Equally important, if the seller refuses to complete performance of the contract by delivering title to the property, as a buyer, if you have a well-written contract you can sue the seller for "specific performance" of the contract to force the seller to deliver the deed as agreed.  However, if the written contract is sloppy and has lots of loopholes or vague wording, a judge is unlikely to order specific performance of the contract.  Incidentally, specific performance of a real estate sales contract is rarely granted if a seller sues a buyer who backs out.  The reason is monetary damages are usually adequate to compensate the property seller.  But because every property is unique, specific performance is an accepted legal remedy when a seller refuses to deliver title and the buyer really wants to purchase that property.

1 – NAMES OF THE SELLER(S) AND BUYER(S).  Most purchase contracts have blank spaces at the top for the name(s) of the buyer(s).  If you are not sure who will be on the title with you, or if you might "flip" the contract and sell it to another buyer without taking title, be sure to include the magic words "and/or assignee."  It’s best not to use the word "nominee" because its legal meaning is unclear.  Using the word "assignee" makes the contract assignable if you decide not to take title but you can find someone else who wants the property, hopefully at a profit for you.

The general rule on contract assignments is all contracts are assignable unless (a) the contract terms prohibit assignment and/or (b) it is a personal service contract (such as a home seller who agrees to carry back a second mortgage for you but doesn’t have to do so for your assignee buyer).  If you plan to assign a contract, such as a lease with option to purchase, write in the contract "This agreement is assignable" so there is no misunderstanding.  By the way, it’s better to call it an "agreement" than a "contract" because the word agreement sounds less intimidating.

As for the seller(s) name(s), your buyer’s agent should check the county or city recorder’s records to learn who actually holds title to the property you want to buy.  To illustrate, if title is in the name of both husband and wife, you need both owner signatures to accept the offer (and to sign the deed).  Occasionally, your buyer’s agent will discover a dead person’s name is still on the title which has never been probated after the death.  If title was held in "joint tenancy with right of survivorship," title transfer is usually not a big problem if the surviving joint tenant is still alive (the survivor usually records an affidavit of survivorship and a certified copy of the death certificate).  However, if title was held by another method, such as tenants in common, a probate court proceeding may be necessary and that could take months or even years.

2 – DESCRIPTION OF THE PROPERTY.  After the buyer’s name(s), the next blanks to be filled in on most printed real estate forms are the street address, legal description, tax assessor’s parcel number, or other property description.  If it is rural property, include the address, legal description, name of the property (if any), and even make reference to a survey, if one exists.  Unless the property is on a city lot where there is little chance of uncertainty about the boundaries, you may want to specify your purchase offer is contingent on the buyer’s approval of a survey.  After the survey is made, if the results are satisfactory, the title insurance policy should insure that survey.

Be sure to include any other description that is important to you.  To illustrate, if you want to buy a home in a specific school district, name it on the purchase offer so the seller verifies the property is within that district.  I recall, for example, my friend Janet wanted to buy a house in a top quality school district.  Her buyer’s agent knew of her motivation.  Janet bought a house, which was within the city she wanted, but it was two blocks outside the city’s school district boundary.  Fortunately, she was able to get an intra-district transfer for her son, but her house is worth less because it is in an inferior school district.  The realty agent should have checked the school district boundary.

3 – THE GOOD FAITH EARNEST MONEY DEPOSIT.  Next, we come to the controversial topic of the buyer’s good faith or earnest money deposit.  Legally, no deposit is required with your purchase offer – all that is required to form a binding contract are the signatures of the buyer and seller – the mutual promises of each party to the contract are the legal consideration.

However, few home sellers will accept a purchase offer unless the buyer makes a good faith monetary deposit, often called an earnest money deposit.  I’ve found it smart, especially when making a low offer or one with terms the seller might not like, to include a large deposit check to impress the seller into accepting my purchase offer.

There is no right or wrong amount for the deposit.  But realty agents try to get buyers to make large earnest money deposits because the larger the deposit, the less likely the buyer will default and not complete the purchase.  Some agents try to get buyers to put up deposits for 10% of the sales price.  I think that is too high.  A good alternative is to make a reasonable deposit, such as $1,000 or $5,000, with a provision to increase the deposit to 5% of the purchase price upon removal of the contingencies.

DO NOT MAKE YOUR EARNEST MONEY DEPOSIT CHECK PAYABLE TO THE SELLER (ESPECIALLY IF YOU ARE BUYING FROM A DO-IT-YOURSELF "FOR SALE BY OWNER" SELLER).  The reason is you want to keep control of your money, out of the seller’s hands until the closing.  It’s best to make the deposit check payable to the firm where you want the closing to take place.  Closing locations vary by local custom – in some communities, realty closings are held in attorney or realty agent offices.  But in other cities, closing settlements are held at a bank, mortgage, title, or escrow company.

