This week’s Q&A column is sponsored and written by Hope Peele of The Peele Group and Corcoran McEnearney, the leading real estate firm in Alexandria. To learn more about this article and relevant Alexandria market news, contact The Peele Group at 703.244.6115 or email [email protected]. You may also submit your questions to Corcoran McEnearney via email for response in future columns.
Question: What are the parts of a Virginia real estate contract?
Answer: A lot of questions come up during the home-buying process, especially for first-time buyers. Many of these questions can be explained by a better understanding of the components of an offer.
When a buyer makes an offer on a home, they are spelling out their preferred terms in an offer sales contract. If the seller agrees to all the terms, or if they counter and both parties come to an agreement, the offer document will be signed. This document is now the ratified sales contract for the home.
I should specify, although the buyer chooses the initial offer terms, your agent will be working with you to clarify those terms and write up the offer, so don’t stress about the paperwork!
But what terms need to be agreed upon, other than price? Let’s go through some of the terms and other components of a Virginia offer contract.
Settlement Date & Settlement Agent – While some sellers may state a preference for a settlement date or settlement company (also known as a title company), it is the buyer’s decision what to put in the contract. The amount of time between offer acceptance (also known as ratification) and settlement (also known as closing) usually ranges from about twenty-one to forty-five days. If the seller chooses to use a different settlement agent than the buyer, that is always an option, although it could get just a bit more complicated. If the seller does not agree with the settlement date that the buyer selected, that is usually negotiated before the offer is signed off on.
Earnest Money Deposit (EMD) – This is a deposit that the buyer is required to submit within a stated number of days after acceptance of the offer. This money will be held (usually by the settlement agent) until closing and put towards the buyer’s closing costs. If the buyer defaults on their obligations under the contract, this money will be held by the settlement company until all parties agree on how it is to be dispersed.
Contingencies – I like to refer to contingencies in the contract as “exit ramps” for the buyers. These are time periods in which the buyer may have an option to void the contract, without risk of losing their deposit. The most common contingencies are inspection, financing, and appraisal. Here is a quick explanation of each:
- Inspection: Usually between 3-7 days, starting on the date of ratification. During this time period, the buyer is allowed to request repairs or a credit from the seller, based on the evaluation of a licensed inspector. If the parties cannot come to an agreement, the buyers can void the contract without risk of losing their EMD.
- Financing: Usually about 21 days, starting on the date of ratification. If the buyers are not able to obtain financing in order to get the loan for the home, this contingency allows them to void the contract without risk of losing their EMD.
- Appraisal: Usually between 14-21 days, starting on the date of ratification. As soon as your Realtor sends a copy of the ratified contract to your lender, your lender will likely begin the process of ordering the appraisal. During this time, an appraiser will visit the home and review comparable sales to calculate their own independent value. This value is the most that the bank will allow for a loan on that specific property. Therefore, if this number comes in higher than the contract price, everything moves forward smoothly! However, if the value comes in lower than the contract price, there is now a gap between the appraised value and the sales price.
This is where the appraisal contingency comes into play. During this time period, the buyers can request that the sellers agree to a sales price that matches the appraised value. If the sellers are not willing to lower the price, the buyers then have the option to void the contract without risk of losing their EMD.
Wood-Destroying Insect Inspection – The majority of lenders will require an inspection for insects such as termites and carpenter bees before issuing a loan. Per the Virginia Sales Contract, there is an option for who will pay for the inspection, but remediation is almost always required to be paid for by the seller.
Condo or HOA doc review period – This is also a contingency, but only for homes within a condo or homeowners association. Buyers in Virginia can now waive the option to void during this review period if they want to be competitive. However, many buyers prefer to keep the review option. It is important to review the financial documents, rules, and regulations of a community before moving forward with your home purchase.
Disclosures – While these aren’t negotiation points, they are very informative and important for buyers to review before signing. These documents are typically signed by the sellers and provided ahead of time by the listing agent to disclose material facts, such as hazards related to lead-based paint.
While this might seem like a lot, the more questions that you ask early on in the process, the easier it will be when it comes to making an offer. Be sure to ask your agent to clarify anything that you don’t understand and never sign a document before reading it!
Hope Peele is a licensed real estate agent with Corcoran McEnearney in Alexandria, Virginia. She grew up in Old Town and currently lives in Del Ray. As a partner with The Peele Group, Hope is dedicated to guiding her clients successfully through the many-faceted process of buying or selling a home. Contact Hope at 703.244.6115.
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Corcoran McEnearney, 109 S. Pitt Street, Alexandria, VA 22314, corcoranmce.com. Each office is independently owned and operated. Equal Housing Opportunity.
