The phrase “Under Contract” is used frequently, but many buyers and sellers may not be sure what it means exactly. Once parties are “under contract,” they have an agreement to buy and sell for a certain price, and have an outline of the next steps that must be taken. At this point, a seller cannot contract with another buyer to purchase the house, and the buyer is obligated to make the purchase as agreed. However, the deal is not done yet. In Utah, the uniform Real Estate Purchase Contract (“REPC”) has several conditions or contingencies that must be met in order for the transaction to close and for property to transfer.
Buyer’s Due Diligence
The first condition is the buyer’s due diligence deadline. A buyer is not required to inspect or know everything about a property at the time they put the home under contract. Rather, they have a period of time to have a home inspection completed, investigate the neighborhood, or take other steps that they may wish to take before moving forward with the transaction. In the event that the buyer’s inspection turns up an issue that concerns the buyer, the buyer may request that the seller correct the issue, or perhaps negotiate on the price of the house in order to compensate for the problem that has been found. If the buyer and seller cannot agree on an appropriate resolution, the buyer has the right to terminate the contract and receive the earnest money deposit.
Buyer’s Appraisal
The second condition is the buyer’s appraisal. This condition allows the buyer to obtain an appraisal from a professional appraiser. If the home does not appraise for the purchase price in the REPC, the buyer is not obligated to proceed with the transaction. The buyer may then terminate the contract and have their earnest money returned as a result. Alternatively, many parties renegotiate the terms of the REPC based on the appraisal.
The third condition is financing approval. Because lenders will not promise financing until a home is found and put under contract, the REPC affords the buyer an opportunity to obtain an adequate and acceptable financing solution. If such is unavailable to the buyer, the buyer may cancel and receive a full return of the earnest money deposit.
Key Factors
There are two particular key things about the conditions that must be remembered. First, they are not automatic – the boxes on the REPC must be checked and the dates agreed upon. Second, it is important to remember that the deadlines are the buyer’s obligation to meet. If the buyer has financing issues, for example, but does not notify the seller before the deadline passes, the contract is not subject to the contingent termination and the buyer may be on the hook for damages to the seller. As such, it is important that the parties are aware of the deadlines and take proactive steps to meet them. Scheduling home inspections, obtaining an appraisal and completing loan documentation takes time, and the deadlines are not required to be postponed because the buyer did not act soon enough. Likewise, sellers will need to be aware that just because the REPC is signed does not mean that a deal is done. Sellers will want to make sure to account for completion of the conditions and the possibility that the sale may not occur from the contract. The parties should keep these tasks in mind when agreeing on the respective deadlines at the time the REPC is signed.
If you have any questions about REPC obligations, deadlines, or contingencies, please contact us at 801-365-1030.