After the seller accepts your purchase offer, the deposit legally belongs to the seller.  However, try to keep the money out of the seller’s hands because the seller might spend the money but not be able to deliver marketable title.

Don’t write a bad check!  If you don’t have enough money in your checking account, but you can transfer funds within a day or two from another account to cover your deposit check, be sure to tell the realty agent.  A bad check is not a good way to start a realty sale!  I’ve also seen some home buyers attach a promissory note, instead of a check, to their purchase offers for the deposit.  Most sellers and their realty agents do not look favorably on such tactics.

The pros and cons of signing a liquidated damages clause.  Many printed real estate purchase contracts contain liquidated damages clauses.  Such a provision means, because determining exact damages if the buyer breaches the contract and fails to complete the purchase would be extremely difficult and expensive to determine, the parties agree in advance on the amount of liquidated or pre-agreed damages for the buyer’s default.  Another way of looking at such a clause is the buyer can default and get out of the obligation to buy by forfeiting a pre-agreed liquidated amount of damages, often the amount of the good faith earnest money deposit.  Some states have laws determining the maximum liquidated damages.

EXAMPLE:  In California, state law limits residential liquidated damages for the sale of 1-4 residence units to the lesser of 3% of the sales price or the actual amount of the earnest money deposit.  To illustrate, suppose a buyer of a $200,000 house makes a $10,000 earnest money deposit with her purchase offer.  She defaults and refuses to proceed with the home purchase.  If both the seller and buyer initialed the liquidated damages clause in the purchase contract, the buyer’s liquidated damages are limited to 3% of the purchase price - $6,000 in this example.  By California law, the seller must therefore refund $4,000 of the buyer’s good faith deposit to the buyer.

Should the buyer and seller initial the liquidated damages clause when the printed form has one?  If both parties don’t initial it, the liquidated damages clause does not apply to the sale and the seller can sue a defaulting buyer for actual damages, which the seller would have to prove in court.  I don’t recommend initialing the liquidated damages clause, but it’s not a "make or break" clause so if the other party insists, I wouldn’t argue and would initial it.

4 – HOW TO DETERMINE A REASONABLE PURCHASE PRICE OFFER.  Market values of houses, condos, and small income properties are usually determined by recent sales prices of comparable nearby residences.  Before making their purchase offers, smart home buyers insist their buyer’s agent prepare a written comparative market analysis (CMA).  Be sure to use that CMA term with your buyer’s agent – it shows you know what you’re doing!

The CMA form is the same one that the seller’s listing agent (hopefully!) prepared for the seller when the home was listed for sale.  However, the buyer’s CMA will be up to date.  Perhaps the home was listed for sale several months ago.  The local home sales market may be going up or down.  The buyer’s CMA will have (a) the latest sales (not asking) prices of comparable neighborhood homes, (b) asking prices of similar nearby homes, and (c) asking prices of competitive listings which recently expired.

After a prospective home buyer has this valuable CMA information, with the help of a buyer’s agent to add or subtract value for the pros and cons of the home under purchase consideration, an intelligent purchase offer price can be made.  If you’re a buyer working with a "dual agent" who also represents the home seller, do you think your dual agent will prepare a CMA for you and will it be accurate?  Perhaps not.

Many home buyers have heard (not in my newspaper articles!) they should always offer 5% or even 10% below the seller’s asking price.  That’s not a smart idea.  The home’s asking price might be a "real steal deal" if you offer the full asking price before another savvy buyer does.  Or, the home might be vastly overpriced.  As a home buyer, if you offer too low a purchase price, the seller might be insulted and refuse to even counteroffer, thinking you are not a serious buyer.  If you offer too high a purchase price, the seller is likely to instantly accept before you realize you offered too much. 

For these reasons, use the CMA prepared by your buyer’s agent as a guide to making an intelligent purchase offer.  The buyer’s agent should use the same CMA to show to the seller and negotiator to justify the buyer’s purchase offer price.

Be sure the purchase offer form contains a finance contingency clause.  Most printed purchase offer forms include a finance contingency clause.  If the form you use does not, use a better form (unless you are making a very rare all-cash purchase offer!).  Or at least add a contingency clause which makes your purchase offer, after acceptance by the seller, contingent on (a) a satisfactory appraisal by the mortgage lender and (b) the buyer still qualifying for the pre-approved mortgage.

Of course, if you are a buyer asking the seller to carry back all of the mortgage financing, this finance contingency clause is not necessary because when the seller accepts your offer that includes seller financing terms, the seller’s acceptance also includes the seller’s agreement to carry back the financing terms the buyer specified.

List in detail all of the seller’s personal property you want included in the sales price.  Most printed residential purchase contracts (oops, agreements!) have a paragraph listing the personal property to be included in the sales price.

