When buying or selling a home, the term “under contract” signifies an important milestone. It means the buyer and seller have agreed to the terms of the sale, but the deal isn’t finalized until all conditions are met. Understanding what this stage entails is crucial for a smooth real estate transaction. For expert guidance, contact Berkshire Hathaway HomeServices at (310) 373-0021.
The Pre-Approval Advantage
Before we dive into what it means to be “under contract,” let’s touch on the importance of getting pre-approved for a mortgage. This step is essential for establishing your credibility as a buyer and knowing your financial limits.
Pre-Qualification vs. Pre-Approval
- Pre-Qualification: An initial step where you provide basic financial information to get an estimate of how much you might be able to borrow.
- Pre-Approval: A more detailed process involving a thorough credit and financial review, giving you a specific loan amount and interest rate valid for 60 to 90 days.
Elements of a Purchase Agreement
A purchase agreement, also known as a real estate sales contract, is a comprehensive document that outlines all terms and conditions of the property sale. Key components include:
Buyer and Seller Information
The names and contact details of both parties involved in the transaction.
Property Description
A precise description of the property, including its address and legal property description, ensuring clarity and consistency.
Purchase Price
The total price agreed upon by the buyer and seller, including deposits and any additional costs.
Representations and Warranties
Disclosures by the seller about the property’s condition, along with guarantees that the seller has the right to sell the property.
Financing Details
The method of payment, whether through a mortgage, cash, or other financing options.
Fixtures and Appliances
A list of items included in the sale, such as built-in appliances and fixtures.
Title Insurance
Details on who will purchase title insurance to protect against claims or defects in the property’s title.
Closing Costs
An outline of who will pay various closing costs, including agent commissions, legal fees, and other transaction-related expenses.
Property Taxes
Information on how property taxes will be prorated between the buyer and seller for the year of the sale.
Closing Date
The scheduled date for the transfer of ownership and keys from the seller to the buyer.
Earnest Money
A good faith deposit made by the buyer, held in escrow and applied to the down payment upon closing.
Understanding Contingencies
Contingencies are specific conditions that must be met for the sale to proceed. Common contingencies include:
Inspection Contingency
Allows the buyer to renegotiate or cancel the contract if significant issues are found during the home inspection.
Appraisal Contingency
Ensures the property’s value is at least equal to the purchase price, protecting the buyer’s financing.
Financing Contingency
Protects the buyer if they are unable to secure a mortgage loan.
Title Contingency
Ensures there are no legal issues with the property’s title.
Home Sale Contingency
Allows the buyer to make the purchase dependent on the sale of their current home.
The Road to Closing
Once all contingencies are met, the transaction moves towards closing. If the buyer backs out after contingencies are satisfied, they may forfeit their earnest money. Sellers who back out could face legal and financial repercussions.
Understanding what “under contract” means and the components of a purchase agreement can help you navigate the home buying or selling process with confidence. For personalized assistance and expert advice, contact Berkshire Hathaway HomeServices at (310) 373-0021. We’re here to guide you through every step of your real estate journey.