Negotiation Points in a Residential Purchase Agreement
Busy listing agents who receive many purchase offers can often figure out in a residential purchase agreement how eager the buyer's agent might be to get the offer accepted by the way certain negotiable items are presented. The way certain items read tells us whether the agent has written many offers or is an inexperienced agent. Some types of negotiable items disclose a lot about the buyer, too, especially if those things tend to buck the norm.
These observations have led me to believe that some buyer's agents, not all of them by any stretch, rarely discuss the negotiable items in a purchase agreement with the buyer. Many agents just check the boxes according to local custom, and there is really nothing wrong with that approach except that it doesn't really give the buyer or seller a choice or a say in the matter, much less a thorough understanding about the purchase offer.
If a buyer is spending hundreds of thousands of dollars to buy a home, those buyers deserve to know the negotiable points and have a voice in the situation. Likewise, a seller should know which things can be negotiated and whether there is any room in some of the costs of sale, which affect the seller's net proceeds.
For example, although it is uncommon, I have had sellers say they prefer instead to significantly reduce the sales price and allow the buyer to pay all of the costs of sale, except for the commission. There are reasons to do it that way and reasons not to. Probably the most significant is in a financed transaction, if the buyer were to pay the seller's portion of the closing costs, it would mean bringing in a lot more money upfront to close. That's the boomerang. Buyers are often tight on liquid funds.
Still, closing costs can be negotiated between the parties. Who pays what portion of the closing costs is a negotiable item in a residential purchase agreement, even though it may be customary for the seller to absorb a larger percentage of those fees. Why the seller? Because the seller generally is receiving the money in a transaction and a buyer is spending it out of pocket.
Bear in mind, too, that every state in America pretty much utilizes its own residential purchase agreement. There is no One-Size-Fits-All. In Texas, the contracts are called a One to Four Family Residential Contract, developed by the Texas Real Estate Commission.
In California, the contract to buy a home is a California Residential Purchase Agreement and Joint Escrow Instructions, painstakingly updated almost annually by the California Association of Realtors. It appears that in Florida, agents use several different types of residential purchase contracts that have been approved by the Florida Bar and the Florida Association of Realtors, depending on whether a buyer is purchasing the home AS IS.
Yet, even with all the differences and the various ways in which real estate is practiced around the country, certain aspects of the purchase agreements are similar. Closing costs are fees you might want to consider before signing a purchase agreement and ask your real estate agent if they are negotiable. Realize you might not want to try to change the way local custom dictates, for example, especially if you are involved in a multiple-offer situation because it could hurt your chances of offer acceptance.
Types of Negotiable Fees
- Transfer taxes
- Escrow fees
- Owner's Title Insurance Policy
- Mandated state disclosures
- HOA transfer fees and documentation fees
- Inspections and reports
Types of Negotiation Items
- Amount of earnest money deposit
- Time period for seller to submit disclosures
- Time period to complete all buyer inspections
- Time period for buyer to obtain an appraisal
- Time period for buyer to obtain loan approval
- Personal property items that remain with the home
- Fixtures that might be excluded from the sale
- Time period for closing escrow
- Time period for releasing contingencies such as selling an existing home
- Time period for final walk-through
- Time period for possession
- Liquidated damages
- Dispute resolution
- Time period for offer acceptance
Many buyers find it is helpful to receive a copy of the residential purchase agreement prior to writing an offer, but given our fast-paced environment and how many documents are signed online, this might not be possible. Many residential purchase agreements consist of 10 pages or more, and there are always other documents which typically can accompany the contract.
Generally, when I work with lawyers, they want to read the entire residential purchase agreement, and I don't blame them. Of course, most home sellers and buyers are not lawyers, but I encourage all parties to thoroughly read the contract, to ask questions, and to continue to ask questions if the answers are unsatisfactory. You have a right to know the details of your home purchase. Exercise that right. Don't settle for "initial here" and "sign there."