So, you’ve found your dream home and are ready to make an offer! It’s easy to get overwhelmed when your Realtor presents you with pages and pages of contracts to sign, so here is a little insight into common terms found in these documents.
An addendum is a document that is added or attached to and made part of the original contract at the time it is prepared and submitted to the principals. Essentially, these are additional terms to the contract.
Computation of Days
In the purchase agreement, there are deadlines stipulated for when certain contingencies shall be removed, or other tasks met. For instance, how long from acceptance of the contract do the buyers have to do the inspection? For this, the computation of days outlines how the days are calculated. In the Maryland purchase agreement, it is outlined that the “term ‘days’ shall mean consecutive calendar days, including Saturdays, Sundays, and holidays.” This ensures that all parties are on the same page as to when deadlines should be met. If the deadline passes, it could render the contract null and void and no one wants that!
When you have a home under contract, with an accepted offer, many times the finalized sale is still “contingent” upon certain factors outlined in the purchase agreement. Typically, the sale will be contingent on the inspection, mortgage approval of the buyer, and the appraisal. Once all contingencies have been met and removed, then the home is free to head to closing!
You know that real estate phrase “location, location, location”? Well, there is another really important one: “Disclose, disclose, disclose”! Disclosures are a key factor in the real estate transaction that boils down to one thing, sellers and agents are required by law to make known any known defects that a property may have. In most states, it is illegal to conceal any major defects to a property and this could mean big problems to the seller if later the buyer finds out they did so. So, CYA and “disclose, disclose, disclose.”
Earnest Money Deposit (EMD)
The earnest money deposit is very important to having an accepted purchase agreement as it indicates to the seller the buyer’s good faith in the deal. Generally, the earnest money deposit is made out to the buyer’s real estate office who then holds the money in an escrow account. It is then transferred and applied as part of the down payment at closing. How much is required as an EMD? That really depends on the house, but most put down 1-2% to let the seller know they are serious buyers. In new construction, sometimes the developer can require as much as 10% earnest money.
Are you worried about losing out on your dream home in a multiple offer situation? Maybe you should consider the escalation clause. Say you are making a full price offer on the home and the seller’s agent let you know that there are multiple offers you will be competing with. You can pad your offer with this clause stating that if the other offers are above your offer, your escalation clause states that you agree to pay whatever amount you choose over and above what the top offer is up to a certain price. For instance, your initial offer is $250,000; if the competing offer is lower than yours, the seller will take your initial offering. If the competing offer is higher at $255,000 and your escalation clause states that you agree to pay $1,000 over the top bid up to $260,000, then you would agree to pay $256,000 and hopefully, this wins you the sale. Something important to be mindful of in this situation is the appraisal. If the home doesn’t appraise for the over and above the amount you settled at, you will need to make up the balance in cash at closing.
“We are in escrow!” It’s a term you hear when someone has an accepted offer on a house. It means that after the acceptance of a contract, money (the EMD) and deed to a property are being held by a third party, in Maryland that is the Title Company, and will be transferred upon payment of the sales price and satisfaction of other terms in the contract at closing.
The inclusions/exclusions section of the purchase agreement is an important one. This will detail the features of the home that are included in the sale. Here you will find if the alarm system, microwave, second refrigerator, washer and dryer, or other fixtures will convey with the purchase. Something to remember is that fixtures, items attached to the wall or ceiling, are included in the sale. Built-in bookcases or a bookcase that has been attached to the wall? Included. The beautiful custom lighting the seller had installed when they moved in? Goes with the sale. Surround sound speakers attached to the corners of the rooms? Yep. If you are a seller, a good thing to consider, if you are planning on taking Grandma’s chandelier with you when you move, please make it very clear on your documents that it is not included in the sale. Better yet, remove it before your house hits the market because I can guarantee the buyer that wants your home will definitely try to negotiate for it!
Property Inspections Notice / Request for Repairs
One of the final hurdles to jump in the home buying and selling process is the Property Inspections Notice. This document is prepared by the buyer’s agent and gives notice to the seller how they would like to proceed after the inspection report. If there are repairs they are requesting be fixed prior to closing, they will be detailed here. If the buyer would like to negotiate a credit back at closing to take care of repairs themselves after closing, that will also be detailed here. After receipt, the seller will have a certain amount of days to either sign off on the requests or counter back what they offer to take care of. After both parties are agreeable, they sign off on the document and take another step towards closing.
Otherwise known as “closing.” The big day! Settlements in Maryland are done by a title company of the buyer’s choosing. This is when all of the documents will be signed transferring the property from the seller to the buyer, loan documents will be signed by the buyer, and keys will be exchanged. Congratulations, you’ve bought a home!