Rochester Real Estate Tips:
Mistakes to Avoid When Signing Residential Real Estate Contracts (Part
2)
By: James J. Cummings III, Esq.
In Part 1, we talked about
some of the basic aspects of choosing the right contract forms and the fundamental information to be
included. Here I will give you some brief tips on other portions of a good residential real estate
contract.
With increasing frequency I am seeing buyers asking for a "seller concession" and the latest form of contract
even has a section that you can just fill in for a seller concession in some specific amount of money. This
assists buyers who are tight on cash and this money is used toward your costs at closing. The seller often
wants the price increased by the amount of the seller concession, but it still can help by reducing the cash needed
to close. Keep in mind, however, many mortgage lenders will not permit a concession that exceeds 3% of the
purchase price (but most FHA loan programs allow up to 6%). So check with your lender ahead of time if
possible.
A recurring problem that I see in recent transactions is insufficient time allowed in the contract for obtaining
a mortgage commitment letter. Locally, lenders are taking about four weeks from when you actually submit your
application. But if you only allow four weeks from the date you sign the contract, you will actually end up
with only about three weeks since you will lose about a week while the seller considers your offer, possibly makes
a counter-offer, etc. So I advise you to insert a date in the mortgage contingency clause allowing about five
weeks from the date you make your offer. Keep in mind the importance of meeting the mortgage commitment
deadline in the contract because the seller can cancel the contract if you do not have your commitment on time!
When establishing a closing date for insertion in the contract, you should allow a minimum of two weeks (three
weeks would be better) after the commitment date to close. It takes at least that long between when you
receive the mortgage commitment and when the lender gives you a "clear to close." Remember the commitment
just says that the bank plans on making you the loan, but you will still have some documents to obtain for them and
then the file has to go to "underwriting" for a final clearance. Some of the first time homebuyer loan
programs take a couple of weeks longer, such as mortgages made by SONYMA.
There is a section in the MCBA contract for making the contract subject to your attorney's approval. This
is critical and you must not forget to check that box so that your attorney can help you if you make a serious
error in filling out the contract forms. There is a small space where you insert the amount of time allowed
for attorney approval - insert at least 7 days for this approval.
You will also need to decide on a few other contingencies. You should make the deal contingent on a
satisfactory inspection by a professional inspector. Allow at least 7 days to obtain this inspection and if
there are problems found that you find unsatisfactory, you must promptly notify the seller in writing to preserve
your rights to cancel the contract if such becomes necessary. Use the MCBA inspection addendum form and
append it to the main contract form. Similarly, if the property has a septic system or well, use the MCBA addendum
for well and septic inspection contingencies. If you have to sell a property that you now own before you can
buy the new property, there is a MCBA addendum for that too and it is of critical importance.
I hope the tips in this article (and in Part 1) have been helpful.
Remember, however, these articles are no substitute for consulting with your own attorney, which I strongly
encourage you to do. Everyone has somewhat unique circumstances that will effect the terms of your
contract. I would be happy to help you when you decide to proceed with a purchase offer.
(c) All Rights Reserved - James J. Cummings III, Attorney At Law
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