A Breakdown of the Purchase Agreement and Addendum – Jim Casey
On this episode of The Closing Table, we sat down with Jim Casey!
To watch the full episode, check it out on YouTube below. In the meantime, here’s a summary of the conversation…
Here’s what you missed from Jim Casey…
The conversation began with a fill-in-the-blank icebreaker on what he believes will make the real estate industry better, The hardest thing for most clients selling their homes, and more. Beyond his role in role estate, Jim introduces himself as one who takes an active part in the community and enjoys engaging in various activities. He not only serves as a real estate agent but also actively participates in community events, showcasing his genuine love for the area he serves. Jim also spends a lot of his personal time on gardening where he finds immense joy in cultivating plants and tending to his garden. This personal passion complements his career and forms a fulfilling circle in how he chooses to spend his time.
Jim serves the Woodward area, which stretches from Ferndale to Bloomfield, extending into Troy, Rochester, and the surrounding lake areas. Despite acknowledging that it wasn’t part of a grand plan, Jim gravitated towards this region when he transitioned from working at Ford Motor Company to a different career. Growing up in the area, he possessed an intimate knowledge of its layout and felt a sense of comfort there. Even today, one of Jim’s strongest attributes is his comprehensive understanding of the local market.
Jim excels at finding homes within specific price ranges, a skill highly valued by those seeking a property at a particular price point. Moreover, he emphasizes that the area offers numerous attractions and activities, making it an appealing destination for potential buyers. From the iconic Dream Cruise to the various amenities scattered throughout town, the region provides a wealth of options to explore and enjoy.
Another significant draw to the area is its excellent schools. Education holds great importance, and Jim emphasizes that good schools contribute to the creation of strong neighborhoods. The support of residents within these neighborhoods further enhances the quality of education, forming a positive feedback loop. Jim also addresses the recent tax increase in the Berkley school district, asserting that buyers indeed consider school districts when making purchasing decisions. Even for those without children, being situated within a desirable school district is crucial since it increases the property’s value and attracts potential buyers in the future. Jim believes that investing in a home within such a district will yield a return on investment.
Additionally, the Woodward area appeals to those who appreciate water-related activities. With its proximity to various bodies of water, it provides an excellent location for individuals who enjoy spending time on the water. Furthermore, the area offers a wide range of price points, accommodating individuals from diverse backgrounds. This factor contributes to the city’s overall attractiveness, as it attracts people from different financial situations.
The conversation then shifts to the discussion of a few documents that Jim had sent, specifically purchase agreements and an addendum. Jim emphasizes the importance of understanding these key documents in a home transaction. He wants people to have a clear comprehension of the contents and significance of these documents, as they play a crucial role in ensuring a smooth and successful real estate transaction.
The two began by delving into the property description section of the document. Jim explains that this particular document is crucial for buyers as they purchase a house, but it is also utilized by the title company and mortgage company during the transaction process. It is essential to include as much information as possible, such as the address, city, state, zip code, and parcel number. Jim stresses the significance of understanding that when you buy a house, the items attached to the walls and ceilings, including chandeliers, kitchen cupboards, and even the mailbox, are considered part of the property and automatically come with the house. However, if there is a specific item that the seller intends to exclude from the sale, it should be explicitly stated in the document. Furthermore, the document should also encompass movable items like refrigerators, stoves, and other appliances that are not permanently affixed to the property. These movable items should be listed to ensure clarity and avoid any potential confusion during the transaction.
Moving on, the conversation now shifts to the price section of the document. In this section, it is important to state the price both in words and numerical form to ensure clarity and avoid any misunderstandings. Additionally, the type of sale being consummated should be indicated, whether it is a cash sale, a cash sale with a new mortgage, or another type of arrangement. Jim shares his perspective on the purchase agreement, likening it to a detailed conversation between the buyer and seller regarding the intent to purchase the house and how the payment will be made. He emphasizes the importance of explaining the terms and conditions in detail, ensuring that both parties have a clear understanding of the agreement.
Jim also mentions that it is common practice to attach a copy of the buyer’s pre-approval or pre-qualification letter from a lender or mortgage company when submitting the offer to a listing agent. This document serves as proof that the buyer has already taken steps to secure financing for the purchase. Jim highlights the impacts of different payment options in a real estate transaction, such as the efficiency of a cash sale or the benefits of leveraging financing. Additionally, he emphasizes the importance of negotiation, urging individuals to proactively engage in discussions and express their preferences. By doing so, parties involved in the transaction may find favorable resolutions and achieve their goals.
Under earnest money, usually, it is almost absolute. It’s a way of saying you’re earnestly interested in purchasing the house and usually it’s at 3-5% of the amount you’re going to offer as an earnest money deposit. So if your offer is at $200,000 then you’ll be issuing a check at $6000 which will be held by the listing office. that money if it goes through, the mortgage company knows that it is held by the real estate company (as stated in the agreement), it just gets applied to the downpayment. If you’re in a bidding war, a way you can stay competitive and show the desire you want the house, you can issue higher earnest money.
