10 Must Have in RE Contract

10 Real Estate Contract Conditions to Look Out For

For a more general explanation of the Real Estate Process please see the Buying & Selling page of our website.

Once your offer is accepted on the purchase of your new home, your attorney will receive a real estate purchase contract which will be provided to you for review. When reviewing the contract here is a list of some items you should be sure to look out for.

1. Legal Property Description-What are you buying

The legal property description is the only way to accurately detail the exact piece of property you are buying. A street address alone is not sufficient. This legal property description will set forth the boundary lines of the property along with the block and lot. The legal property description should be attached to the contract in what is known as a “Schedule A.”

2. Earnest Money Deposit vs. Down Payment

The earnest money deposit is typically the amount of money that is given to the seller’s attorney when the contract is signed, it is usually in a large enough amount to show the seller that you are a serious purchaser. The earnest money deposit is placed in the seller’s attorney’s escrow account until closing. The earnest money is usually applied towards your down payment.  The down payment is the amount of money the buyer pays directly to the seller (i.e. the amount of the purchase price not coming from your mortgage).  The down payment money can come from your personal savings, the profit from the sale of a previous home and/or a gift from a family member.

3. Finance Terms

If you are like most people, you are going to obtain a mortgage in order to be able to afford your new home.  Your contract should state that your purchase of the property is contingent upon you obtaining financing for a certain amount of money, at a certain interest rate, for certain amount of years. Meaning, if you do not get approved for your mortgage, you will get your earnest money deposit back.  When applying for your home loan it is important to apply for a loan that matches the contract (i.e. if the contract say you will obtain a 30 year fixed rate mortgage in the amount of $375,000.00 do not apply for a 7 year adjustable rate mortgage in the amount of $450,000.00). The Reason Why: If you get denied for a mortgage that is anything different then the type of mortgage as stated in the contract the seller could argue that you are in default of the contract and the seller could be entitled to keep your earnest money deposit back.  If you need to obtain a certain type of loan to complete the deal, such as an FHA or VA loan, you should also specify this in your contract. If you are paying all cash for the property, you should state this as well because it makes your offer more attractive to sellers.

4. Seller’s Concession

A seller’s concession is a credit or monetary contribution given by the seller to the buyer to use towards their closing expenses.  Your offer to purchase should state an exact dollar amount (i.e., $6,000) or percentage of the home’s purchase price (i.e., 3%) you are expecting as a concession. This concession should then be stated in the contract.

5. Fixtures and Appliances

Did you fall in love with the home you are purchasing because of the chandelier in the dining room?  Make sure the contract says that this chandelier is included in the sale.  Do not rely on a verbal agreement with the seller or real estate agent and do not assume anything. The contract should specify what fixtures and appliances (or anything else) that are to be included in the purchase.

6.  What does “AS IS” mean in a Contract

“AS IS” means without guarantees as to the condition of the property. The premises are to be accepted by the buyer as they are, including physical defects. Because this language is standard in most contracts, it is important that contract sets forth any repairs or conditions that the Seller must repair/fix prior to closing.

If your purchase is “AS IS”, it is important that you conduct a home inspection (including a termite inspection) prior to signing the contract as any condition(s) exposed in the inspection report after the contract is signed will not be the responsibility of the Seller to repair/fix.

7.  Certificate of Occupancy

The Certificate of Occupancy is a document that sets forth the building’s legal use and/or type of permitted occupancy as approved by the Department of Buildings. (i.e. how many apartments are permitted and is the building approved for residential and/or commercial use.)  The only way to make sure that the two family house you are buying is actually a legal two family is to make sure property contains a valid Certificate of Occupancy.

Failure to have the proper Certificate of Occupancy could potentially be a reason for your mortgage loan application to be denied. Further, occupying the property in a manner different than set forth in the Certificate of Occupancy is an illegal use of the property, which may result in costly fines and violations or worse, a vacate order.

8. Vacant and Broom Clean

Your contract should state whether at the time of closing the property will be turned over empty and vacant or if at closing the seller (or any other occupant) will be allowed to remain in possession for a certain amount of time after closing.  If you are willing to close and allow the seller to remain in possession for a short period of time, it is necessary to execute an Occupancy Agreement that clearly spells out the dates of occupancy, the consequences if seller fails to move out and any amount of money the seller will be obligated to pay so long as they remain in possession. Further, the contract should require the seller to maintain its insurance and pay all costs and expenses for staying past closing date.

9. Closing Date

How much time do you need to complete the purchase transaction? Common time frames are 30 days, 45 days and 60 days. Issues that can affect this time frame might include the seller’s need to find a new home, the remaining term on your lease if you are currently renting, and how long it takes you to obtain your mortgage.  Unless specifically stated as “time of the essence”, Courts in New York have held the date on the contract is treated as an approximate target date.  A time of the essence clause provides that if the parties do not close on the specified date, then the party who is not ready, willing and able to close will be in default of the contract.

10. Broker’s Commission

In New York, it is typical that the seller pays all real estate commission on the sale of property. As such, this information should be contained in your contract. As a buyer, you should make sure that any real estate broker that you dealt with in connection with the purchase is listed in the contract. Failure to do so could result in creating potential liability for yourself from the unnamed broker if they do not get paid at closing.

 

Who am I?
I am a Real Estate Transaction Attorney.  My sole practice area is real estate purchases and sales for residential and commercial properties. I have successfully closed over 5000 transactions.  I also represent local and national lenders in New York City and Long Island. My practice primarily serves the following communities in Queens, Bronx, Brooklyn, New York City and Long Island (Nassau and Suffolk):  Bangladesh, Pakistani, Indian, Arab.  My staff speaks Bengali, Urdu, and Hindi.  We understand these communities and are sensitive to their cultural and religious diversity, in particular the Islamic/Muslim faith.

By |2018-09-01T19:15:51+00:00August 27th, 2018|Blog|Comments Off on 10 Must Have in RE Contract