Purchase Agreement Clauses that Save Money
By Steve Gillman - 2006
A real estate purchase agreement is more than just a memorandum
or negotiating ploy. Once you and the seller sign it, it is a
legally binding contract. Why not include some of the crucial
clauses that smart buyers use to protect themselves and save
Inspection contingency. Ask for help for the wording, but
basically you want something like this in the purchase agreement:
"Contingent upon a home inspection and buyer's approval
of the results of said inspection; to be done at buyer's expense
within ten days." This gives you the right to have inspections
done, and if anything negative is found, you can refuse to "approve"
of the results, and get your deposit back, or you can re-negotiate
a lower price.
Financing contingency. If your loan doesn't come through,
and you can't buy the home, you'll lose your deposit, unless
you have something like this in the agreement: "Subject
to buyer obtaining a firm commitment for suitable financing within
ten days." If the seller balks at such general language,
you can specify what "suitable" means in terms of interest
rate and such.
Assignation clause. If you are buying with a partner who isn't
there to sign the offer, or you want to "flip" the
deal to another investor, or if you may need to involve a partner
for purposes of funding the deal, make sure that the purchase
offer gives you that right. Putting "and/or assigns"
after your name on the offer is usually sufficient, but ask the
real estate agent what the local custom or language is.
Seller pays for everything. You may want to specify that the
seller will pay for the closing fee, the title insurance, the
recording fees, and even the points on your loan. The point here
is that sellers often just want the sale at a given price, and
don't care about the details. If they do care, you have given
yourself some negotiating points. Get something for dropping
each of the costs you included, like maybe reduced rent until
closing if you are moving into the house before that.
Partner's approval. This can be as simple as "Subject
to inspection and approval of home by wife (or partner - state
their name) within three days." This means if your wife
says no within three days, you can back out of the deal and get
your deposit back. Keep the time frame as short as you can if
you really want the seller to agree to this one.
Earnest money clause. If you want to keep your cash available,
and protect your money, you can put a small earnest money deposit
down with the offer, and include a clause like this: "$100
earnest money deposit, to be increased to $2,000 upon acceptance
of this offer." Or you can have it increased "when
all contingencies are met." That way, if there is an argument
about you backing out because the inspector found water in the
basement, for example, you won't have your money tied up while
this is being resolved.
These are often called "weasel clauses," because
they give you ways to back out, or "weasel out" of
an agreement. Don't let the label bother you. The seller has
the right to say no to your offer, and you have the right to
put whatever protective clauses you want in a purchase agreement.
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