Understanding the process required to purchase a home is essential in order to minimize risk and set reasonable expectations. One of the first things to know is that most homes are sold "As Is" which means that what you see is what you get, and it is up to you to thoroughly investigate and inspect the home before completing the purchase. Another thing to know is when you sign a Purchase Agreement it is just a first step in a process that will not be complete until all contingencies have been met, title has been searched and cleared, financing and insurance have been obtained, and closing on the transaction has been completed.
So, how do you do you properly assess the prospective property and protect yourself from legal problems when someone else owns the property? That is where a good real estate agent, attorney, and a well drafted Purchase Agreement pay massive dividends.
Many people believe that Purchase Agreements are "boilerplate" and that most of the provisions are not necessary. I think the belief is that lawyers draft documents that have provisions that are not necessary or understandable, and are basically a "one size fits all" agreement. Nothing could be further from the truth. Although every provision in a Purchase Agreement is important, there are some things that you should pay particular attention to before signing on to purchase the home of your dreams. One of these is the clause that deals with contingencies.
We all understand that in order to buy a home unless we have a lot of cash, financing of some sort is going to be required. In today's world mortgage companies will normally require a buyer to put down at least twenty percent of the total purchase price and you will have to be pre-qualified before entering an agreement with the seller of the property. What you don't know is that being "prequalified" does not necessarily mean you will be able to obtain a mortgage for the home you wish to purchase. Prequalification letters often contain contingencies which restrict your ability to obtain a mortgage, including the requirement that the home appraise at a certain level, or subject to further proof of employment and verification of income.
For that reason and in order to protect yourself, you should always have a contingency provision in the Purchase Agreement that permits you to walk away from the deal if you are unable to obtain financing. If it is important to you to obtain a Conventional, VA or FHA financing limited to a certain amount or at a specific interest rate, then those requirements should be stated in your Agreement. If they aren't and you are unable to close because of a lack of funds, you could find yourself on the wrong end of a breach of contract action!
There are a number of other contingencies that should be included in your agreement including the right to a home inspection, and rights related to what personal property is to convey to you in the purchase. In some instances you may want to specify repairs that need to be made before you close on the property, or you may want to receive verification from the seller that the home is not located in a in flood zone. We once had a client who signed a Purchase Agreement without these protections, only to find out that the home had major structural damage under the crawl space. Unfortunately he had no way to back out of the deal and ended up putting almost $50,000 more into the house after closing than he had planned in order to bring the home up to standard.
These are just a few of the considerations that need to be made when determining what house to purchase and it is always beneficial to engage the services of a knowledgeable attorney to assist in walking you through the process with your unique situation in view. Our experience has been that it is not whats in the contract that is normally the problem. Its whats missing that causes most of the heartache and loss. For that reason alone, under no circumstance should you ever sign an agreement to either purchase or sell a piece of real estate without consulting legal counsel.