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Real Estate Purchase Contract Clauses

A typical home purchase contract should include:

• Property address and/or legal description
• Assessor’s Parcel Number (APN)
• Purchase price
• Down payment amount
• Earnest Money Deposit (EMD) – this is the amount of your initial deposit that accompanies your purchase offer and part of your down payment amount.
• Seller credit to buyer to apply towards buyer’s closing costs.
• A mortgage contingency provision – this allows you to be released from your offer if you're unable to obtain a loan in a specific amount, at a specific interest rate and, within a specific amount of time (usually between 30 and 60 days).
• Expiration of offer – How much time you want to give the seller to respond to your offer. Standard time frame for seller to respond is 3 days after you sign the offer. However, you can specify any time period, but this will depend on the current market and whether it’s a buyer’s or a seller’s market.
• Closing date – The date the sale will be finalized ("closed") – Also known as “Settlement date”.
• Possession date – The date you would like to take possession of the home (move in). In a situation where the seller is purchasing a replacement home that may not be able to close escrow in time for them to move out, you may have a signed agreement whereby you may allow the seller to rent the home back from you beyond the closing date.
• Who will hold the earnest or deposit money (usually an escrow or title agent) and who will be the closing agent and/or escrow or title agent for the escrow closing (settlement).
• Items to be included in the sale such as: light fixtures, appliances, fireplace equipment, etc.
• Items not included in the sale, but which you would like to have included.
• A guarantee from the seller that he or she will provide clear title to the home, through an abstract of title (aka: preliminary title report), certificate of title, or a title insurance policy.
• A provision stating that the seller is responsible for paying property taxes, home insurance, HOA fees, and other house-related expenses through the closing date.
• An inspection-contingency clause, which allows you, the buyer, to have the home inspected by a professional inspector, usually within a few days of the date of signing the contract. This provision should make your purchase offer contingent on a satisfactory inspection report. The cost of the inspection is customarily paid for by the buyer.
• Final walk-through inspection – specifying when you can do a walk-through inspection (usually within 5 days of the closing date) in order to make sure the home and everything has been kept up in same conditions as when you first previewed it.
• A provision requiring that the seller pay a certain amount of money for every day beyond the agreed upon date of occupancy until the home is available to move into.
• A clause making your purchase offer contingent on you selling your current home (if you need to do this prior to purchasing your new home). Please note that in a seller’s market and depending on the offer terms, seller’s may probably choose an offer without a contingency.
• Terms that require the cancellation of the transaction (and the return of your earnest money deposit) if the sale cannot be completed due to other contingencies that have not been fulfilled.
• In your purchase contract, you may also strike out (not include) some of the portions/paragraphs that are not pertinent to your particular transaction or refer to attached Addendums in order to customize the contract to your (and the seller's) needs.

Counteroffers

A seller is not required to accept any particular offer – not even if it's at the full asking or list price.

The seller will usually respond to a buyer's offer with a counteroffer that accepts some of your offer terms but proposes changes to other terms or adds additional terms and conditions in which the buyer could then either accept the seller’s counter offer as-is, or accept the seller’s counter offer subject to your counter offer. In some cases, you can expect several counter offers back and forth before an agreement is finally reached between the parties.

Common counteroffer proposals include:

• A higher purchase price.
• A reduction in the time period in which buyer has to remove contingencies, such as the inspection, appraisal, financing, sale of current home, etc.
• A time period for removing certain contingencies altogether.
• Excluding certain items from the sale.
• Additional time for the seller to vacate the home after the sale is closed.
• The seller's attorney to approve the contract as a contingency of the sale.
• A "liquidated damages clause," which details how much money you will owe to the seller if you back out of the transaction for reasons other than the contingencies listed in the contract. California laws limit your liquidated damages to the amount of the earnest money deposit actually paid but no more than 3% percentage of the purchase price and any excess shall be returned to the buyer.

Negotiations

If the buyer is not satisfied with the seller's counteroffer, the buyer can reject the counteroffer and submit additional changes in a buyer's counter offer. The parties can negotiate the terms of the contract until they reach an agreement.

Role of Brokers

If the seller or the buyer is using a real estate broker, the broker or brokers usually negotiate the terms and conditions of the contract, as directed by their clients. However, the final decisions are made by the seller and the buyer, and they both must sign the purchase agreement or contract of sale.