EXAMPLE:  The latest Professional Publishing Co. residential purchase agreement says:  "PERSONAL PROPERTY:  The following personal property, on the premises when inspected by buyer, is included in the purchase price and will be transferred to buyer free of liens and properly identified by a Bill of Sale at the close of escrow.  Unless itemized here, personal property is not included in the sale.  No warranty is made as to the condition of the personal property: ------."  This is the space where the buyer should list personal property such as refrigerator, washer, dryer, patio furniture, etc.  By the way, some buyers use personal property as a negotiation technique.  These buyers list personal property they really don’t care about, and then give it up during the negotiations, if the seller will accept other sales terms, which are more important to the buyer.

The superb Professional Publishing Co. form has another paragraph, which lists fixtures to be automatically included in the residence sale.  The definition of a fixture is personal property that is built-in or attached to the structure, such as a built-in dishwasher (a fixture was personal property which is attached by bolts, nails, screws, cement or other permanent method to make it part of the real property being sold).

It says "FIXTURES:  All items permanently attached to the property, including light fixtures and bulbs, attached floor coverings, awnings, TV antennas, burglar, fire, smoke and security alarms (unless leased), pool and spa equipment, solar systems, attached fireplace screens, electric garage door openers with controls, outdoor plants and trees (other than in movable containers), are included in the purchase price free of liens, EXCLUDING: -----."  This is the spot in the sales contract where the seller can exclude fixtures, such as the dining room chandelier.  If the printed form you are using does not have such a fixtures clause, add one because otherwise some home sellers will strip the home of these essentials.

5 – THE ULTRA-IMPORTANT PROFESSIONAL INSPECTION CONTINGENCY CLAUSE.  The second most important contingency clause (the first was the financing contingency clause) in a home purchase agreement provides for the buyer’s approval of a professional inspection report and any additional reports which might be indicated as appropriate, such as a roof inspection, termite or pest control inspection, soils engineer report, electrical inspection, plumbing inspection, etc. 

Especially when a property is sold "as is" (meaning the seller has disclosed in writing all known defects but is selling in its present condition and refuses to pay for any repairs), home buyers need a professional inspection report.  As longtime subscribers know, I recommend home inspectors who are members of the American Society of Home Inspectors (ASHI).  ASHI has the highest standards for membership, such as at least 200 inspections before applying for membership, passing a tough exam, and continuing education requirements.  Local ASHI members can be located at www.ashi.com or 1-800-743-2744.

Home buyers should accompany their professional inspector.  Most inspectors are glad to share their experience with the various situations that will be encountered during the two-hour inspection.  These conversations with the inspector are priceless!  To illustrate, a few years ago, I bought a run-down fixer-upper house with a bad-looking fireplace crack.  Many prospective buyers had rejected that house, fearing the fireplace would be expensive to rebuild.  My professional inspector checked that fireplace extremely carefully, reporting the crack wasn’t as bad as it looked, and it could be repaired with fireplace mortar for about $150.  As a result, I got an incredible bargain on that house purchase.

Home buyer alternatives when serious defects are discovered.  Although most states, and the best real estate agents, now require home sellers to disclose known defects in residences, many sellers are not aware of serious problems with their homes.  When a professional home inspector discovers an unexpected serious defect, the buyer has several alternatives:  (a) ask the seller to repair the defect before the sale closes, (b) request a repair credit to the buyer at the closing, (c) cancel the home purchase and obtain a full deposit refund if the seller refuses either alternative above, or (d) go ahead with the purchase, even if the seller refuses to make repairs or credit the buyer with a repair credit.

The buyer’s professional inspection report can become an important negotiation tool for the buyer.  For this reason, smart home sellers obtain their own professional inspection reports before listing their homes for sale and make any necessary repairs before listing the property for sale.  Often, home buyers will accept these reports obtained by home sellers and won’t require their own inspections.  I do not recommend buyers accept the seller’s report unless it was made by an ASHI member.

Additional inspection contingencies.  Depending on local custom and laws, a buyer’s purchase offer should include additional inspection contingencies such as for pest control or termites, radon, energy efficiency, building code compliance, and the roof.  A buyer’s agent can advise if home buyers should obtain additional inspections.  To illustrate, where I live the town requires a sewer lateral line inspection whenever a house is sold to be certain the sewer line to the street is not leaking.

6 – HOME SELLER’S WRITTEN DISCLOSURE OF KNOWN DEFECTS.  California was the first state to require sellers of 1-4 residential units to make written disclosures of known defects in their property.  Many other states have followed.  Smart real estate agents in every state require their home sellers to provide additional voluntary disclosures.  The obvious purpose is to thwart after-sale lawsuits for undisclosed home defects.  Disclose!  Disclose!  Disclose!  That should be the home seller’s motto.

