Put it in Writing – Contract Basics for the First-Time Buyer

Only attorneys can legally guide you through the technical aspects of a real estate contract (in Kentucky). A real estate agent can provide a pre-printed contract and help you fill in the blanks, but cannot provide legal advice. What follows is my professional opinion based on experience and training, and it does not supersede the guidance of an attorney.

After all of the hard work getting your finances in order, putting together your real estate team, and finding your dream home in Louisville, KY, you must now take the time to carefully prepare a written offer and present it to the seller. This offer will form the framework that the rest of the real estate transfer will follow, and therefore it is very important that you get it right from the beginning.

Let’s take a look at how real estate contracts are structured; in no particular order they will always contain the full name of the person(s) making the offer, the legal property description and address, the price of the offer, the payment terms, contingencies for inspections, the closing date, and a signature/acceptance page. In addition, they may contain a myriad of other terms and conditions that are usually traditionally negotiated in your local area. I am going to focus on the basics and you should secure competent, professional representation to explain the additional terms and protect your interests during the negotiation process.

When preparing your offer it is critical that you get the legal description of the property you wish to purchase correct. While I’m certain in most cases it will be obvious what your intentions were if a mistake is made, it will not suffice to have the incorrect description on the real estate contract. The seller may reject the contract if they notice the discrepancy, and they can use it as leverage against you should the transaction become troubled. Don’t leave this door open!

The price and terms of payment are primary negotiating points, so you want to make sure you have done your due diligence with the market and your lender to ensure you remain within reason and budget. It is not always the best technique to aim low and let the seller counter back with a higher, but still acceptable price. In a hot market, or with a desirable property, making your highest and best offer right from the start could make the difference between getting the home and missing an opportunity. Even if the seller counters your highest and best, you can counter back at your original terms, or reject their counter.

The specific terms of payment and the amount of money to put down is also a point of negotiation. Put yourself in the seller’s shoes when determining how much to offer as a good-faith deposit. The more you offer not only indicates your motivation to get the transaction to the closing table, but it also gives the seller comfort about your purchasing power. Who wants to lock up a $150,000 home with a $500 good-faith deposit? The sellers will be very wary of letting a weak buyer gain a measure of control over their property, especially if it is a desirable one.

Contingencies are used in real estate contracts to give protection to one or both of the parties involved. For example, any decent real estate contract should include a contingency for allowing the buyer to inspect the property and either ask for repairs or corrections, or to terminate the contract if they are unsatisfied with the condition of the home. This contingency will have a time limit, after which there will be no further contractual relief should the buyer discover any faults with the home prior to close. Of course, you can still attempt to negotiate if a genuine problem surfaces, but it may land you in a court battle with the seller. Make sure you have an inspection contingency in your contract, and make sure you fully understand exactly what is instructs you to do.

The basic negotiating process consists of a written offer followed by an acceptance, a rejection, or a counteroffer. If your initial offer is accepted on the terms you set, good job! Now buckle down and make full use of your contingencies. If your initial offer is rejected, before you get discouraged review all of your terms and conditions and ensure you made a fair offer acceptable to you, and if you did, then either resubmit on different terms, or walk away. If you receive a counteroffer to your initial offer, then you must carefully review the changed terms and decide if they can be acceptable to you. If not, you can either reject or counteroffer again in an attempt to keep the negotiations alive.

This process can sometimes continue back and forth through several alterations of the original terms and conditions, sometimes over minor points like the exact day of closing. This is okay, though, and you should be prepared to continue negotiating with a reasonable seller to get your dream home if you think there is any way to keep negotiations alive. Always keep in mind that the terms and conditions you set will be used by all of the additional parties to the real estate transfer like attorneys, title companies, other real estate agents, and by the seller and yourself to finalize the property transfer. You must fully understand and be comfortable with all facets of the real estate contract.

I hope this outline has given you a little guidance and inspired a few questions for you to ask your Realtor about real estate contracts. Putting an offer into writing is both an art and a science, and it requires professional assistance, plus creative thinking. Good luck with the purchase of your new home!