A contract to purchase real estate includes a sale price, mortgage to be obtained (more often than not) and a closing date. However, there is more to a contract to purchase than these details, and that includes the content language in the contract document. The form of the real estate contract prepared by a REALTOR® or real estate licensee can be different from one real estate company to another, from county to county and from state to state. I am providing the Real Estate Contract from the New Jersey Association of REALTORS® for review purposes.
While price and terms are important, the most overlooked aspect, and perhaps a very important consideration for the seller, are the conditions in the real estate contract offer. All real estate contracts have conditions. A condition in a contract offer can be more easily explained as a subject to event.
The most common condition is that the contract is subject to the buyer obtaining mortgage approval and a written mortgage commitment within a certain time frame in the amount required to purchase the home.
Another very common condition is that the buyer performs a termite inspection, home inspection and perhaps a radon inspection within a certain time frame. These type inspections
are so common that they are pre-printed and included in the real estate contract as shown above. Other important inspection clauses that are also found in real estate contracts are the lead based paint inspection, underground oil tank, well water, septic tank and others which may be pertinent to the location of the property.
As previously mentioned, these type conditions are found in most all real estate contracts. What is important and needs to be reviewed is that as a condition, these subject to clauses can be a concern to a seller. The concern is not that a mortgage needs to be obtained or that a home inspection needs to be done, but it is a question of in what time frames will these be completed by the buyer.
In most circumstances, the seller has agreed to take their home off the market during the time frame in which the buyer needs to obtain mortgage approval and conduct their inspections. It is that time frame, if too long, which could be questioned by the seller during a contract presentation.
Time frames vary in obtaining mortgage approval and in conducting inspections. It is important that a buyer understands the process and time frame in submitting a formal mortgage application and the time frame in conducting the required inspections and obtaining the written reports. A diligent REALTOR® or Buyer Agent can provide valuable assistance and guidance in suggesting appropriate time frames. If the dates are too long, they may have a negative response from the seller in contract negotiations. If the dates are too short, complications could arise, such as waiver of inspections or perhaps even voiding of the contract of sale. The sooner the buyer can complete the conditions in the contract, the more comfortable the seller will be in knowing that there home will be under contract with all contingencies being satisfied.
There are other subject to contingencies that can be more of a concern to a home seller, such as subject to the sale of the buyer’s present home, especially if it is not yet on the market for sale or not under contract. While it is understandable that a home buyer needs the equity from their home sale in order to purchase another home, many sellers may not be willing take their home off the market and wait for the buyer to sell their current home.
A buyer with a home sale contingency is a much weaker buyer than a buyer without a home sale contingency. However, a buyer who has a signed contract on the sale of their home would be in a much better negotiating position than one without a sales contract. It is important that the REALTOR® or Buyer Agent is completely informed and aware of all circumstances related to the buyer’s financial needs in order to provide professional guidance and assistance.
When submitting a contract offer, so much is dependent on the seller and what time frame they have in selling. Some sellers are extremely flexible in when they would like to close, others are buying another home and need a specific date and others just may need a fast closing due to relocation or otherwise. The seller’s situation and home sale needs will be the factor in whether a buyer’s home sale contingency is something that may be acceptable or something which is completely unacceptable.
While price is an important aspect in contract presentations and negotiation, the conditions in the contract, such as mortgage terms, inspection time frames and other contingencies, are the most overlooked details by buyers in making a contract offer. In fact, it is quite common that the conditions in a contract offer are the reason the offer is not accepted and not the price.