Contract Terms Home Buyers Should Know Before Signing an Offer

If you have ever attempted to read any form of real estate paperwork you have probably become overwhelmed with the large amount of content and legal wording. Unless you are a real estate attorney or a real estate professional, it can be difficult to understand every portion of your real estate contract. It is however very important for both a buyer and a seller to know what is within the contract that they are signing and agreeing to. It is not uncommon for buyers in the midst of a highly competitive seller’s market to get excited about a home and just sign on the line to make an offer.

Here are some very important contract terms that every buyer should be knowledgeable of before making an offer on a homeContract Terms Home Buyers Should Know Before Signing an Offer

Earnest money

Earnest money is also sometimes called good faith money and is sort of like a deposit put down on a home to show a seller that a buyer is serious about their offer to purchase the home. This money is held in an escrow account and there is no defined set amount, but most often 1 to 2% of the purchase price is offered in earnest money. This money can be applied toward the closing costs or down payment of a home when a sale is complete, as long as the contract goes through. If the contract does not go through for any reason other than what is covered or allowable by the contract, the buyer forfeits this money and it goes to the seller.

Effective date

This is the date that a purchase contract becomes officially effective and binding. This is the date that the last party signs the sales contract and all signatures needed are on the paperwork.

Due diligence

Contingencies on the purchase offer allow for a buyer to have a specified amount of time to conduct any due diligence, which in other words means doing their homework. If a buyer should discover any negative information about the property they intend to purchase, they are legally allowed to cancel escrow and receive all of their earnest money back.


These are requirements that must be upheld for the purchase to close. The most common contingencies included in a purchase offer include financing, disclosures, homeowners association disclosures, property appraisal, and home inspection. What contingencies are included in the purchase offer are up to the buyer and must be agreed upon by the seller and home inspection. What contingencies are included in the purchase offer are up to the buyer and must be agreed upon by the seller when they accept the offer.


Every seller is required to fill out a property disclosure for the buyer that communicates everything they know about the home’s current condition since they have owned it. This can include good items like a brand-new roof or bad items like a crack in the foundation. Any seller who is found to be intentionally withholding any important information about the property can be found as committing fraud.


As long as it is included as a contingency on the original offer agreement, a buyer can conduct an inspection on the home if they wish within the timeframe that is mutually agreed upon in the offer contract. Most traditionally inspections occur within 7 to 14 days of an excepted offer.

Title search

A title search confirms that the property is fairly owned by the seller and the seller alone. That there is no other party that has legal claim to any portion of the property and that the seller is totally within their rights to transfer ownership to the new buyer. In some cases, a home’s title can be compromised by items such as liens put in place by a third-party waiting to be paid for work or goods they gave to the seller. A buyer can purchase title insurance should something that was not found during the title search pop up after they take ownership.

Kick out clause

If a buyer is currently living in a home they need to sell in order to be able to finance the purchase of the new home they plan to buy, a seller might counter offer by including a kick-out clause in the contract. This clause allows the seller to continue to show the home and accept any other offers as insurance should the current buyer not be able to sell their home.


Final plans to finance a home purchase through a mortgage lender will require that the buyer pays for an appraisal. This is where a third party with an official appraisal license comes in and estimates the value of the property to make sure that the lender is not lending more money than the home is worth.


This can also be referred to as settlement. It is the final work done to close the real estate transaction. It can involve bringing together lawyers, realtors, buyers, and sellers to look over the final contract to make sure it is as expected and have the seller and the buyer sign every portion needed. This is also when the buyer will receive keys to the home and be considered the official current owner.

The more knowledgeable you are about a real estate transaction, whether you are the buyer or seller, the better your purchase or sale will go. For more information on purchasing a home in the Columbus area please contact us anytime.

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