Adults, including married couples, may spend months, if not years, preparing for real estate transactions. They may work to improve their credit to qualify for more competitive mortgages. They may set aside capital for a down payment.
Once they are ready to start looking for a home, excitement often dominates the process. People can become so infatuated with individual properties that they may overextend themselves by bidding aggressively. Those who have never conducted a residential real estate transaction before could also make mistakes that have devastating financial consequences. They may need help protecting themselves as they look to obtain real property.
How can buyers limit their exposure when bidding on real estate?
Including contingencies in their offers
Real estate agents may advise their clients that offers with fewer contingencies and more possession date flexibility are more attractive to sellers. While it is important to consider how sellers may view an offer, it is even more important to protect the earnest money that is at risk after making an offer.
People typically deposit at least 1% of the purchase price of their homes as earnest money to signify their intention to follow through with the transaction. If they cancel the closing, the seller could potentially retain some or all of their earnest money.
Contingencies allow buyers to cancel pending real estate transactions in specific circumstances. If the appraisal comes in low, the inspection turns up issues or the buyer cannot secure a mortgage, contingencies can protect buyers from the loss of their earnest money.
Retaining liquid capital or available credit
Moving and settling into a new home is expensive. So are closing costs, which often add thousands to the final amount due from the buyers. People often need to limit the price they offer to slightly lower than the maximum amount of cash and financing they qualify for to retain financial flexibility after closing.
Crafting custom documents and reviewing paperwork
Many real estate agents use the same fill-in-the-blank documents for every client. Buyers can derive more protection from working with a lawyer to craft custom documents. Even if they choose to use the standard forms regularly utilized by their agents, buyers may still want to review purchase agreements and other key documents with an attorney before officially committing to the transaction.
They may also want to review the closing paperwork carefully. Attorneys can identify inappropriate language and discrepancies in paperwork that could prove problematic for buyers later. They can also help buyers ensure that they make use of the legal systems in place for their protection.
Acquiring appropriate support when preparing for one of the largest transactions of a lifetime is a smart move. Buyers who have help during real estate transactions benefit from less legal and financial exposure.