.

Be realistic about time frames.

Prior to signing a contract, consider:

• Whether you have the money and mortgage to complete the transaction.

• How long of a contingency period you’ll need. Will you have enough time to inspect the property? Will you have enough time to get it appraised and receive a preliminary loan approval?

• Your commitment to buying the property. It can be stressful to meet relevant deadlines. Can you get loan financing and manage the process as a whole?

• Your requirement to act in good faith. Changing your mind after signing the contract could result in the loss of your earnest money.

How fast can you get pre-approved for a mortgage?

Speed up the process by getting pre-approved for your mortgage. Buyers with a pre-approved mortgage with no outstanding conditions can close on any property in their price range that meets the lender’s requirements. That’s what serious buyers do when they want to be taken seriously by sellers and close without a hitch.

As a Professional Realtor, I will be with you in every step of the way to guide you and make the transaction as smooth as possible.