Welcome back to PDFfiller Realtor Guest Blog series, which brings you advice from the experts! This week’s post from Jeff “Grimm” Nelson focuses on the elements of a purchase agreement. For more great posts from Jeff, check out his blog at http://www.livegulfshoreslocal.com/blog/
Working with Purchase Agreements
Almost everyone at some point in their life will have to fill out a real estate contract and this can bring a feeling of trepidation, even to seasoned buyers. However, there is nothing to fear. Here we will go over the most common real estate contract, the purchase agreement, discussing what is meant by some of the terms and how to fill it out – from a buyer’s point of view. Real estate license law varies slightly from state to state but there are general aspects to the purchase agreement that remain true no matter where you live.
The Purchase Agreement
A real estate contract is usually a bilateral contract (between two parties) and in order for it to be enforceable, it must be in writing and include the following:
• Identification of the parties
The parties of the sale would include both the buyer and the seller, who are identified as the principals to the transaction. The full names of both parties must be on the contract as it reads on their driver’s license.
• Identification of the property
This is often referred to as “real property” as opposed to “personal property”. At the very least the address to the property must be on the contract; however for the best protection it is smart to also include other identifiers such as the legal description, property identification number, and even the MLS number. The legal description and property ID are available to the public through your city’s tax records. In most cities, this information is readily available online.
• Purchase Price
The amount of the initial offer must be included for the purchase. Negotiations may cause this number to change but the starting price from the buyer must be on the contract.
• Contract must have a legal purpose
Real estate contracts are void if the property is for illegal purposes.
A real estate contract must include consideration or something of value to be offered in exchange for real estate at the time of the offer. This is often referred to as an Earnest Money Deposit or Good Faith Deposit. There is no set amount that the consideration has to be legally however different areas of the country usually have “traditionally” set amounts. Legally, consideration doesn’t even have to be money but the seller always takes this into account when reviewing your offer. Whether your consideration is $500, 1%, or even 10% of the purchase price, the more substantial the amount is the more serious you appear to the seller which could benefit you if there are other buyers for the property. Once the purchase agreement is accepted and as long as the buyer doesn’t default, the consideration is credited back to the buyer at closing.
• Competent parties
The mentally impaired, persons under the influence of drugs or alcohol, etc. may not enter into an agreement. Minors can enter into an agreement but the contract is voidable.
• “Meeting of the minds”
Each party must have a full understanding to the terms, rights, and obligations of the contract.
All real estate contracts must be entered into voluntarily and is represented by the signatures of both parties.
Provisions and contingencies do not make a contract legal but are necessary in every real estate contract. You can literally offer or ask for anything that you want in an offer but always remember that “both” parties must agree on the terms.
Some provisions to include in the contract: who pays for title insurance, what is the closing date, how long does the seller remain in the property at closing, can the buyer get early possession, will the seller pay any of your closing costs, do you want a survey of the land, what kind of deed will the property convey, do you want a home warranty, etc…
Contingencies are an event that must take place in order for something else to happen. For instance, if you are getting a mortgage, the contract is contingent on you getting fully approved for the loan. Also, if you are getting a loan the offer is contingent on the property appraising for the loan amount or sales price, whichever is applicable.
You may have a home sale contingency that means that you must close on your current home before closing on your new home. The most important is the home inspection contingency, which in my opinion should be in every real estate purchase agreement. The transaction is contingent on a satisfactory home inspection or the repairs made by the seller, agreed upon by both parties. As long as the contingencies are in writing, have a timeline, and are signed by both parties, they are a viable part of every real estate contract.
Real estate contracts can be a little intimidating but hopefully this article has helped you with some of the basics in working with a Purchase Agreement. Thousands of homes are bought and sold every day and the vast percentage of them started with the information on this page.