Bill Skills: How to read your real estate contract

If you've ever bought or sold a home, you've seen the massive stack of paperwork involved. Your real estate agent's job is to help translate but having a good understanding of all the fine and bold print is the key to writing and accepting better offers.

For sellers, there's often a knee-jerk reaction of zeroing in on the purchase price before anything else when that first offer comes in.

You get your first offer and predictably look only at the first line under section 1-d: purchase price.

"That's what (clients) care about first and the closing date but the due diligence money and the earnest money and even the type of loan they're getting, they don't pay any attention to that," Regina Drury of the Regina Drury Real Estate Group said. "They just say, 'This is the price. I want to counter.'"

No two price offers are created equal.

Consider the due diligence fee right underneath the offer price. This is a non-refundable deposit that goes right to the seller.

It's sort of like a buyer's way of saying, "I'm so serious about this house I'm willing to risk losing this money to get it."

This fee is for buyers who have no idea if the house has hidden problems yet, but in a hot housing market, it's also risky for sellers not to demand it.

"If you don't get any due diligence money or if your due diligence time is too long, then basically you held up your house for no reason," Drury said. "Then 45 days from now, you're putting your house back on the market. Maybe the market is softer?"

One more line down on a real estate contract is the earnest money deposit. This deposit is 100 percent refundable if the buyer backs out during the due diligence period, i.e. the time they have to do their inspection, appraisal, get a loan, etc.

Sellers should look for how long a DD period the buyer asks for and also any other contingencies that can be buried in all the clauses.

"Imagine you have a refrigerator that's 10 years old and you included it just because but now you have to spend $1,000 or maybe $1,500 to buy them a new refrigerator similar to the one that's there," Drury said.

Keep flipping through the contract and you'll get to the seller's disclosure form. This sheet acknowledges any issues sellers are willing to claim they're aware of.

Options are yes, no or no representation.

"There are people who say, 'I don't want to have any responsibility on this form so I'm just going to say no representation,'" Drury said. "Really it's just a buyer beware. They need to do a home inspection. That in no way should replace a home inspection."

Finally, Drury recommends going over the buyer's preapproval letter, which in some cases can be bogus. Sellers need to call the buyer's lender — likely the seller's agent will do this — and confirm the financial claims on the letter.

Not all types of loans will buy just any type of house. The sellers need to know what type of financing will work for their property before agreeing to take it off the market under a certain type of loan offer.

"VA and FHA, when they go in, they're going to note missing shingles, wood rot, etc," Drury said. "You may not know this, but if the floor is concrete, there's no carpet, the VA will say, 'We need flooring.'"

You have a real estate agent whose job it is to guide and translate all this for you, but it's the biggest purchase or sale of your life. Knowing how to read the fine and bold print yourself is the key to submitting better offers when buying and choosing stronger offers when selling.

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