6 contract terms you should know when buying a house for sale in Columbia Maryland
Buying a home is complex process, given the fact that there are many legal and financial obligations a buyer has to meet.
Most home buyers are not familiar with these legal and financial obligations due to inexperience and lack of knowledge. It creates confusion and may cause serious problems. If not all, you should at least be familiar with common legal and financial terms generally mentioned in a purchase contract. It is a legally binding document, so it makes sense to know what you are getting into before you commit to the agreement.
Here are a few common terms you should be acquainted with:
Earnest money deposit
At the time of signing a purchase contract, you will put up a specific amount of good faith money upfront, called Earnest Money Deposit (EMD). The money is deposited in a third-party escrow account and released to the seller when the deal is closed. Earnest money deposit is made as a ‘security’ which the buyer can forfeit if the they back out after signing the purchase contract.
Conditions in the purchase contract
Buyers and sellers usually sign a purchase contract after putting specific conditions. These conditions are called ‘contingencies’. For example, the buyer can make the deal contingent on approval of a mortgage or the sale of their current home. So if the buyer fails to secure a home loan or fails to sell their current within the specified time, he or she can back out without incurring any penalties.
Seller disclosure
As per the Maryland real estate laws, the seller is required to provide you with a Residential Property Disclosure and Disclaimer Statement. The seller can either disclose material defects with the property or submit a disclaimer, stating that he or she is selling ‘as-is’ without any warranties with regard to its condition.
Home inspection
Being the buyer, you can put a condition in the contract stating that the deal is contingent on successful completion of home inspection. If the seller has provided a disclosure form, disclosing defects with the property, you can do a home inspection within a time frame that’s mutually agreed upon with the seller—typically within seven to 14 days of an accepted offer. If you find any defect not mentioned in the disclosure form, you can either go ahead with the deal and buy the property in its current condition or ask for repairs to be completed prior to closing. You can also cancel the contract and retain the earnest money deposit.
Appraising a property value
Property appraisal is slightly different from home inspection. If you are financing the deal with a mortgage, your lender will ask for an appraisal to determine the property’s market value. As the home is put as collateral, the amount of mortgage you will be approved for will depend on the property’s appraised value.
Title
You should also put the deal contingent on successful title search. By performing a title search, you basically confirm that there are no liens or judgements on the title and the property is owned by the seller, who can then transfer those rights to the buyer.
Kick-out
If you want to sell your existing home in order to buy a new one, many sellers would want to protect themselves by including a kick-out clause in the contract. This means the seller will continue to consider other offers and can accept one in case you fail to sell your home within a time frame and are unable to close the deal. The time frame is generally from 60 to 90 days.
Closing
Closing, also known as settlement, which takes place when the buyer releases the funds to the seller and the seller transfers the title of the property to the buyer. Both parties generally set a deadline for the closing. It’s called ‘closing or settlement date’.
Conclusion
Getting yourself familiar with basic legal and financial terms can help you make right decision and avoid last-minute hiccups. It also ensures that you are aware of your rights as well as obligations as a home buyer.