But some residence sellers are dishonest!  Can you believe that?  Others are just ignorant of their home’s defects.  Non-resident home sellers (landlords) often are not aware of defects in their property they are selling.  Even when the seller provides a written defect disclosure form, be sure to include a professional inspection contingency clause in your written purchase offer.  Written home defect disclosure forms are usually very helpful, but buyers should not be lulled into believing they are always correct.  For this reason, home buyers need to hire their own professional inspectors.

7 – MEDIATION AND ARBITRATION OF DISPUTES CLAUSES.  Many printed residential purchase forms contain mandatory or optional clauses for mediation of disputes that might arise after the sale closing.  Mediation means an expert mediator tries to get the parties to agree to a reasonable settlement of a dispute, such as a home defect that was not discovered before the sale closed.  Mediation often works very well to prevent an expensive lawsuit.  But in other situations, it is a waste of time and money.

I do not like the printed purchase forms that include mandatory mediation of disputes.  A bad example is the California Association of Realtors residential purchase form, which does not even give the buyer and seller an option to accept or reject mediation.  Of course, the buyer and seller can cross out a printed mediation clause if they feel strongly against it.

Understand arbitration before you give up your legal rights.  Most home buyers, sellers, and realty agents do not understand arbitration.  Binding arbitration means the buyer and seller give up their legal rights to resolve disputes which might arise in the future by bringing a court lawsuit.  That means there is no judge to enforce the rules of evidence, no jury to listen to and weigh the evidence, and no right of appeal from the arbitrator’s decision, even if it is in error and contrary to state or federal law.

Should home buyers and sellers agree to arbitration at the time they sign the sales agreement?  My opinion is a very strong NO!  The perceived arbitration advantage is a saving in time and money.  That doesn’t always happen, especially if you lose when the arbitrator rules against you and doesn’t correctly apply the applicable law.  You have no appeal rights from a binding arbitration ruling! 

Why give up your legal rights in advance?  I suggest home buyers and sellers do not agree, when signing the sales agreement, to arbitrate future disputes.  If a problem later arises, the buyer and seller (and their lawyers) can decide then if arbitration is appropriate.

8 – AN ALL-INCLUSIVE "WEASEL CLAUSE."  Although I do not recommend it, some property buyers feel making a purchase offer that the seller accepts is just the start of negotiations.  These non-stop negotiating buyers often include innocent-looking clauses in their purchase contracts such as "This purchase offer is contingent on the approval by the buyer’s attorney within five business days after acceptance by the seller." 

This "weasel clause" provides a "free look" while tying up the property if the seller accepts an offer with such an escape clause.  Anxious sellers, and those who don’t read the contract carefully, won’t even notice it.

9 – TIME FOR ACCEPTANCE OF THE OFFER.  Smart home buyers include a short time for acceptance of the offer by their sellers.  Twenty-four hours is customary (unless the seller is out of town or unavailable).  If the purchase offer is valid for longer than 24 hours, then the danger is the seller (and the listing agent) can "shop" the offer to see if a better purchase offer can be obtained from another buyer.   I’ve even seen purchase offers which expire "one hour after presentation."  But I doubt such a short time for acceptance would be enforceable in court.

10 – BUYERS SHOULD ANTICIPATE COUNTEROFFERS.  When the seller accepts a home buyer’s first offer, that usually means the buyer offered too much.  As a seller, I’ve often accepted a buyer’s first offer, as I was not willing to quibble over a few dollars and risk losing a good offer from a qualified buyer.  But many sellers will try to extract a few thousand, or even a few hundred, extra dollars from the buyer by making counteroffers, which reject the original offer and risk losing that buyer.

Home sellers (and their realty agents) hate purchase offers that are contingent on the sale of another property.  Unless the local home sales market is very slow, don’t expect savvy home sellers to accept a purchase offer that is contingent on the sale of the buyer’s current home.  There are too many uncertainties with such contingent sale offers so most listing agents advise their sellers not to accept.

An alternative is for the home seller to accept with a contingency release clause.  That means if a better purchase offer comes along, the home seller can notify the first buyer and give that buyer 24, 48 or even 72 hours, depending on the contract terms, to either cancel the home sale contingency clause or release the right to buy the home.  Such a contingency release clause should be expected, as it is very fair to both buyer and seller.

CONCLUSION.  This was a quick summary of the vital terms which home buyers and investors should include in their purchase offers.  Start with a neutral printed purchase contract, which is neither pro-seller, pro-agent, nor pro-buyer.  Be sure you or your attorney actually reads it.  Don’t hesitate to delete any unacceptable clauses, such as mediation and/or binding arbitration.  Add essential terms, such as a professional home inspection and/or mortgage finance contingency, if they are not already in the form.  For more details, please consult a local real estate attorney.