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To Learn All About Contract Details!
Today we're going to be discussing the contract process what it takes in order to fill out the paperwork, the questions you're going have to be required to answer, and just to get you prepared. Usually it takes 2 to 3 passes for a buyer to fully understand what they have to do in order to go to contract.
So first thing is purchase price. You will be walked through that if you're working with a good experienced real estate agent. They're going to explain to you what a reasonable offer would be, if you're in a bidding war, or if you know that you're not the only person that has put an offer on that house. We're obviously going to counsel you on what that looks like to a seller. So we will say, "Okay, this is what you have in mind to offer. You can ask for closing costs. You can ask for this, this is what the neighborhood's selling for, blah blah blah." We're going to walk you through that and then we're gonna make you pretend like you are literally the seller of that home. We're going to present you with the scenarios with what you have in mind against other offers that could come in prettier and sweeter than yours. So that's purchase price. That's the number one thing you have to factor in with regards to make it an offer.
The second thing is your due diligence money. You're going to have to come to the table with something to give that seller to take their home off the market while you do your inspections. That's called the due diligence period. The due diligence period has a begin date and an end date. When you sign the contract, that's usually the begin date. The end date is on page 2 of the contract and it's literally a date. You could say 27 days from the day of contract, 30 days from the day of contract. Normally it's very difficult to get a seller to take their home off the market for more than 30 days. No matter what you're willing to give them they want to know that you're serious. After a certain point and usually that one-month mark is the end of what we typically can get. Every now and then, we can stretch it to 45 days under particular circumstances. What do you do during that due diligence period - you have the home inspected. You might have it surveyed. You might have the septic tested. You might have water tests. It depends on the property that you're buying. If you're buying a condo, there's going to be very few things you're going have to do. We almost always do a home inspection, even on new construction. We almost always encourage our sellers to do a home inspection. You don't want to get into that house and find out that your pipes are made of polybutylene and you didn't even know what polybutylene pipes were. There's just a million different scenarios but you always want to have a home inspection. We're going to highly encourage that if you have a septic tank, have that septic tank pumped. But the purpose of today is to just tell you what you're going to need to do, what you're going to need to know to fill out that paperwork. So I'm not going to go down all the professional services required that we might suggest that you do during that due diligence period. Just know that there is a due diligence period and you are going to pay to take that house off the market. Sometimes in an expensive market or a home that's not having a bidding war or home that's not really popular, we might get that off the market for $100. I feel sorry for the seller that takes their home off the market for $100 but sometimes we can get them to do that. When we represent the buyer, our goal is to get that home off the market for the least amount of money we possibly can take out of your pocket. But if we work for the seller it's just the opposite. We want the most amount of money we can possibly get out of that buyers pocket. So it's kind of a little bit of give and take. That's that's the strategy, though, that you're looking at. You want it to be painful if you represent the seller because you don't want the buyer to walk away after you take your poor sellers house off the market. But if you work with the buyer, you want to make sure the buyer has an opportunity to have all those inspections done and you don't want them to lose their inspection money, and a lot of due diligence money, and the stress. So you really are working for two different goals depending on who you represent. So that is what due diligence money is. The due diligence period typically, as I said, is somewhere within a month. 21 days is a very difficult time frame. If you have a lot of inspections to do, we rarely can even get a survey done on a piece of property that needs a survey within a really crunched period of time. So kind of keep that in mind when you're talking to your real estate agent. You want to make sure that you know what you want to have done and it can all be done within that time frame. If you're using a finance product that's government, let's say USDA, we're really not going to be able to get USDA approved and at 21 day period, that's just not going to happen. So just kind of know that it varies under your circumstances.
So now we've discussed purchase price. We've discussed due diligence money. We've discussed due diligence timeframe. Now we have what's called earnest money. Earnest money is what, back in the day, they used to use. You had so many days grace before you lost that earnest money. Fifteen days I think that's what the old contract used to say. I'm not 100% sure but so now the earnest money comes into play after the due diligence state passes. So let's just say it's a fifteen to thirty day period of due diligence and then that earnest money, which is gonna be a much bigger pot of money. Normally we try to make that contract look pretty by making that earnest money deposit pretty big. So we might have that earnest money pot - a thousand, two thousand, three thousand - dollars depending on the house price and what the circumstances are. But we are gonna protect that for our buyer we are going to be watching that date like a hawk. We're going to be making sure all the tests are ran. We're going to be making sure our homeowner is 100 percent sure when that date hits the calendar. In my office, that date is in red on every calendar and on all of our smart phones. On all of our computers, the closed date is in green and it's in red if it's a due diligence state. We are really really very careful about both of those dates. After that due diligence state passes, that money then goes to the seller. So we do not want our sellers to walk away for any reason after that date passes because they will lose all their inspection money, their appraisal money, their due diligence money, and their earnest money. So it is very important and like I say, a good real estate agent is going to be watching that for you like a hawk.
