A real estate refers to any property that includes land, building, and other resources naturally existing within a region. For too long, the real estate business has remained one of the most lucrative yet the riskiest business ever. Therefore, for one to venture into it, you need to put a lot of factors into consideration to ensure everything goes well. Among the most important factors to consider is the Real Estate Purchase Agreement.
What is a Real Estate Purchase Agreement?
A Real Estate Purchase Agreement, also known as a real estate sales contract, is a binding contract that lays out important terms of a real estate deal between the buyer and the seller. Often times than not, the Real Estate Purchase Agreement covers every element of a real estate transaction, including the price, terms of payments, key witnesses, among others. However, it’s important to note that the agreements vary significantly from one state or region to the other.
What are the components of the Real Estate Purchase Agreement?
For many, understanding a Real Estate Purchase Agreement presents a major challenge. However, as a prospective real estate buyer/seller, it’s advisable that you fully understand the basic components of the agreement. This will make you confident about what you are signing, especially if you are a first-timer. The following therefore are some of the common components:
When engaging in a real estate business, financing is a common term you’ll frequently use in your dealings. Basically, financing refers to how your transactions will be paid for. It can either be informed of loan, mortgage financing, among other forms.
Earnest Money Deposit
The Earnest Deposit Money, also known as good faith deposit, refers to the deposit made by the buyer to stress his or her seriousness on buying the real estate. It helps the seller know that the buyer is indeed committed to buying the property and will not back out anytime soon.
However, if the buyer decides to quit out of the deal due to any other reason not highlighted within the contract, then the buyer will lose the earnest money deposit to the seller. On the contrary, if the buyer decides to pull out from the contract due to any breach of terms as stipulated in the contract, then the buyer will receive their earnest of money back.
It’s also important to note that earnest money deposit is often held by escrow. After a successful transaction, the escrow will deposit the money to the appropriate party according to the laid out agreement.
A real estate purchase agreement often contains several forms of contingencies. Basically, a contingency refers to any terms and conditions that must be met by both the transacting parties to ensure a smooth and efficient transaction. The following are some common forms of contingency you should be aware of:
- Financing Contingency
A financial contingency is often obligated to the property buyer. It helps protects the buyer should they fail to secure a mortgage.
- Inspection contingency
After the buyer is presented with the inspection report, he or she may be dissatisfied with the outcome. Therefore, they may opt to pull out of the sales; in that case, the inspection contingency will help protect them from being penalized.
- Appraisal contingency
This contingency demands that the property should be appraised at a value similar to or greater than what the buyer agreed to offer.
Title insurance refers to a form of insurance that covers the loss of value of the property should the buyer realize some defects in the future. This insurance is often given to the property buyer upon the successful completion of the real estate transaction.
Escrow often refers to a third party that plays the role of holding the funds while the transactions are still underway. The buyer will deposit the finds to the third party as they wait for other conditions to be met. Once everything is in order, the escrow will release the funds to the intended seller. This system helps to reach a win-win situation during a real estate transaction.
This refers to the final step of the real estate transaction. Before reaching this step, both the parties always ensure that everything is clear and finalized. The buyer completes the payments and the seller hands over the title deed.
Real Estate Purchase Agreement Templates
Templates by State
How to buy Real Estate
Buying a property is one of the greatest investments a person can make during his lifetime. The process is always detailed and hence challenging, especially if you are a beginner. The following therefore are some insights you can use to know what is expected.
- Find the property under sale
Just like a job search, looking for a property with a suitable location, amenities, and other infrastructure can be time-consuming. Therefore, you can do your search either on the internet, get a family or friend referral, or use a real estate agent.
- Ge a prequalification letter
Once you’ve settled on a property, you need to get a prequalification letter from your bank. This letter certifies that the buyer is indeed able to afford the given property.
- Attend open houses
With your prequalification letter at hand, you can visit the open house and view the houses. This can be done either by the buyer himself or through their agents. If the property catches the buyers’ interest, they will proceed to the next step, writing an agreement.
- Write a real estate purchase agreement
This is the most crucial step while buying a property. The buyer will write the agreement and give it to the seller to approve.
- Sellers Discourse
If the seller agrees with the purchase agreement, he or she will sign it and complete a disclosure form. The disclosure form will notify the buyer whether or not there are any repairs to be made. An earnest money receipt may be issued if it’s part of the agreement.
The home is then inspected by a certified inspector, and a report availed to the parties.
Depending on the purchase agreement, the buyer will avail of their financing either through a mortgage or any other financial commitments.
Usually, it’s recommended to pursue this stage under the watch of an attorney. The ownership of the property will be transferred from the seller to the buyer. Both the associated parties will sign the agreement to make it legal.