You go back and forth with the seller of a property you want. The negotiations finally end and the realtors provide you with a sales contract. How do you know when the real estate contract is fully executed? The bad news is it does not occur just because the seller accepts your bid. A few more steps must take place first. Understanding the full implication of the contract and what can happen can help you make smart choices.
Sign on the Dotted Line
The real estate contract is fully executed when everyone signs the contract. This includes the buyers and the sellers. When both signatures appear on the contract, it is in full effect. This does not mean the house goes off the market, though. There are ways the contract could fall through. Until you physically close on the home and pay the seller, there are loopholes to the contract.
What are the Conditions?
The conditions of the contract are what hold it hostage, so to speak. Both you and the seller could have situations you want to be settled before the house sells. For example, as a buyer you may want:
- Time for an inspection to make sure the home is in good condition
- Time to sell your current home so you do not have two mortgages
- Time to have an appraisal conducted to make sure the value of the home is high enough
- Time to secure proper financing for the home
Each of these factors could be a contingency on the contract. This means that you have a specific amount of time to get the conditions satisfied. For example, if you have 2 weeks from the date of signing the contract to have an inspection completed, you need to act fast. You need the inspector to come out and write up the report. You also need enough time to review the report. If you find something very wrong with the property, you have the option to back out of the contract. If, however, you do not have the inspection conducted within the 2-week period, you lost your chance. The same is true for any of the other contingencies you have on the contract. You have a certain amount of time to have them done. Once that date passes, the contract holds you liable for the purchase of the property.
You might notice that sellers do not take their home off the market even after both parties sign a fully executed real estate contract. This helps protect the sellers. This is especially important if you have contingencies on the contract. The seller has the right to continue to market the property. They can even take back-up offers. These offers do not supersede your offer since you have an executed contract. However, if you back out of the sale, the seller has the reassurance of the other offers they received. The people giving back-up offers are always aware that there is a contract on the property and that they are the “back up” should something happen.
The Closing is the Final Step
The real estate contract does not take full effect until you are both sitting at the closing table. This is when the money exchanges hands and you take possession of the keys to the home. Until that point, anything can happen. Of course, there is a binding contract and you could get your attorney involved if the seller suddenly pulled the contract because he received a better offer. Up until the point of the closing, though, keep your guard up and know all of your options whether you are a buyer or a seller.