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Published Sunday, May 12, 1996, in the Miami Herald.


Know these key terms for purchase contracts

By ROBERT J. BRUSS
Herald Columnist

Spring is the busiest time of year for real estate agents because this is when most home sales take place. But finding the residence you want to buy is just the first step. An essential part of successfully negotiating to buy that home is preparing a sales contract that protects the buyer, seller and realty agent.

In most states, real estate agents have preprinted purchase contracts with blanks to be filled in. Or your attorney can prepare the purchase offer.

If you are buying a brand-new home, the builder usually has a purchase contract he will insist on using. No matter who prepared the form, read and understand it carefully before signing.

Consider who prepared the printed form. It may be pro-buyer, pro-seller, pro-agent, pro-home builder or relatively neutral. Don't hesitate to ask to have it reviewed by your attorney.
Lawyer review

A good way to do this, without delay your offer bid, is to include a contingency such as, ``This purchase offer is contingent upon my attorney's inspection and approval of this contract within five business days.'' This gives the buyer a ``free look'' while your attorney or other trusted adviser reviews the contract (after the seller has accepted it).

No matter what the title printed at the top of your offer to buy a home, after the seller accepts, it becomes a legally binding agreement. In addition to the names of the buyers and sellers, it should include a property description, list of any personal property you want included in the sale (such as furniture and appliances), the offer price and the sale terms.

Legally, you do not need a good-faith earnest money deposit. But virtually no home seller will accept an offer without a cash deposit. There is no right or wrong deposit amount. If you are making a low offer, a large deposit can often impress the seller into accepting. Another tactic is to make a modest deposit, such as $1,000, to be increased upon removal of the contingencies.
Contract terms

Virtually every purchase offer contains contingency clauses and special terms. Here are the most frequently used:

  • A professional inspection contingency clause. Most home purchase offers today are made contingent upon the buyer's approval of a professional inspection of the residence. The buyer pays for the inspection. Smart buyers (and sellers, as well as their realty agents) accompany the inspector to discuss any defects discovered and the estimated repair cost. Be sure the inspector is well qualified, such as a member of the American Society of Home Inspectors.

  • Mortgage finance contingency. Even if you are pre-approved for a mortgage (you should be before starting your home search), a mortgage contingency clause is essential to be certain the residence appraises for the sales price. If it doesn't, then you can either cancel the purchase or renegotiate the sales price.

  • Liquidated damages contingency. Many preprinted purchase contracts specify the amount of damages the buyer will pay if the buyer fails to complete the purchase as agreed. This is the liquidated, or agreed, damages clause. Discuss with your realty agent and/or attorney whether or not it is advisable to sign such a clause.

  • Arbitration of disputes clause. In the event a dispute arises before or after the sale, many purchase contracts provide for arbitration of disputes. Arbitration drawbacks include the facts that the arbitrator has virtually unlimited power, court evidence rules don't apply, there is no appeal process, no right to a jury and challenging an arbitration award is almost impossible. Advantages include low cost and swift result.

    My suggestion is not to agree in advance to arbitration. If a dispute arises, the parties can always agree to arbitrate at that time.

  • An all-inclusive weasel clause. Although the above contingencies are usually sufficient, you might want to include an all-inclusive weasel clause such as, ``This purchase offer is contingent on approval of this contract by buyer's attorney within five business days.''

  • Time for purchase offer acceptance. Home buyers should make their purchase offers valid for as short a time as possible, depending on circumstances. A short time limit prevents the seller from ``shopping'' the offer to obtain a better offer.

    Twenty-four hours is usually sufficient for the seller to either accept or make a counteroffer. If the seller is out of town, a longer acceptence time should be given.

    A successful home purchase depends not only on finding the right home but using a properly prepared purchase contract to include all the essential terms. Consultation with your realty agent and/or a real estate lawyer is advised.


    Robert J. Bruss is a lawyer, licensed real estate broker and syndicated columnist.



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