Now we get into the details of the sale. All the points we just negotiated—the price, what stays, what doesn't, what's repaired, what's not, and who pays for what—get spelled out, legally, in writing. Purchase contracts are generally pre-printed forms. It is your responsibility to add specific clauses to the form and to strike out items that don't apply to your sale. In some cases, the signing of the contract is also the point at which the buyer must part with some significant cash, the earnest money deposit.
Earnest money is a cash deposit assuring the seller that the buyer is acting in good faith and is sincere in his or her intent to purchase the property. There are no legal requirements as to how much this deposit needs to be, but the general rule of thumb is 5–10% of the purchase price of the home.
IMPORTANT NOTE: Once a contract is in place, the home is considered off the market and not to be shown to other prospective buyers. If the deal does not ultimately close for legitimate reasons such as the buyer's inability to secure financing, the deposit money reverts back to the buyer. If, however, the buyer simply changes his or her mind, you should be compensated. Your compensation becomes the deposit money. For this reason, never agree to an artificially low deposit. Insist on a minimum of 1% of the selling price.
SUGGESTION: Most contracts are written so that interest earned on the earnest money deposit goes to the seller as compensation for removing the home from the market during the contract process. Your buyer may want that changed to a 50/50 split. Keep it in perspective. Agreeing to this stipulation shouldn't amount to a lot of money and it does give you leverage in the bargaining process. Don't let little points like this one become deal breakers. Keep the process moving.
Elements of a Real Estate Contract
Here are some items that are typically part of a real estate contract. The list isn't complete, so consult your real estate agent (or attorney if you have one) before signing anything:
Consider the complete picture when evaluating your contract. If you feel the contract is slanted against you, have it changed. Buyers may do everything possible to hold you to price and terms but may also include as many contingency clauses as they can to provide them with escape hatches at any step along the way. This is standard procedure. Your role is to examine each clause carefully. Make sure that it is clearly written and reasonable; if not, have it removed or at least altered.
Protect Yourself against Protective Clauses
At this point, you're on your way to entering into a binding contract. If your buyer changes their mind, however, they do have one out: Most states require that a three-to-seven day period to rescind the contract is written into the agreement. This cooling-off period protects a potential buyer from making hasty decisions. Since we're in the area of contracts and legal responsibility, it is a good time to discuss hiring an expert to assist you—a real estate attorney.