Shifting the focus to the closing section of the document, Jim highlights the importance of specifying a target closing date. He explains that when a date is listed in the purchase agreement, it is ideal for that date to be the actual closing date. Determining the target date involves considering the pre-approval letter, particularly for conventional loans, which typically require 30-45 days for processing. Jim notes that first-time homebuyers or individuals with tight financial situations may undergo a more thorough scrutiny during the loan process.
By locking in a closing date, all parties involved, including the mortgage company and the title company, are aware of when to commence the necessary paperwork. This is crucial, especially when it comes to prorating taxes, as a specific date is required for accurate calculations. It’s important to acknowledge that unexpected circumstances can arise, potentially necessitating a change in the closing date. In such cases, an amendment to the contract is necessary, which may involve communication with the seller and resolving any potential disagreements. Jim suggests being proactive by informing the seller about the situation and considering input from the mortgage company to determine a realistic timeline before even writing a date down. Once the purchase agreement is prepared, it is preferred to maintain the document’s overall structure and formatting. While the price may be subject to change, it is important to strive for consistency in the remaining aspects of the agreement.
Moving on to the Possession section of the document, Jim explains that it is not uncommon for buyers to stay in the house after the closing process is complete. Parties involved in the transaction have the option to determine a possession date that either immediately follows the closing or occurs after a specific timeframe, such as 15, 30, or 60 days post-closing. This flexibility allows the seller to have more time to move out.
In some cases, a buyer may even choose to lease the home back to the seller for a certain period after the closing if the seller requires additional time to vacate the property. The agreement should clearly state the terms and conditions of this arrangement, including the specified sum that the seller will pay. Typically, it is customary for the seller to cover the expenses related to the house payment during the leaseback period, which includes principal, interest, taxes, and insurance. In order to increase the likelihood of their offer being accepted, buyers may choose not to charge the seller the house payment during the possession period. This concession can make the offer more appealing to sellers in a competitive market. When it comes to the turnover of the property, the keys are received by the agent who will then make you sign a key release form. This signifies the official date of the seller’s move-out, and the buyer’s agent will provide this information to the title company responsible for handling the closing. The title company will then incorporate this information into the final settlement of the agreement.
Continuing the conversation, Jim and Kevin discuss the next sections of the document, focusing on home protection plans. Jim explains that having a home protection plan is beneficial, especially in the Metro Detroit area, which consists of older houses due to the city’s age. In certain situations, buyers can request the seller to provide a home warranty as part of the agreement. However, some buyers prefer to obtain the home warranty independently, particularly when they are competing to secure the house. They may choose not to burden the seller with additional charges during the negotiation process. Jim emphasizes the importance of a home protection plan in safeguarding against potential issues that may arise with an older home. Such a plan can provide coverage for essential systems and appliances, offering peace of mind to the homeowner.
Moving on to the section regarding sewer and water charges, Jim explains that as a homeowner, it is your responsibility to pay for your sewer and water bills for as long as you own the house. If you choose to stay in the house for an additional 30 days after the closing, upon moving out and handing over the keys to the agent, the agent will read the water meter and report the reading to either the water department or the title company. During closing, it has happened that a deposit may be collected to cover any outstanding water bills until you move out. Once you vacate the property and the water bill is settled, any remaining money from the deposit will be returned to you.
Now turning to the sections regarding title evidence, survey, and title objections, Jim explains that most real estate companies have affiliations with title companies. Once all parties involved sign the purchase agreement, the agreement is forwarded to both the mortgage company and the title company. The title company then begins the process of conducting the necessary title work. Title companies are responsible for accessing county/city records to check for any existing liens against the property. At the time of closing, these liens must be paid off to ensure the buyer receives a clear title to the house. A lien can be something as simple as a mortgage. As a seller, it is crucial to ensure that your mortgage is paid off before reaching the closing table, as this enables the buyer to obtain a clear title to the property. During the title work process, the title company examines the relevant documents and transactions to verify the status of the property’s title. This includes assessing any potential issues or objections that may arise. If any title objections are discovered, they will need to be resolved before the closing can proceed smoothly.
Next, on taxes, Jim explains that in Michigan, property taxes are paid twice a year: the summer tax and the winter tax. It’s important to note that taxes are paid in advance, meaning you are paying for the upcoming year’s tax bill. For example, if you have already paid your summer tax, which covers the period from July 1st to June 30th, and you are closing on August 15th, the taxes will be prorated. This means that on the closing date, the taxes will be divided proportionally between the buyer and the seller, based on the number of days each party will own the property during that tax period. As a result, you will receive a refund or credit for the portion of the taxes you have already paid for the period after the closing.
Continuing with the document, the next section covers assessments. Assessments refer to any fees imposed by the city for certain improvements, such as the installation of new sidewalks. These assessments must be paid by the time of closing. In the case of condominiums, homeowners association (HOA) fees come into play. These fees are associated with the maintenance and management of shared amenities and common areas within the condominium complex. It is important for the buyer to ensure that these fees are settled before the closing.
