Understanding Your Purchase Contract: Key Terms to Know
Your purchase contract is the most important document in the transaction. It spells out exactly what you are buying, for how much, under what conditions, and what happens if things go wrong. Reading it carefully is not optional.
Purchase Price and Earnest Money
The contract states the agreed price and how much earnest money you will deposit. It also specifies when the earnest money is due (usually within 1-3 business days of acceptance) and where it will be held.
Contingencies and Deadlines
Contingencies are conditions that must be met for the sale to proceed. The most common: financing contingency (you can cancel if you cannot get approved), inspection contingency (you can negotiate or cancel based on inspection findings), and appraisal contingency (you can cancel if the appraisal is below the price). Each contingency has a deadline — miss it, and you may lose your right to use it.
Closing Date and Possession
The contract specifies when closing occurs and when you take possession. These are usually the same day, but not always — a rent-back agreement lets the seller stay after closing for a specified period. Make sure you understand exactly when you get the keys.
Default and Remedies
The contract spells out what happens if either party defaults. If the buyer defaults (backs out without a valid contingency), the seller typically keeps the earnest money. If the seller defaults (refuses to sell), the buyer may be able to sue for specific performance or get their earnest money back plus damages.
Key Takeaways
- ✓Know every contingency deadline in your contract — missing one can cost you
- ✓Contingencies protect you — understand what each one covers before signing
- ✓Confirm when you actually take possession — it may not be closing day
- ✓If you default outside your contingencies, you lose your earnest money
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