The
real estate purchase agreement is more than just a casual offer. The moment you and the seller sign it, it is a legally binding contract. Since you can put what you want in your offer, why not include some of the clauses that smart buyers use to protect themselves and
save money? Some suggestions follow.
Six Purchase Agreement Clauses
A better earnest money clause. You can put a small earnest money deposit down and still be taken seriously, if you include a clause like this: “$100 earnest money deposit, to be increased to $2,000 upon acceptance of this offer.” You could also have it increased “when all contingencies are met.” This way, if there’s an argument about you backing out because the inspector found foundation damage, for example, you won’t have your money tied up while this is being resolved.
Inspection contingencies. Ask an agent about 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; inspection to be done at buyer’s expense within ten days.” Now you the right to have an inspection done, and if anything negative is found, you can refuse to “approve” of the results, and get your deposit back, or you could re-negotiate a lower price.
Assignation. If buying with a partner who isn’t there to sign the offer, or if you want to “flip” the deal to another investor, or if you may need to involve a partner for purposes of funding the deal, be 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. This lets you add another buyer to the deal, or assign the whole contract to another.
Let the seller pay. Specify that the seller pays for the closing fee, the title insurance, the recording fees, and even the points on your loan. Sellers often just want the sale at a given price, and don’t care about the details. What if they do care? You have given yourself some negotiating points. Get something for dropping each of the costs you included, like maybe a reduced interest rate if the seller is financing part of your purchase.
Basic financing contingencies. Suppose the 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 the vague language, you can specify what “suitable” means in terms of interest rate and such.
Spouse’s approval clause. This could be as simple as “Subject to a walk through inspection and approval of home by wife (or partner - state their name) within two days.” Now, if your wife says no within two days, you can back out of the deal and get your deposit back. If you want the seller to agree to this one keep the time frame as short as you can.
The above clauses are often called “weasel clauses,” because they give you ways to back out, or “weasel out” of a real estate agreement. Don’t worry about the label. A seller has the right to say no to your offer in any case. You, on the other hand, have the right to use these purchase agreement clauses to protect yourself.
Steve Gillman has invested in real estate for years. Learn more about purchase agreements, get a free real estate investing course, and see a photo of a beautiful house he and his wife bought for $17,500, at http://www.HousesUnderFiftyThousand.com
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A letter of intent is a common way to express your intentions to purchase a property without having to write a formal, legal binding contract. The letter of intent is presented to a seller in the very preliminary stages of a project. The intentions of a buyer are spelled out clearly and simply so the seller knows exactly how the buyer wants to purchase the property, and under what terms.
In my experience, a casual, personal letter to the seller is often the best received way to present your intentions to purchase a property. Some people insist on drafting a formal, multi-page, non-binding contract filled with legal jargon that can often intimidate the seller. A seller wants to easily see how the buyer wants to purchase the property, and determine if he or she can accept the presented terms.
Read on to learn how to construct a letter of intent and what to include.
Let’s investigate the contents of a letter of intent so you, too, can construct one before putting a property under contract.
A letter of intent (LOI) must have five basic elements in its content:
1. The buyer’s name
2. The property address and description
3. Your offer which includes:
a. Purchase price
b. Down payment
c. Terms
d. Conditions
e. Due diligence time
f. Closing time
g. Any other clauses or provisions
h. When a formal contract will be written up if the LOI is approved
4. A clause that makes the LOI non-binding
5. Your signature and a place for the seller’s signature
That is about it for the content, believe it or not; it is direct and straightforward without any fluff or nonsense. You are simply covering each detail so the seller knows exactly what the buyer intends to do.
Having an informal letter of intent also allows for easy negotiations. There is no filtering through legally written clauses and other such unnecessary information at this stage in the project. When the letter of intent spells out each detail clearly, the seller can come back with alternate terms of which he or she would be more accepting. This negotiation can go back and forth without the rewriting of lengthy pages that either party may misconstrue.
If the letter of intent is accepted, then the due diligence period will begin. It will continue until the time agreed upon by both parties in which, at the end of the term, a binding contract is constructed. Terms may change during this time if certain aspects of a property, previously not disclosed, are discovered. For example, there may be soil contamination in which the buyer will not want to purchase the property and will safely option out of the non-binding contract. Or, perhaps the property is in a lot worse condition than originally thought, causing the buyer to negotiate a decreased purchase price.
The letter of intent allows for all facts and figures to be verified so that the buyer understands exactly what he or she is getting in the property. If the buyer finds something that he or she can not accept, or something not originally expected, he or she can back out without any recourse or punishment.
Always use a letter of intent to present your preliminary offer to a seller. This will save you writing time, legal fees, and will be easily read and understood by the seller and any other interested parties who must be made aware of your intention to purchase the subject property.
Always construct the letter of intent with honest and detailed facts. Nothing must be overlooked as it can cause problems in the future. Be prepared to negotiate terms, and always know what you are willing to accept if you should get a counter offer.
Use this tool as an easy and direct way to purchase a property every time.
Tony Seruga, Yolanda Seruga and Yolanda Bishop of http://www.maverickrei.com specialize in commercial and investment real estate. As of May, 2006, they and their partners are managing over $600 million dollars worth of new projects.
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