Now we get into the details of the sale. All the points we just negotiated over, the price, what stays, what doesn't, what's repaired, what's not, and who pays for what, gets spelled out, legally, in writing. Purchase contracts are generally pre-printed forms. It is your responsibility to add specific clauses to the form and to strike out items that don't apply to your purchase. The signing of the contract is also the point at which you will be parting with some significant cash, your earnest money deposit.

Elements of a Real Estate Contract

Here are some useful points to remember when drawing up your contract. The list isn't complete, and you should consult your attorney and buyer's agent (if you have one) before signing anything:

• Date and amount of earnest money deposit; name of escrow agent
• Name of buyer(s); name of seller(s); addresses of all parties
• Legal description of property you are buying; also street address
• Attorneys, brokers, and all others involved in the sale
• Compensation of brokers and agents and who is paying
• Protective "escape" clauses, such as:
  • Satisfactory deed and title guaranteed by seller
  • Satisfactory financing approved by the buyer
  • Satisfactory closing date and possession of property
  • Satisfactory conclusion of home inspection and termite inspection
  • Satisfactory conclusion of any environmental testing, such as radon
• What stays with the home, what does not, what must be repaired and who pays
• The home be in "broom-clean" condition upon transfer
• Any other conditions you hammered out during the negotiating process

There are no legal requirements as to how much your deposit needs to be, but the general rule of thumb is 5–10% of the purchase price of the property. You'll need a cashier's check, and don't forget to take credit for any cash you handed over to the agent when you presented your initial offer.

SUGGESTION: Most contracts are written so that interest earned on the earnest money deposit goes to the seller as compensation for removing the property from the market during the contract process. Change that so that the interest earned is split 50/50. If the closing will be delayed by the seller for some reason, consider putting a stipulation in the contract so that all interest is earned to your benefit in the case of seller delays.

At this point, you've entered into a binding contract. If you change your mind, you stand a good chance of losing your deposit money. You do have one out: Most states require that you be given a three- to seven-day period to rescind the contract. This "cooling-off period" protects you from making hasty (and costly) decisions.