Home Purchase Contract Checklist
Robust home sales are keeping Houston real estate attorneys and brokers busy. If you plan to buy or sell a home and are unfamiliar with the process, this article will help you become familiar with the most commonly used sales contract. This article is not a substitute for the advice of your realtor or real estate attorney, but it can help you become better prepared to discuss specifics of the purchase or sale with your real estate professional.
The most commonly used contract in Texas is the One to Four Family Residential Contract (Resale) which was created by the Texas Real Estate Commission (TREC) and is available on the TREC web site. You might want to print the form and refer to it while reading the comments below, which are numbered to correspond to the paragraph numbers of the contract. Although many of the comments below are from a buyer’s perspective, they are equally applicable to the seller.
Be accurate in spelling the full names of both buyer and seller.
Accurately give both the legal description and street address of the property. Be sure to list any items that will not be sold with the property. For instance, if you have drapes that match a bedspread, the seller might want to exclude the drapes from the sale.
3. Sales Price
List the cash and financing portions of the sales price. Check the addition to make sure they add up to the total price to be paid.
Indicate whether the financing is third party, by assumption of an existing loan or through seller financing. Delete any provisions that do not apply to your purchase. If you get third party financing, remember the financing addendum, which is also available on the TREC web site.
5. Earnest Money
This is the amount of money the buyer will deliver to the title company with the contract. If you are the buyer, you will be expected to deposit a reasonable amount, but try to keep it as minimal as you can. If you default on the contract your earnest money will be paid to the seller.
6. Title Policy and Survey
“Who will pay for the title policy and survey?” That is a negotiable item and something to discuss with your realtor and attorney. Note that this section contains certain time deadlines. Make a calendar for all deadlines and be sure to consult it often. It’s important that the buyer does not miss the deadline to object to title defects. Read the notices or ask your real estate attorney to explain them to you. They give you certain valuable information about the property you are about to buy.
7. Property Condition
The seller is required to allow you to inspect the property and to give you a disclosure statement about the condition of the property. Read the disclosure statement carefully and ask questions about anything you don’t understand. Decide whether you will accept the property in its current condition or whether you will require the seller to make certain repairs. The buyer should consider purchasing a residential service contract or asking the seller to pay for one. The service contracts can result in huge savings if a major component needs repair or replacement after the sale closes.
8. Broker’s Fees
Broker’s fees are governed by a separate agreement.
The buyer and seller will agree on a closing date, when the actual transfer of ownership of the real estate takes place. Closing can take place in person or by mail. It’s a good idea, particularly for the buyer, to review all closing documents prior to closing. The buyer should make sure that the loan documents he is being asked to sign contain the same terms as the loan he applied for. Mistakes happen and it’s much easier to have them corrected before the documents are signed. Both parties should review the closing statement for accuracy. If you don’t understand something or if you believe an error has been made, discuss your concerns with you real estate professional or the title company closer
Typically, the buyer will take possession upon closing and funding, although there are some circumstances when he will take possession at a later time. If the seller needs to stay in the home after closing, the real estate professional will prepare a temporary lease covering the time between closing and the time the seller vacates the property.
11. Special Provisions
The buyer and seller may agree on specific items of interest not covered in other parts of the contract.
12. Settlement and Other Expenses
The section of the contract dealing with expenses is very important. The title company closer will prepare the closing statement based upon how the buyer and seller allocate expenses. Prior to closing, both buyer and seller should compare the closing statement with this section of the contract to be sure the expense allocation at closing matches the expense section of the contract.
This section provides for proration of certain expense items, such as real estate taxes and assessments between buyer and the seller as of the closing date. It’s a good idea to double check the amounts prorated on the closing statement for accuracy because this is an area where mistakes often occur.
14. Casualty Loss
This section describes the parties’ rights and duties if the property is damaged or destroyed after the contract is signed but prior to closing.
This section describes what happens if one party decides not to go through with the sale. It provides for specific performance in addition to other remedies. Specific performance means that the buyer or seller can require the other party to buy or sell, even if he doesn’t want to. In my opinion, that is a very harsh remedy and I frequently advise my clients to strike out specific performance.
The contract offers the buyer and seller a choice to mediate disputes, if any arise.
17. Attorney’s Fees
The party who wins a lawsuit arising out of the contract is entitled to attorney’s fees.
The escrow section describes the role of the title company and the procedure for return of the earnest money.
Representations made in the contract survive the closing, which means that they continue to be representations of the party making the statement even after closing. In addition, the seller may continue to show the property and take back up offers.
20. Federal Tax Requirements
This section deals with federal tax matters that are inapplicable to most transactions.
The notice section should be completed for both the buyer and the seller.
22. Agreement of the Parties
This section allows the parties to indicate what addenda become part of the contract.
23. Termination Option
The termination option is very important for a buyer. If the buyer pays an option fee, he may terminate the contract for any reason within the option period. The fee is usually nominal in relation to the contract amount and the option period is typically not longer than a week or two.
24. Consult an Attorney
TREC rules prohibit a real estate licensee from giving legal advice. This contract advises the buyer and seller to consult an attorney before signing the contract if there is anything in the contract that he does not understand.
Houston is fortunate to have a strong housing market. Buyers and sellers have a lot of choices in terms of properties and contract terms. Because it is imperative for both buyers and sellers to fully understand the terms of their agreement, I strongly encourage all buyers and sellers to consult with an experienced real estate lawyer prior to signing a contract.