Moving on to the topic of risk of loss, once the buyer purchases the house and the closing is scheduled within 30 days, the seller is responsible for maintaining the property in the same condition it was in when the buyer agreed to purchase it. This excludes normal wear and tear, although the definition of normal wear and tear can sometimes be subjective. To address any concerns or potential issues, the document includes a section called the final walk-through prior to closing. This allows the buyer to exercise their right to inspect the property 24-48 hours before the closing to ensure that no changes or damage has occurred since the initial agreement. This serves as a way to address any potential issues before the closing takes place.
Moving forward, the document includes sections on successors and assignees, which highlights that the agreement binds not only the parties involved but also any future parties. This ensures that the obligations and terms of the agreement extend to all relevant parties. Under the section regarding facsimile/electronic authority, the document acknowledges the prevalence of digital transactions, particularly the use of platforms like DocuSign. This is especially beneficial when clients are located out of state or even out of the country, allowing for efficient and convenient signing of documents.
The next section, “Time is of the Essence,” emphasizes that the specified dates in the contract must be strictly adhered to unless otherwise stated in writing and signed by both parties. This clause reinforces the importance of meeting the agreed-upon timelines and limits the possibility of extensions. Moving on to the seller’s disclosure section, a two-page form is provided to gather information about the condition of the property and its appliances. This disclosure form is crucial in addressing the property’s history and potential issues. Of particular importance is the disclosure of any past water leaks in the basement, as this information is vital in preventing future lawsuits or disputes.
Following that is the time limit section, it addresses the validity of the offer and the timeframe within which the seller should respond. Once the buyer’s agent submits the offer, they typically contact the seller’s agent to establish a specific time limit for the response. This time limit is crucial in setting expectations and ensuring timely communication between the parties involved. In the section regarding additional documents attached, it is customary to include a sheet of paper or a legal form that lists and confirms all the accompanying documents. This checklist ensures that all the required documents are accounted for and properly included with the offer.
Moving on to the property inspection/due diligence contingency section, Jim highlights that this is a crucial aspect of the transaction, second only to the financial considerations. This section involves inspecting the building, its mechanical systems, and other relevant aspects. The building inspection typically takes place within a specified number of days. Once the purchase agreement is signed by both the buyer and the seller, the buyer acknowledges and dates the agreement. The date entered by the buyer serves as the starting point for the building inspection timeline. For example, if the inspection starts on a Tuesday, the countdown begins on Wednesday.
On average, the building inspection period lasts 5-7 days. Inspectors understand the time-sensitive nature of the business and work efficiently to ensure a timely inspection process. Sellers prefer a shorter inspection period as it takes their house off the market during this time. Jim advises buyers to be present during the inspection, even if it takes several hours. This allows the buyer to have firsthand knowledge of any issues discovered during the inspection. If any problems are identified, such as a widget that requires a $500 repair, the buyer’s agent can draft an amendment. This amendment specifies whether the buyer requests the issue to be fixed, requests a credit for the repair cost, or decides not to proceed with the deal during the due diligence period. It is important to take note of the number of days given to you or else any request will no longer be valid.
Regarding flood insurance, Jim notes that while it used to be uncommon in Michigan, certain counties have now been declared as 100-year flood zones due to factors like climate change. It’s crucial to check if the property falls within these designated areas, even if it’s not near a lake. Flood insurance can be expensive, amounting to an additional $1000 or more per year. Jim advises both parties to conduct their due diligence and research on this matter. In terms of municipal inspections, Jim explains that in most of Oakland County, they are no longer required. However, there used to be a requirement for the city to inspect the house and ensure that any necessary repairs were addressed before the title company would allow the closing to proceed. It’s essential to be aware of the specific requirements in the area where the property is located.
Moving on to lead-based paint, Jim highlights that homes built before 1978 may have been painted with lead-based paint. However, the government intervened after 1978 and prohibited the use of lead-based paint. This information is significant to potential buyers, as it helps ensure awareness of any potential health hazards associated with lead-based paint. For older homes built in the 1920s, many layers of non-lead-based paints have been painted on top of that but it still has to be declared and the buyer must also sign on that to confirm that they are aware of it.
The conversation wraps up with Jim taking the opportunity to go over the addendum/amendment document he had previously sent and explains its role in a real estate transaction. Jim emphasizes that the addendum/amendment document serves as an important component of the overall transaction. It allows for modifications or additions to the original purchase agreement, addressing any specific conditions or changes that arise during the process. This document ensures that both parties are in agreement and have a clear understanding of any adjustments made to the original terms. By employing the addendum/amendment document, Jim explains, any necessary changes can be officially recorded and documented. This helps maintain the integrity and clarity of the transaction, providing a legal framework to address any new developments or negotiations that may occur along the way.
Check out Jim Casey:
Facebook: https://www.facebook.com/jim.casey.528
Facebook Business Page: https://www.facebook.com/jimcasey
Instagram: https://www.instagram.com/callcaseyrealtor/
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