So then that's earnest money. Now you have something called a home warranty. People say, "Oh, those aren't any good." Well yeah, they kind of are. If you've ever had a home warranty and I have a lot of homeowners that have never not had a home warranty. If you have and you've used it successfully, you rarely will ever let it lapse. But you can get the seller to pay for a home warranty and they're gonna run anywhere from $475 to $675 and some up to $750, depending on what the circumstances are. So just know that a home warranty is a good thing. It is not a waste of money that a lot of people think and it gives me as an agent a lot of peace of mind to know that when my seller closes they have a home warranty for a year that they can call upon. They're gonna call me anyway but after we look into the situation we'll find out that they have a home warranty and we'll help them in the home warranty process if they need us to do so. But it's just a really good thing to have. If you have a leak in your roof unexpectedly, it covers things like that. An appliance that breaks, it covers things like that. Not everything is covered but a lot more to cover than you would think. You can get writers if you have a very big concern with the HVAC or the roof, you can actually upgrade the warranty to cover some of your bigger concerns. So any rate, that's a home warranty and the seller can be asked to pay for that.
Then you have something called closing costs. That's another pot of money that we can still ask the seller to pay. Now will the seller pay that all the time, sometimes but sometimes they just say, "Heck no!" Okay, so you have that other pot of money, closing costs. Closing costs is one of those very difficult, touchy subjects. We have clientele that are gonna say, "No. I've always paid my closing costs." Everybody I know is faced with closing costs. How they ask that I pay their closing costs sometimes. It can be difficult to get a seller to pay. But they can pay it and as long as they feel comfortable with their net, they should be willing to pay it. So really the house is carrying the closing cost if you think about it. If you can get a seller happy with their net, that's their proceeds after they pay for everything. Then why would they not pay for your closing cost?! And with today's interest rates you can let your house carry the closing costs and it will take years for you to get that money back in your pocket. So quite frankly, it's really good to let the house take the roll, if you will. Okay, I'm gonna start it again because closing costs can sometimes be very difficult. Sometimes to get a homeowner to pay your closing costs, some people understand it because they themselves have asked for closing costs to be paid by their previous seller. But, if they've never asked the closing cost to be paid, though, I can promise you they are going to bristle. They're not going to understand why this buyer does not have the money to pay their own closing costs for the purchase of their home. So just know that sometimes it's an easy thing to get passed through contracts; sometimes it's very difficult. But, as an agent, we explain to the seller the process with regards to allowing the home to carry the closing costs. They're not really paying the closing cost unless the home is covering the closing cost and they're getting their net where they're happy paying that fee. Then once you have them happy with that net and you make them understand that, "Hey, even if we have to increase the price of the house to help this buyer out to get their closing cost, that's fine." You're getting your net, you're getting out of it what you need and they are allowed to ask for that. And with today's interest rate, it just doesn't make sense sometimes for a buyer to pull the cash out of their pocket to pay all the fees involved in financing a home. It's better just to let the house carry it in most scenarios. So at any rate that is closing costs and you are allowed to ask for those. We are really good at talking our sellers into paying but they just want to make sure that they get their net and that they don't feel at the end of the day that they're the ones that are really paying them. The house is paying for them.
So at any rate in the house has to appraise that's one thing that has to be explained to by our end seller. If you do try to get the house ballooned up a little bit to cover that fee it has to appraise. So it has to work. If the math doesn't work and the house can't carry it, the bank's going to say no and then you have to go back to the drawing board and decide how you're going to deal with the closing cost. So you always make sure that both parties are aware of the best case and worst case situation. If, for some reason, the home does not appraise.
Okay, so there you go guys! That's the meat and the potatoes of the contract. You've got the price. You've got the due diligence fee. You've got the earnest money fee. You've got your due diligence state. You have your settlement date. We didn't really talk about that but that's usually 45 to 60 days.
Somewhere in there that you're going to agree to actually close on the house, you'll do a final walk before that date. I didn't talk about that but that's not part of filling out the contract. That's just part of the process.
Then you have your warranty that we try to get for almost all of our buyers. We also try to get our sellers to put it on their house when they go to list because they actually can put it on their house for free and they have coverage during the entire time we have it listed for free. They do have to pay for it if they put it on their house when they go to sell it and nine times out of ten the buyers can ask for it anyway so why not go ahead and put it on the house?
You're in the list period so then you have your closing cost and that's it, guys. That is literally the process of the paperwork. Now I did leave out the professional services. We're not going to go in depth into all the things that you would be doing during the due diligence period because that is an entire video upon itself.
But that is the stuff that you're going to have to do. Obviously we do the paperwork for you but those are the questions and that is the process of the paperwork. We're going to go through that with you two, three, four, five times. We're going to make sure you fully understand what due diligence fee is about, what the due diligence period is for, what the earnest money is for, and how important it is that we protect it for you during that purchase process. So I hope that this was helpful. And if you have to watch this two or three times I know we have to say it two or three times to really get it to sink in so that you fully do understand what it is to fill out the paperwork and let us help you get that get that contract completed in a manner that it says exactly what you think it says and that you're very comfortable with it after you sign it. Okay, I hope that was helpful, guys! As always, just call us if you have questions and thanks for watching!