What does “Under Contract” mean? A Guide to the Offer to Purchase and Contract
When buying or selling a home, one of the most important documents you will sign is the Offer to Purchase and Contract. This is a legally binding document that details the terms and conditions of the transaction, and also sets a fixed timeline for the closing. Often, the contract is on the bar form contract. Once this agreement is signed by the buyers and sellers, the property is considered “under contract” and the seller agrees to take the property off the market and to no longer receive offers from other prospective buyers.
It is important for both buyers and sellers to understand the content within the agreement before signing. While your real estate agent can fill in the blanks on a bar form contract, it is always a good idea for to consult a real estate attorney prior to entering any contract for the purchase or sale of real property, particularly if either party wishes to include additional terms not part of the bar form contract.
Generally, the Offer to Purchase and Contract will include the following details:
The contract will include final amount agreed upon by the buyer and seller. Occasionally, the buyer and seller can agree on certain contingences that may affect the purchase price, such as the result of inspections, appraisals, and the like. Certain amounts, such as the Earnest Money and the Due Diligence Fee, will often be paid upon signing the Agreement and will be credited to the purchase price to reduce the amount ultimately due at closing.
The Offer to Purchase and Contract also addresses the due diligence fee and the due diligence period. The due diligence fee is a negotiated amount that the buyer may pay to the seller. The due diligence period is a determined time in which the buyer is to conduct any examination or inspection of the property. Prior to the expiration of the due diligence period, the buyer can terminate the contract for any reason or no reason at all. The due diligence fee is paid directly to the seller, and essentially compensates the seller for taking their home off of the market while the buyer conducts their due diligence. Unless the seller breaches the contact, the seller keeps the due diligence fee in the event that the contract falls through.
The earnest money is a negotiated amount that a buyer pays to an escrow agent upon signing the agreement. The buyer pays the earnest money as a protection to the seller in order to display that the buyer is “in earnest” about purchasing the property. . If the buyer backs out of the contract for any reason, or for no reason at all, during the due diligence period, the escrow agent returns the earnest money to the buyer. If the contract goes through and the buyer does purchase the property, the earnest money is credited to the purchase price to reduce the amount owed by the buyer at closing.
The Offer to Purchase and Contract should also outline the seller’s representations to the buyer. These should include a representation by the seller that he or she owns the property, provide details on any homeowner’s association, make any required disclosures, and warrant that the seller can provide good title and legal access to the property.
The Offer to Purchase and Contract will also set a settlement date.. It may also include details on closing costs, and whether the seller will pay any of the buyer’s closing costs. On the settlement date, all closing documents are signed, all funds are collected from the buyer and the lender, if any. The funds are then disbursed to pay off any encumbrances on the property with the balance going to the seller. Title is transferred to the buyer by recording a deed from the seller to the buyer in the Register of Deeds in the county where the property is located.
Before signing the Offer to Purchase and Contract, or any other contract of the sale or purchase of real property, buyers and sellers must be knowledgeable of the terms and conditions that they are signing. If you need help with a contract to purchase real property, call the lawyers at Perry, Bundy, Plyer and Long at 704-289-2519 today!