Once you and the seller agree on a price for the seller’s property, you must sign a purchase agreement. Because a contract has to have consideration to be considered valid, buyers put down “good faith money,” which is held in escrow by an attorney, real estate broker or a title company. This could be any amount from $100 to a percentage of the agreed-upon purchase price. In most cases, the contract benefits the seller by making that deposit non-refundable.
Once you both sign the contract and the buyer gives the agent the good faith money, the house is “in escrow.” However, the contract does contain contingencies. If the buyer or the seller cannot satisfy certain requirements, either is free to back out of the contract without consequences.
The Mortgage Contingency Clause
Most people have to get a mortgage to buy a house. However, if you cannot qualify, you might lose your deposit unless you include a mortgage contingency clause in the purchase agreement. The clause states that if you are not able to procure financing, the seller must return your deposit. The transaction then falls out of escrow.
Inspections
While sellers in New Jersey are required to disclose certain defects that affect the property, a seller cannot disclose what they don’t know. You should always get inspections before you complete the transaction. If the purchase agreement does not have clauses for various inspections, be sure to add them in before you sign the contract. The two most common inspections are for termites and a general home inspection.
A termite company will come out, at the buyer’s expense, to do a termite inspection. If the inspector finds termite damage, the buyer has a couple of options:
Request a refund of their good faith money;
Ask the buyer to repair the termite damage and have the house tented; or
Ask the buyer to reduce the price of the property by the amount it will cost for the buyer to have the house tented and repaired.
If the termite damage is so extensive that it affects the structure of the house or will eventually affect the structure of the house, you might want to request a refund of your good faith money and look for a different property.
During a general inspection, a home inspector checks:
The heating and cooling systems;
Plumbing in and under the house;
The electrical system;
The walls, ceilings and floors;
The roof and the attic;
The foundation, including the basement and crawlspace, as applicable;
Windows and doors;
Visible structures; and
Environmental concerns, such as the removal of an old oil tank.
As with the termite inspection, if any of these are deal-breakers, you can request that the seller return your good faith money. If you really like the property, you could also ask the seller to make the recommended repairs or to deduct the cost of the repairs from the purchase price.
In some cases, you may want to make repairs yourself and deduct the cost from the purchase price, so that you know you hired reliable companies to do those repairs.
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