Know Your Sales Contract

The document that spells out the terms and conditions of your home purchase is variously referred to as a sale and purchase agreement, purchase contract, earnest money contract or sales contract. It is a legally binding document that should reflect your intentions accurately and include several basic elements.

Oral agreements are not enforceable, therefore the sales contract must be written. It should identify the seller, the buyer, and the property, as well as the price and terms of the sale.

Oral agreements are not enforceable, therefore the sales contract must be written. It should identify the seller, the buyer, and the property, as well as the price and terms of the sale

The contract should specify the amount of the buyer's good faith deposit, typically to be held by a third party, such as a title company, attorney, or real estate brokerage. The deposit is applied to the purchase price at closing, or is refunded to the buyer if certain contingencies are not met. The amount of the deposit is negotiable between the buyer and the seller.

Most contracts will include a financing contingency which makes the purchase conditional on the buyer's ability to obtain a loan commitment. If the loan is not approved, the buyer's deposit is refunded. Some contracts may include an inspection contingency which allows the buyer to accept the property only with a satisfactory inspection. If the sellers are unwilling or unable to correct defects, the buyer may cancel the contract and receive their deposit back.

The deposit could be forfeited by the buyer if they are found in default, such as backing out for a reason not provided for in the contract.

Responsibilities of the seller in the contract include such things as delivering clear title to the property; maintaining the property in its present condition until closing; making any repairs as called for; and delivering the property "broom clean."

Also included in the contract will be language which specifies who is responsible for certain closing costs. These costs include such things as title insurance; title search, exam, and closing fees; documentary stamps on the deed and the mortgage; brokerage fees; loan fees; and any number of other items. Who pays these fees is usually dictated by local custom, but may be negotiated.

Finally, the contract should describe and personal property that conveys with the sale, such as appliances, wall coverings, and any other non-fixtures. The date that title will transfer to the buyer and when possession will be delivered should also be specified.