Given the current NWA market, you may find yourself in a situation where you are required to act fast and submit a competitive offer to secure your favorite home. This can be a highly stressful and emotional experience and certainly isn’t the time to try to learn how escape clauses and closing costs work.
The most widely used real estate contract in Northwest Arkansas is a 12 page legal document which your real estate agent will fill out, at your direction.
Unfortunately, many buyers have never seen or reviewed this document prior to writing an offer on a home!
Therefore, we highly recommend you request a blank contract from your agent when you begin the homebuying process so you can familiarize yourself with the topics, verbiage and vocabulary of this important document now.
To supplement, we’ve outlined some of the major terms and topics you’ll find in the NWA Residential Real Estate Contract here.
THESE ARE SOME OF THE ITEMS YOU SHOULD BE PREPARED TO DISCUSS AND ANSWER WITH YOUR AGENT WHEN IT’S TIME TO WRITE AN OFFER:
Purchaser(s). Provide the names of all the people who will be listed on the deed. Use the version of your name(s) that you would use on a legal document.
In Arkansas, a husband and wife take ownership of a property together, even if only one of their names is on the loan or deed. Property can also be purchased in the name of a business or trust.
Property Description. Describe the type of property being purchased (single family, multi-family etc), the address and the property’s legal description. Your agent can help find the answers to these for your from county records.
Price and Method of Payment. Tell the seller how much you are offering for the property (purchase price) and how you plan to pay for the home.
Will you pay for the home with cash? Or through a home loan? If financing, is this a new loan? If so, what kind of loan is it – Conventional? VA? FHA? RD? Other? Hint -this will be outlined in your pre-approval letter!
Agency. Let the seller know how each party in the transaction is being represented.
For example, are the agents representing the buyer and the seller from the same real estate firm? Different firms? Are there any parties without representation?
Closing Costs. Let the seller know if you are asking them to pay for a portion (or all) of your closing costs.
Closing costs are fees associated with the purchase of your new home. During the pre-approval process your lender will outline the closing costs required for the type of loan you are using and how much those fees are estimated to be.
These fees are paid (in addition to your down payment) when you officially sign your loan documents at closing.
Earnest Money. Let the seller know if you are submitting your offer with an earnest money check.
Earnest money is a deposit made to a seller as a measure of good faith and is often used by a buyer to “prove” their serious intent to purchase a piece of property. Earnest money is generally held by a third party and applied toward the purchase of the sale at closing. Should the contract fall through, the buyer is usually able to get this money back (depending on the terms agreed to in the contract).
If you decide to give earnest money to the seller you will complete an Earnest Money Addendum to accompany your offer. This addendum lets the seller know the monetary amount you will give them, when the funds will be given and how the funds will be handled and held throughout the transaction.
Nonrefundable Deposit. Let the seller know if you are submitting a nonrefundable deposit as part of your offer, and if so, for how much.
A nonrefundable deposit is a deposit made to a seller as a measure of good faith that a buyer has serious intent to purchase a piece of property. Nonrefundable deposits are generally held by the seller and applied to the purchase of the sale at closing. However, should the contract fall through, due to the fault of the buyer, the funds are kept by the seller (depending on the terms agreed to in the contract).
Title. Let the seller know how the title search and title insurance will be conducted and who will pay for it.
A title search highlights the ownership rights to a piece of property. This search brings to light any liens, encumbrances, encroachments or claims to the property that need to be cleared by the seller before you take possession. For further protection, title insurance is a policy that can be purchased to cover any unknown title defects that may be found in the future.
Survey. Let the seller know if you want the property to be surveyed prior to closing, and if so, who will pay for it.
A survey is a detailed drawing that shows the specific boundary lines of a piece of property. A survey is used to determine the exact amount of land being sold and can include easements and encroachments detailed in the title.
Fixtures and Attached Equipment. Let the seller know which items on the property you want them to leave and which items you want them to remove.
Items considered real property will stay (convey) with the home and items considered personal property will be removed. However, if you want the sellers to leave any items that are considered personal property or remove any items that are considered real property you will let them know here.
Contingencies. Let the seller know if there is a reason why your ability, or desire, to purchase the property is conditional.
The most common example of a contingency is a buyer who needs to sell their current home before they can purchase another. In this situation you will provide the seller with information about your current home as well as the amount of time you wish the seller to give you to close on it. You will also let the seller know if they are allowed to consider additional buyer offers (binding with escape clause) while you wait for your house to sell or not (binding without escape clause).
Home Warranty. Let the seller know if you want a home warranty as part of the home purchase, and if so, provide details about the home warranty company you wish to use, the type and cost of the policy you desire, and who will pay for it.
A home warranty is a contract that covers the repair/replacement of various items in a home, like appliances and HVAC systems.
Inspection. Let the seller know if will inspect the home prior to purchase.
A home inspection grants you access to a property for the purpose of looking at the home more closely. Following an inspection, you have the opportunity to ask the seller to make repairs to the home based on the findings of the inspection report.
Seller Property Disclosure. Let the seller know if you require them to provide you with a Seller’s Property Disclosure for the home.
A seller property disclosure is an eight page document where the seller reveals any known defects to the property.
Termite. Let the seller know if you require a termite policy to be part of the contract, and if so, who will pay for it.
A termite policy refers to a contract with a termite inspection company, usually for the length of one year. The termite company inspects the home prior to closing and reports their findings for the presence of active termites and/or previous termite damage in the home.
Lead Based Paint. It is possible that a home built prior to 1978 could contain lead-based paint. In this part of the contract you will be asked to acknowledge it’s presence, if applicable, and understand your rights to inspect the property for it, if desired.
Closing date. Let the seller know the date you wish to close on the property.
If you plan to purchase the home with a mortgage loan, your lender will let you know what date you can close by. Most closings will be held on a weekday when banks and title companies are open.
Possession. Let the seller know when you would like to take possession of the house.
This usually refers to the time you wish to move in. The options include taking possession the day of closing, before closing or after closing. If you would like to take possession prior to closing (early occupancy) or after closing (delayed occupancy) you will submit an addendum with your offer outlining the terms and rental fees for these options.
Other. Let the seller know if there are any additional terms you wish to be included in the contract that have not already been covered.
Licensee Disclosure. Let the seller know if any of people involved in the sale hold a valid AR real estate license.
Expiration date. Let the seller know how long they have (date and time of expiration) to consider and respond to your offer.
Signatures. You, your agent and your agent’s broker will sign the offer here.
If they seller is in agreement to the terms of the offer they will sign here as well. If not, the seller will check a box to show if the offer is rejected or countered and initial accordingly.
Note. The listed items above are parts of the Residential Real Estate Contract that require a box to be checked or have blanks to be filled in. There are many other parts and requirements to the contract that are not discussed here (such as insurance and termination terms, among others). Therefore, for a full picture of the contract buyers should request a blank copy from their agent to review.
Disclaimer. This is not to interpret or give advice on filling in the contract. The contract is a legally binding document drafted by attorneys and all aspects should be considered with care. This article covers the major parts of the contract so you are familiar with the vocabulary and topics covered only. Refer to the contract for specific verbiage and terms pertaining to each of these topics. Also, these topics are subject to change as the forms are regularly updated.
NICOLE BREKELBAUM (The Education Realtor of NWA) utilizes her background in education and real estate to provide homebuyers, sellers and first year agents with resources they can use to make more confident and informed real estate decisions. Nicole is the founder of the Northwest Arkansas Real Estate Guide and an Executive Broker at Collier & Associates in Fayetteville. www.theeducationrealtor.com