Contract Terms

Sales Price

The sales price is the price the buyer is paying. Please remember your net will be less than the sales price. In most cases the home will need to appraise for the sales price (not the down payment).

Down Payment

The amount of money the buyer is paying out of their own pocket. The loan amount will be the difference between the sales price and down payment. Some sellers see a larger down payment as an indication of the buyer’s ability to close. That is not necessarily true and is something we should talk about when reviewing any offer.

Earnest Money

Earnest money is money deposited by the buyer with the title company as a sign of good faith. In our market 1% of the sales price as earnest money is standard. Sometimes sellers put too much emphasis on the amount of earnest money. Keep in mind earnest money is refunded if the buyer cancels the contract for any of the reasons that would allow them to request a return of the earnest money. Remember, our goal is to sell the house and not get into a legal dispute over earnest money.

Owners Title Policy

A title policy or title commitment will be required if the buyer is getting financing and even by most sellers. Who pays for the title policy is negotiable although it is standard in our market that the seller pays. This fee is regulated by the state and the amount is not negotiable and will not change regardless of the title company being used.

Deletion Of Shortages In Area

If a previous survey is being used the survey company will not guarantee that survey for the new buyer. The title company sells essentially what is an insurance policy and that is what this term is in the contract. The buyer may or may not want that coverage and if so it is negotiable for who pays. This amount is roughly 10% of the title policy amount.

Survey

The contract spells out if the seller is providing a survey or if a new survey is being ordered and who will be paying for a new survey. Please keep in mind if the seller is providing an existing survey and that is not done within the number of days spelled out in the contract the seller may be required to pay for a new survey. A new survey will cost about $500 for a standard lot.

Days To Object

After receiving documents the buyer has the right to object to any items if they need to be cured. Most common this would be if something concerning turns up on the title commitment.

As the seller you would want this period as short as possible, around 5 days or less.

Seller Paid Warranty

A home warranty is called a Residential Service Contract in the contract. It is standard for the seller to provide a credit for the buyer to purchase a 1 year home warranty. The cost is typically around $550. This is not something you need purchase, it is simply a credit and the buyer purchases the warranty from whatever company they like.

Closing Date

The most important date in a real estate contract is the closing date. That’s the day we celebrate and you get your money!

The closing date is one part of the contract that is negotiable between the buyer and seller. Please consider carefully the closing date you are committing to BEFORE signing a contract.

When agreeing to a closing date here are a few things to consider…

Once a contract is signed the seller does not have the right to change the closing date without the agreement of the buyer.
The buyer will expect you to have moved out of the house and your home to be clean so they can do a final walk through the afternoon/evening before closing or the morning of closing.
We recommend closing as soon as possible. Every day closing is pushed back is one more day for the buyer to get cold feet, find out they are getting transferred out of state or any number of life events that might disrupt your sale.
Our contracts in Texas do not come with a period of time for you to stay in the house after closing. To make your move easier, if you need to stay in your home for a short time after closing we can help negotiate a lease back for you. A lease back needs to be negotiated prior to signing a contract. A lease back will not be possible for every home sale.
The contract says utilities need to be in your name until after closing. We will remind the buyer to transfer the utilities into their name. Please do not turn off the utilities until your sale is final. If your closing is on a Wednesday please do not schedule utilities to be shut off until Thursday. You may want to pick a closing date not on a Friday to avoid paying for utilities over the weekend.
If you schedule utilities to be shut off on Wednesday and they are turned off before the buyer has done a final walk through you may have to pay to have the utilities turned back on. We recommend not shutting off the utilities until the sale is final in case there is a delay in closing so you do not have to have the utilities turned back on.

Seller Paid Closing Costs

The buyer may ask you to pay for some of their closing costs, for example underwriting fees, homeowners insurance, etc. We will want to make sure you understand that will reduce your net. This amount can be negotiated.

Option Money/Option Period

Option money is paid by the buyer directly to you as the seller. This money is not refundable. By giving this “consideration” it allows the buyer to have the termination period where technically the buyer can cancel the contract for any reason and receive a refund of the Earnest Money. This option period/termination period is also generally the time when a buyer will perform their inspections (technically inspections can be done at any time).

It is standard for option money to be anywhere from $100-$500 and the option period to be 7 days. This will depend on the sales price, how long the home has been on the market and the interest level and motivation from the buyer.

Please read our article detailing what it means for a contract to be As-Is.

Third Party Financing

The Third Party Financing Addendum spells out the loan terms for the buyer. If the buyer can’t obtain financing within the number of days in the addendum at the interest rate provided the buyer can terminate the contract.

The financing period only considers the buyer’s credit financing and the number of days does not mean the appraisal needs to be completed in that timeframe.

HOA

If your home is in a Homeowner’s Association documents will need to be provided to the buyer. The documents are requested from your HOA management company. The title company requests these documents although technically it is the seller’s responsibility.

Each HOA Management company charges an amount of money to produce the documents and the amount the buyer is willing to pay is negotiated in the HOA Addendum.

Appraisal Addendum

What happens if the home does not appraise for the sales price is a grey area of the contract. There is an optional addendum that spells out what will happen more clearly and sometimes a buyer may include this addendum with their offer.