Purchase Agreement Clauses that Save Money

By Steve Gillman - 2006

A real estate purchase agreement is more than just a memorandum or negotiating ploy. Once you and the seller sign it, it is a legally binding contract. Why not include some of the crucial clauses that smart buyers use to protect themselves and save money?

Inspection contingency. Ask for help for the wording, but basically you want something like this in the purchase agreement: "Contingent upon a home inspection and buyer's approval of the results of said inspection; to be done at buyer's expense within ten days." This gives you the right to have inspections done, and if anything negative is found, you can refuse to "approve" of the results, and get your deposit back, or you can re-negotiate a lower price.

Financing contingency. If your loan doesn't come through, and you can't buy the home, you'll lose your deposit, unless you have something like this in the agreement: "Subject to buyer obtaining a firm commitment for suitable financing within ten days." If the seller balks at such general language, you can specify what "suitable" means in terms of interest rate and such.

Assignation clause. If you are buying with a partner who isn't there to sign the offer, or you want to "flip" the deal to another investor, or if you may need to involve a partner for purposes of funding the deal, make sure that the purchase offer gives you that right. Putting "and/or assigns" after your name on the offer is usually sufficient, but ask the real estate agent what the local custom or language is.

Seller pays for everything. You may want to specify that the seller will pay for the closing fee, the title insurance, the recording fees, and even the points on your loan. The point here is that sellers often just want the sale at a given price, and don't care about the details. If they do care, you have given yourself some negotiating points. Get something for dropping each of the costs you included, like maybe reduced rent until closing if you are moving into the house before that.

Partner's approval. This can be as simple as "Subject to inspection and approval of home by wife (or partner - state their name) within three days." This means if your wife says no within three days, you can back out of the deal and get your deposit back. Keep the time frame as short as you can if you really want the seller to agree to this one.

Earnest money clause. If you want to keep your cash available, and protect your money, you can put a small earnest money deposit down with the offer, and include a clause like this: "$100 earnest money deposit, to be increased to $2,000 upon acceptance of this offer." Or you can have it increased "when all contingencies are met." That way, if there is an argument about you backing out because the inspector found water in the basement, for example, you won't have your money tied up while this is being resolved.

These are often called "weasel clauses," because they give you ways to back out, or "weasel out" of an agreement. Don't let the label bother you. The seller has the right to say no to your offer, and you have the right to put whatever protective clauses you want in a purchase agreement.

If you found this useful or interesting, please share: