In a home purchase contract where a loan is involved, the buyer places a cap on the interest rate he is willing to pay for his loan in a single line that says “The interest rate must not. exceed ___% “.
The amount should be slightly higher than the current rate for a rate movement cushion, but provide for a ceiling in excess of what they are willing to pay even if they qualify. This came from the period of 1980 when interest rates soared to 18% and 9 points for a VA loan and some people were still qualified for their loan. They risked losing their deposit and / or being prosecuted for specific execution.
To be clear, this isn’t about setting the interest rate on their loan, it’s just about capping it if rates run. In addition to protecting the buyer from an excessive rate, it protects them from a market slippage. If interest rates go up for some reason, the equal reaction is that market prices go down. Sellers should expect this clause, but make sure the rate filled is reasonable for the market they are in.
Another expenditure cap clause is the reparation clause. It is there to protect the seller from unlimited repairs in the event that inspections / investigations reveal an unexpected significant repair requirement. Typically, roofs highlight this clause when a new roof is required after inspection and the cost exceeds the contract repair limit. This is usually negotiated in order to keep the deal alive, but either party has the right to rescind it if it doesn’t. Such negotiation can come into play in an AS-IS transaction where there are no repairs if the unknown problem is large enough to be a deal breaker.
Contractual agreements must have an end date. The contract itself must have an expiration date or it is not valid. It’s better to put performance deadlines in the deal for things that need to be done along the way rather than hoping it will all be done at the end when you’re supposed to close.
If you leave everything at the end and something is not finished, you may have a hard time concluding on time or successfully. This should be thought about and dealt with when designing and commemorating the contract.
All parties to the transaction must sign the documents. If an advertisement is missing a signature, the listing agent cannot guarantee the participation of all property interests. In real estate, unlike shares of companies, any interest has the same power as the controlling interest and can prevent a sale. If you only have one signing spouse as a buyer, you might find yourself in trouble if the income or approval of the other spouse is required to qualify for the loan. Everyone must cooperate. The exceptions are managing members of an LLC, or if the family trust only provides one signature required.
Make sure you understand what you are signing and why. Your agent should be able to explain to you the context of the action you are wondering about and why you should include or exclude it. Everything in a real estate transaction is subject to negotiation, but to be successful in negotiating it you need to understand its meaning and relevance to the whole. Ask if you don’t understand.
It doesn’t matter if your agent doesn’t have a response for something as long as they get the response for you in a timely manner so that you don’t miss out on an opportunity in this dynamic market. Sometimes such an understanding allows you to skip a step that will separate you from the rest of the “pack” in an auction situation.
When it comes to choosing professionals to support you in your real estate needs … Experience is priceless! Jim Valentine, RE / MAX Realty affiliates, 775-781-3704 or [email protected]