THE SALES CONTRACT
Be sure you read the entire contract and know it in case you are asked by your client what something means. This will be a review of each line item.
Most list prices are determined by a CMA from the listing company. This is usually pretty accurate, but you can check it. On contract offers, I usually suggest a full price offer with a maximum seller subsidy (check with lender on that amount) . That is real money out of your buyer’s pocket. For example, a $5,000 seller subsidy can save your buyer from shelling that amount out at the settlement table. By putting it in the seller subsidy column, the seller is basically reducing the price that much, in cash, not in monthly payments over 30 years. Also always put in for an HMS Home Warranty for $429 paid by seller. This is never countered, and your buyer will thank you for the good idea.
While many of the items in the contract can be filled in, there are others that require a check mark in “yes or no”. When an item does not apply mark N/A. Do not leave anything blank. Use Zip Form if enrolled, otherwise, write legibly or print.
#1 PROPERTY description Use the information in the listing and confirm with the tax record. Remember to be a contract; you legally just need the address.
#2 PRICE AND FINANCING Fill in the financing with what is believed to be correct as given by lender or buyer. This is for the purpose of the financing contingency and does not mean the buyer is held to it, except it keeps the buyer from getting out of the contract. But if better terms come along, they can change with no problem. This is to make sure no one puts in impossibly easy to get out of terms. (80 year mortgage at 1%, which would obviously never be found and thus the buyer could always just walk away with his deposit.
#3 DEED(S) OF TRUST Fill in the type of financing and terms.
#4 DEPOSIT Earnest money check made out to National Realty. I would select about 1% of Sales Price, but any amount is ok. The higher the earnest money, the better the seller feels. It shows the strength of the contract purchaser.
#5 DOWN PAYMENT and EARNEST MONEY: Higher amounts show strength, since they have more money on the line if they try to back out.
#6 Settlement date: Be sure there is reasonable time to do all the paperwork – minimum 30 days. Date selected is “on or before, but usually means on. Check to be sure it is M-F and not a holiday. End of the month is usually best, but not the very last day.
#7 EQUIPMENT, MAINTENANCE AND CONDITION Home should be in working condition, broom swept, and utilities kept “on” until settlement.
8 UTILITIES Carefully put a check mark on utilities as they appear on listing. If you as the agent guess, and guess wrong, you are liable to pay for it.
#9 PERSONAL PROPERTY AND FIXTURES Fill in as appropriately. This does NOT cover AS IS. If you are selling AS IS you need the NVAR addendum covering AS IS. Generally as is means that it might not or does not work. It is tough luck. No remedy, no fix.
#10 CONVENTIONAL FINANCING Generally you will chose the option for an appraisal and for a contingency for financing. The financing contingency must have an action before the financing contingency period expires. You must make a decision and either remove the contingency, negotiate an extension date or void the contract. The number of days you used in the blank should be one that is reasonable with the lender. It should be longer than the appraisal contingency by about 7 days. I would say 25 days, but it depends on the lender.
# 11 VA and FHA Use of this item requires the VA and FHA Financing addendum as well as the Form 100
#12 FINANCING APPLICATION To avoid default by buyer, formal loan application must be completed within 7 days of ratification. If you fail to follow up on this matter with your buyer, you are liable.
#16 Termite inspection usually paid for by the seller. Buyers can pay for it and then have the ability to choose a company that they want. This is with the thought the seller and pest inspector may be friends. If the buyer pays for it, (about %0) then the pest company is working for the buyer instead of the seller and lines of accountability are more easily drawn.
#17 REPAIRS: The repairs in this paragraph apply to those designated by the lender—NOT THE HOME INSPECTION.
#18 Damage and LOSS: Seller must keep up their insurance and maintain the property.
#19 TITLE: Seller needs to provide clear title and if necessary longer time may be allowed to clear title with consent of all parties
#20 Possession date: is usually the date of settlement and full transfer must take place or penalties are outlined in this paragraph
#21 FEES: These fees are the “closing costs” and are paid by the party who benefits from the service unless otherwise agreed.
#22 Brokerage fee: Instructs the settlement company to disburse the commission as designated in the listing agreement to the listing company.
#23 ADJUSTMENTS: Prorate for daily costs to the date of settlement fees.
#24 Attorney’s Fees: These are fees for disputes-not just normal settlement.
#25 PERFORMANCE: Funds are required for performance to be demonstrated. Money talks. J
#26 DEFAULT: What constitutes default and the penalties of default of the purchaser.
Seller default is covered in the Possession Date item #20
#27 Other Disclosures Buyer Beware items as required by state law.
#28 ASSIGNABILITY: The contract cannot be assigned to anyone without written consent of all parties.
#29 DEFINITIONS: All are very important but two stand out.
- DAYS ARE CALENDAR DAYS. This might sound obvious but should home inspection and radon inspections have BUSINESS DAYS? If you think you need more time WRITE “Business” in the contract.
- Date of Ratification This is the date that ALL CONTINGENCIES start the clock. Midnight is usually the end of the day unless otherwise agreed. Financing and appraisal are 9PM
#30 MISCELLANEOUS: Designates the many ways signatures and documents may be transmitted.
#31 VOID CONTRACT: In order to refund the deposit a release must be signed by all parties.
#32 ADDITIONS: Check here for the addenda that you many need. Add those that are not listed here under “Other”
#33 HOME WARRANTY: Always make the seller pay for an HMS warranty for $429 for your buyer. It is usually never countered and your buyer will love you for thinking of it.
#34 BLANK LINES FOR ADDITIONAL INFORMATION. IF YOU NEED MORE USE AND ADDENDUM AND REFER TO IT IN # 32.
#35 ENTIRE AGREEMENT Addendums must be noted to be a part of the contract. Real Estate contracts must be in writing. Anything in the agreement that is not completed by settlement can be handled by seller writing a check to the seller for a negotiated amount at the settlement table. That is, do not set up an escrow because the seller didn’t fix something. Instead, get the seller to pay at the table and put the problem behind all.
Finishing: Check several times for all initials and signatures and both parties should initial any changes or crossed off segments. Get earnest money check.
Elements of a Contract offer
These documents must be submitted with Contract Offer
- Cover sheet—usually the fax cover or e-mail instructions. May want to give an image to your client by having a cover letter about them. This is optional.
- Copy of the earnest money check and your business card
- Qualification/approval letter from a lender
- Regional Sales Contract
- Home Inspection and Radon Inspection addendum
- Lead paint disclosure if before 1978 home.
- Appropriate financing addendum.
- The most common other addenda. Select if needed.
- Short sale
- Lead based paint
- Pre or post settlement occupancy agreements
- NVAR contingency clauses covering many situations. Most necessary for AS IS sales 3 pages
- Removal of Home Inspection/ Radon contingency.
- Removal of financing contingency.
This is not a full list of all forms available. Zipforms online will have all the forms you possibly could need.