A strong real estate purchase agreement should include protections for the parties at every step of the way. Besides the standard clauses, the parties should be able to customize the following terms according to their preferences:
First, you will add basic information about each party, including the names, party type, and addresses. Parties may be married individuals, unmarried individuals, businesses, or trustees.
Buyers will often include specific contingencies in the agreement. These are the conditions that the buyer requires to be met before closing can occur. In the event that a contingency is not met, the buyer may terminate the agreement and be refunded the earnest money and any other deposits made. However, the buyer may always choose to disregard a contingency later on if it is no longer required. The buyer always has the option to waive a contingency later on if it is no longer needed. LegalNature’s agreement includes options for adding the standard contingencies, including contingencies for receiving financing, property appraisal, inspection, and prior property sale contingencies.
A financing contingency requires that the buyer receives financing in order to close the deal. You will select the appropriate type of financing required, such as through a third-party lender, a mortgage assumption, seller financing, an all-cash transaction, or another form. A third-party lender is a traditional lending institution. A mortgage assumption is when the buyer agrees to take responsibility for the seller’s mortgage, thereby becoming liable to repay the seller’s loan. Seller financing is when the seller and buyer create a private loan contract. Lastly, all cash financing is when the buyer will finance the deal by itself. The funds do not actually need to be in the form of cash, as electronic wire transfers are normally accepted.
Under an appraisal contingency, the property must receive a professional appraisal at a value of at least the amount of the purchase price. If this does not occur, then the buyer can choose to cancel the agreement or try to renegotiate a lower purchase price. LegalNature’s agreement requires that the appraisal occur within 10 business days of signing, but you may change this if the parties agree. You will also indicate which party is responsible for covering the cost of the appraisal.
Likewise, an inspection contingency requires that a professional inspection of the property occur prior to closing. If it does not occur or if an inspector discovers a material defect, then the buyer may either cancel the agreement or require the defect to be repaired. Again, our agreement requires the inspection to happen within 10 business days of signing, but you may change this if needed.
Finally, the buyer may require that the deal is contingent on the sale of the buyer’s home or other property prior to closing.
Your agreement should also indicate whether the property will need any repairs for any issues with the foundation, walls, support structures, roof, water and electrical systems, plumbing, or mechanical systems. Unless the buyer agrees otherwise, the seller will be responsible for fixing all such issues.
To formally make the agreement effective, the parties must sign and date it in front of a notary and/or witnesses. In the majority of states, only a notary is required. However, you will need two witnesses to sign in Connecticut, Florida, Louisiana, and South Carolina, but you can use a notary to stand in for one of the witnesses if needed. Some lenders may still require additional witnesses. Witnesses must be at least 18 years old, hold no interest in the transaction, and have no blood relation to the parties.
Federal law requires the parties to sign a lead paint disclosure statement for properties being sold that were constructed prior to 1978. LegalNature includes this disclosure with your agreement. Sellers need to store their signed copy of the disclosure for at least three years.
A legal description is a specific way of identifying a particular plot of real estate and the legal geographic location of its boundaries. You can find the legal description on the property's current or previously recorded deeds, your County Register or Recorder of Deeds Office (often online), property tax assessments, websites such as Zillow.com, your mortgage contract, or your land title.
The legal description is NOT the same as a property’s street address, as this may change from time to time. However, it is still recommended to include the street address on a deed, for the sake of clarity. Depending on the type of property, the legal description might be in the form of a simple lot and block reference, or it may be in a survey format giving a detailed measurement of the plot. It is crucial to get the legal description correct to complete a sale or transfer.
Closing is the final settlement of all the terms required in a real estate purchase agreement. This includes all contingency provisions that both parties have included, the documents that need to be exchanged, and any sums of money that need to be paid.
In terms of a real estate purchase agreement, a contingency is a contractual requirement that must be completed in order for the purchase to be completed. Contingencies are added as terms to the written purchase contract that both the buyer and seller agree to.
Common contingencies include the following:
In the context of real estate, an encroachment is a type of encumbrance characterized by a physical intrusion on a property owner's land. An example of an encroachment is when a person constructs a structure that extends beyond the boundaries of his or her property and onto, over, or underneath the neighboring property. Here, the person is said to be "encroaching" on the neighbor's property.
Escrow is an arrangement where a third party holds funds and manages payments. Escrow arrangements are normally enforced when large sums of money change hands, such as real estate purchases. The third party will safeguard funds until the terms of a contract are fulfilled. This way, the two contracting parties are kept safe without needing to transfer money to each other.
You should review your completed agreement in detail and make any needed edits in Microsoft Word prior to signing. While many states only require a single notary to act as a witness, you must use two witnesses for agreements concerning properties in Connecticut, Florida, Louisiana, and South Carolina. Some lenders may still require additional witnesses. Witnesses must be at least 18 years old, hold no interest in the transaction, and have no blood relation to the parties. Note that if a seller’s spouse is not also joining the agreement as a seller, then the spouse must sign an acknowledgment agreeing not to make any claim of ownership to the property after the sale.
The parties will need to hire an escrow agent to manage the transaction. An escrow agent acts as a neutral third party to facilitate the buying process, including exchanging and holding funds, gathering signatures, dispersing documents, and certifying that the parties’ obligations are fulfilled.
Standard party obligations include providing the following items:
During closing, the seller transfers funds to the buyer and signs over the title. Then the parties sign any remaining escrow documents. The title company will normally then record the deed at the county land recorder’s office and inform all parties when this is completed.
The last step is for the seller to exit the property on or before the agreed move-out date. This may need to be coordinated with the buyer’s moving plans and should be started well in advance.