When entering into real estate transactions, the following are some important deal points to consider:
Earnest Money. At the time the purchase agreement is signed, the buyer is typically required to deposit earnest money with the seller or an escrow company. Earnest money shows that the buyer is serious about purchasing, provides the seller some compensation if the buyer backs out late or breaches his obligations, and creates an incentive for the buyer to go through with the purchase. The amount is negotiable but should be sufficient to make the buyer think twice about walking from the deal.
Due Diligence. A due diligence period is a set time during which the buyer can inspect and study the condition of the property, review title, and determine the feasibility of closing the transaction. It is common practice for the buyer to have the option to back out of the deal at any time during this period, whether for a particular reason or not. If so, the buyer has usually refunded the entire deposit. However, if the deal is not canceled before the due diligence period expires, then the buyer is typically locked in and risks forfeiting the earnest money if he later backs out.
Closing Costs. Closing costs often include escrow and title policy fees, recording costs, transfer taxes, and the like. As between the buyer and seller, which party pays any given closing cost is negotiable. Splitting closing costs 50/50 is common. However, it seems that in a buyer’s market, the seller is more willing to pay all or most of the closing costs, whereas the reverse is true in a seller’s market.
Finally, remember that it is vital to memorialize deal points like these in writing. Oral agreements regarding real property are not enforceable. Plus, written agreements help avoid confusion by clearly establishing each party’s obligations.
Rod Woodbury is the managing shareholder of Woodbury Law and can be reached at
(702) 933-0777 or firstname.lastname@example.org.