Deconstructing the purchase contract

Real estate agents, in the Capital Region, use the same boiler plate contract for the purchase and sale of real estate. This enables us to quickly put together an offer on behalf of a buyer as well as easily explain the details of an offer to a seller. We make sure to tell our clients that once the terms are fully agreed upon and both parties have signed the contract, it becomes a legally binding document, so it’s very important the parties understand what they are signing. Both parties are strongly encouraged to have a real estate attorney review and approve the contract during a standard attorney review period (which is outlined in the contract) but we want our clients to have a strong grasp of what they are agreeing to well before they talk with their attorney.

Here is a brief overview of what is included in the contract:

1. Identification of parties to the contract: Self explanatory, this outlines the names and addresses of both parties.

2. Property to be sold: The address, town, county and size of parcel is noted in this section.

3. Items included in the sale: Generally, items that are affixed to the home are included in the sale, but personal property is not. For example - built-in cabinets, fencing, alarm systems, carpeting, shrubs and plantings, etc. There is also a place for us to list additional items included, which is typically where appliances are noted, along with a stipulation that they are in working order at the time of the closing.

4. Items excluded from the sale: Sellers will sometimes exclude items that are generally included, for example a dining room chandelier or the washer and dryer.

5. Purchase price: This section includes the amount the buyer is paying for the property as well as the amount they are putting down as an earnest money deposit (due at the signing of the contract and held in escrow by the listing brokerage).

6. Mortgage contingency: Unless the buyer is paying cash (or waiving the mortgage contingency for some other reason), this section outlines the type of loan they are seeking (conventional, FHA, VA), and the amount they are mortgaging. It also indicates how quickly they will begin the mortgage application process as well as the date by which they will receive their mortgage commitment from their lender. Should a buyer be including a seller concession, this will also be noted in this section. A seller concession is credit towards closing costs, which basically allows buyers to mortgage some expenses, thereby allowing them to bring less cash to closing.

7. Mortgage expense and recording fees: It is standard in our area that the purchaser assumes these costs and this section memorializes that.

8. Other terms: This fill in the blank section allows agents to make note of any other stipulations or conditions. A very common one is “seller shall convey house and garage in broom swept condition and shall maintain property and grounds until closing”.

9. Title and survey: This describes the type of title that will be obtained and designates who will pay for it (generally the purchaser pays in and around Albany County, but this burden shifts to sellers in other areas - as one moves west of Schenectady, for example). Should purchasers want a survey completed, it will be at their expense.

10. Conditions affecting title: This indicates how the buyer plans to use the property (as a single family dwelling, for example). This clause also can be interpreted as implying that the subject property is zoned by the municipality for the buyer’s intended use.

11. Deed: There are several types of deeds available to homeowners - this clause states that a Warranty Deed, with Lien Covenant is preferred. This is generally accepted as the best kind of deed as it offers the most protection to the owner. If anything other than a Warranty Deed is being offered, this is the place to note that.

12. NYS transfer tax, additional tax and mortgage satisfaction: This explicates that the seller pays NYS transfer tax and expenses related to satisfying any outstanding mortgages. There is also a condition that the purchaser will be responsible for any additional taxes (for example, the mansion tax for sales over $1M).

13. Tax and other adjustments: This section notes that the seller will be responsible for the payment of all property expenses up until the date of purchase. Credits for taxes already paid, sewer and water, rental income, HOA fees, etc are all addressed during the closing process.

14. Right of inspection and access: This gives the purchaser the right to have the property inspected by a licensed inspector as well as the right to a final walk through prior to closing.

15. Transfer of title/possession: The date by which the title of the property will be transferred. In NYS, this is a target date, not a contractual guarantee, which is different than in some other states and can be confusing to buyers relocating here.

16. Deposits: Upon acceptance of the offer, the buyer provides an earnest money deposit to the listing broker. This section outlines what bank the deposit will be held in and what happens to the deposit.

17. Time period of offer: When presenting an offer, the buyer’s agent will note how long the offer is good for. It is expected that the seller will respond (accepting, rejecting or countering the offer) before that time period elapses.

18. Real Estate Broker and Cooperating Broker Compensation: This outlines the details of the real estate fees that the parties are paying.

19. Attorney Approval: The contract is contingent on both parties getting approval from their respective attorneys and this section outlines the date by which this approval should occur.

20. Conditions of Premises: This section states that the property is sold “as is” and once the title is transferred, the seller bears no responsibility.

21. Inspections: Unless the inspection contingency is waived, this section outlines the inspections that will occur (structural, wood destroying organisms (pests), septic, well, radon) as well as the date that the inspections will be completed by and the date by which the seller will be notified of any substantial defects. This section also indicates the expense threshold that designates a defect as “substantial” (typically $1500 for a single item).

22. Addenda and Mandated Forms: A list of any accompanying addenda; including the property condition disclosure, lead paint disclosure, CO/smoke detector, agency disclosures, etc.

23. Notices: This section (as well as the section below) notes that the written contract will supersede all verbal exchanges.

24. Entire Agreement: Once signed, the parties agree to the details of the contract and it cannot be changed orally.