Explain: By the end of this session, you will be able to explain how to determine a reasonable purchase price for property, identify components of the sales contract and understand the items you should consider before signing a sales contract.

The first and most important document you will sign in the home buying process is the sales contract.

Explain: When you decide which house you would like to buy, a real estate professional will offer you a standard form of a sales contract. This form also may be titled "Offer to Purchase" or "Purchase Agreement."

You have full power to amend the contract as you deem necessary before signing it. You should not hesitate to negotiate terms you feel are needed.

However, the seller must accept the terms of the contract in writing. Verbal assurances are not enforceable and nearly impossible to prove.

Question: What might you assume would be included in the sales contract?

Instructor Note: Create a list of ideas on the board.

Transition Statement: This is a great list to start with. Everything mentioned probably falls into one of these three categories on the Sales Contract.

Explain: Sales contract components are, most importantly, the purchase price; second, the contingency clauses; and, finally, typical components on many legal documents.

Transition Statement: Let's start by discussing the purchase price component of a sales contract.

Explain: It is important to ask questions and do your research before you decide on the amount you are willing to offer for a house.

First, contact the County Assessor's Office and find out at what value the house has been assessed for property tax purposes.

You also should consider how long the house has been on the market. If the seller has been trying to sell it for a long time, he might accept a lower offer. There may be a reason the house has not sold (structural problems, over-priced, etc.).

Consider the length of time other houses in the neighborhood have been on the market. Ask the realtor for comparable houses in the area that recently have sold or are on the market. Compare the houses and their sales or asking prices.

Also consider that the asking price is often not the final price. There is often room for negotiation.

Depending on the market, you may be able to negotiate your offer. If it is a buyer's market, there are many houses on the market that are not selling, often allowing you to offer less than the asking price. If there are very few houses on the market and numerous buyers, then it is a seller's market, and there may be less room for negotiation.

Finally, when considering your purchase price offer, find out what reasons the seller has for moving or selling the house. He may be moving because he does not like the neighborhood or has had problems with the house.

Transition Statement: Another important component of the sales contract is the contingency clause.

Explain: A contingency clause in the purchase contract describes certain conditions that must be met before the contract is binding. The buyer and/or seller may include contingencies in the contract for legal purposes, but both must accept in writing these clauses.

Question: What might be an example of a contingency clause in a sales contract?

Explain: One example is a subject-to-financing clause that allows the potential homebuyer to make an offer on the property contingent on securing appropriate financing. If the buyer cannot obtain financing, the offer is disregarded.

Another is subject-to-inspection clause that allows the potential homebuyer to modify or withdraw the offer contingent upon the results of professional home inspections.

A house sale contingency clause allows a potential homebuyer to sell his present house to finance a new one. Again, the offer is disregarded if the buyer's existing house is not sold.

Activity: Distribute the purchase contract samples.

Question: Let's see if we can find the contingency clause section in this purchase contract.

Instructor Note: Provide plenty of time for participants to look through the contract. This sample is long and the contingency clauses are at the end of the contract.

Explain: The contingency clauses are located on page 8 of the contract, listed under #26. You will notice there are other clauses that we did not discuss, and there is a place for additional clauses, if needed.

As you were looking through this contract, you may have realized this sample is very long and detailed. As you learn more about the sales contract, you will find this sample easier to understand.

It is important to point out that this is a sample used by the Realtors Association and is not a standard form for all purchase agreements. The forms will vary, but all will include the same information.

As we review this contract, you may find that there are unfamiliar fees and costs listed. In the next three lessons, we will be discussing the fees and costs associated with purchasing a house. For this lesson, we want to familiarize you with the major items listed in a sales contract.

Question: In addition to the contingency clauses, we have already discussed one other item listed in this contract. Can anyone find the sales price?

The names of the buyer and seller (#1)
The purchase price with approximate down payment and loan amounts (#2)
The amount of earnest money agreed upon (#3)
The legal description of the property (#4)

• The street address alone may be not sufficient. A survey of the property may be necessary.

• A separate list of the personal property to be included in the purchase contract also may be attached. (Not included in sample)
• If you expect the kitchen appliances, furniture, chandeliers, etc. (if not built-in), to be included in the deal, state each appliance specifically in an additional attachment that is a part of the contract statement. Otherwise, you could be held to only those items constituting the house itself – walls, floor, roof and permanent fixtures. The same is true of any curtains, draperies, rugs, etc. Such removable items may be negotiable with the seller.

Explain: The sales contract also includes:

The buyer's obligation to financing the house and the number of days allowed to arrange financing after the seller accepts the offer. (#6)

A list of items the buyer and seller agree to pay. The table in #7 lists several fees and charges that are included in buying or selling a house. Examples include inspection costs, survey costs, closing fees and recording fees for both parties. (#7)

Guarantee that you will receive a marketable title to the property, an abstract of title and certificate of title or a policy of title insurance. (#10)

Provision that the seller provides the title free and clear of all liens except those that you specifically approve. A lien is a legal claim on the property as security for a debt. (#10)

A list of documents the seller will provide to the buyer and deadlines for providing them. (#11A)

A list of inspections that will be done on the property, and who agrees to pay for the inspections. There is usually an agreed upon deadline by which the inspections must be completed. (#11B)

A survey report indicating a deadline and who will pay the cost. (#11C)

The contract also provides a deadline by which the buyer must submit reasonable objections to the seller if the report conditions are unsatisfactory.

Explain:
On page 6 you also will find sections that address the seller's responsibility to pay for house repairs needed up to a certain dollar amount (#11F), as well as the refund of earnest money (#11H).

There is a section in the contract in which the buyer may list the provider of the home warranty. (#12)

Disclaimers to the contract are listed on page 7. (#13)

The maintenance section explains that the property must be maintained in the same condition as when the purchase agreement was signed. (#14)

The buyer has the right to inspect the house within two days of closing as stated in the contract. (#15)

There is also a time limit agreed upon by which the seller must accept or reject the offer to purchase. This section is referred to as the expiration of offer. (#27)

Signatures of all parties to the transaction will go on page 9.

Explain:
We did not cover all the sections in the contract, but this does provide an explanation of what you can expect to see on your contract as a home buyer. Three other things you might find in a contract that were not included in this sample are:

An agreement as to how taxes, water and sewer charges, premiums on transferable insurance policies, utility bills, interest on mortgages, and rent (if there are tenants) are to be divided (prorated) between buyer and seller on the date of the settlement.

List of all title restrictions, limitations, homeowner association regulations or warranties to which the property is subject.

• Otherwise, you may find (after you purchase the house) that you are restricted in the use of the property or that others have an enforceable claim for some use of the property.

Any other items that are essential to you in the purchase of the house.

Explain:
There is certainly a lot of important information in the sales contract, making it one of the most important documents you will sign in the home buying process.

Question: Before we talk about signing the contract, are there any questions about the components of this form?

Explain: Before you sign a contract, consider each of these points:

However, as the buyer you should make sure the conditions under which the deposit will be returned are specifically stated in the sales contract.

Transition Statement: The last step in the sales contract process is the signature from the seller.

Explain: Just because the seller receives your offer, he/she is not obligated to accept it. The seller will accept what he/she considers to be the best offer.

Lesson Summary: Congratulations! You have completed Sales Contracts in this Home Buying Process series of classes.

Today we have explained how to determine a reasonable purchase price, identified components of the sales contract and discussed items to consider before signing a sales contract.