A real estate purchase agreement is essential in the real estate buying and selling process. This document, or sometimes sets of documents, covers all critical terms of a sale. That way, both parties know what to expect from the agreement, property disclosure requirements, and legal remedies in real estate.
With all the essential elements included, a real estate purchase agreement can be lengthy and overwhelming to read. However, this agreement can help protect you if there is a disagreement over the property sale or any of the contract terms. Additionally, the real estate purchase agreement may also include ways to solve disputes if they arise.
Are ready to create a real estate purchase and sale agreement?
If so, you can start with a helpful real estate purchase agreement form consisting of all the must-have clauses and additional terms to protect buyers and sellers. In this article, we examine everything you need to know about real estate purchase and sale (P&S) agreements in a property transaction. This will help you protect your interests, and quickly determine a closing timeline for the property sale.
Essential Property Details: Property Description
Your real estate purchase and sale agreement must include a few terms. You need to keep these terms in mind to know they are formed and discussed with the other party. One of the key elements are property details, which include –
- Property Description
- Address
- Legal Boundaries
These items will ensure that both parties know which property is being sold. The legal definition is a series of coordinates that allows the property to be globally defined and identified by anyone. This includes any features, dimensions, or other unique characteristics.
Often, a property description is complex for a layperson to determine where the property is located, so you should always include the property address if one is available. Keep in mind, some properties, like wooded areas or farmland, may not have a physical address.
Dispute resolution options may be included in the purchase agreement to protect both parties in case of disagreements. By fully defining the property with a legal description and address, it can significantly help avoid potential disputes between the parties involved, neighbors, and adjoining property owners.
Clear Purchase Agreement Terms: Property Transaction and Payment
Once we identify the property as part of the real estate contract, it is essential to lay out the payment terms. This includes the purchase price and payment conditions. Clearly defining these terms can lead to fewer disputes and reduce headaches for both parties involved.
Coming to a purchase price agreement is usually one of the first things during a property negotiation session. But sometimes, the terms regarding the payment are left out or forgotten. These terms include when payment must be made if financing is involved, and who is responsible for obtaining the funding.
The property purchase agreement often includes earnest money requirements. The earnest money is paid to start negotiating the contract, depending on the purchase price. Additionally, some sellers may add contingencies stating if the buyer cannot obtain financing.
Protecting Interests: Contingencies
Both the buyer and the seller can have the ability to protect their interest with contingency provisions in a real estate purchase and sale agreement. A contingency allows both parties to state terms to be met before the property goes to another owner. The most common contingencies are inspections, appraisal, financing, and timeline.
The buyer can require an inspection to allow a professional to access the property. These individuals look for defects that may harm a buyer’s desire to purchase. In addition, a property inspection can also evaluate the sellers’ disclosures. Sellers’ disclosures are items that the seller must disclose to the buyer before purchase. Suppose the buyer is not happy with the results of the inspection or the representations on the disclosures. In that case, they usually can forfeit the purchase, preventing further issues with the seller after closing.
An appraisal is required for the buyer to obtain financing. If the buyer defaults on the loan, they can resell the property for the value. This leads directly to the funding of the property. The seller will often ask the buyer to obtain financing within a specific time after signing the contract. The transaction can be canceled if the buyer doesn’t qualify or find funding.
Finally, by agreeing to all of these terms up front, both parties can rest assured knowing that the contract execution process will go as smoothly as possible. They will have formed a timeline for both parties to adhere to so the property purchase doesn’t take longer than either party anticipated. Agreeing to these terms upfront can help protect both parties’ interests and prevent issues so they clearly understand the closing process.
Creating a Real Estate Purchase Agreement
Creating a real estate purchase and sale agreement with all of these terms can be tricky, especially when all situations differ. By using reputable online templates and tools, you can create your real estate purchase and sale agreement quickly and efficiently. Although, it may be in your best interest to find a lawyer that matches your needs in creating a contract. If you don’t want to be stuck in an agreement and realize it’s not the best fit for you, let a lawyer near you help iron out all the details.
About the Author
Karyna Pukaniuk, Head of Legal at Lawrina. Experienced Tax and Corporate Lawyer, team leader, and legaltech pro. Led and backed the smooth operation of the legal team and accompanied several different projects simultaneously. Worked closely with department’s leads and shareholders and advised them through all legal, regulatory, and risk management matters. Supervised multi-million dollar M&A deals and actively participated in the company’s product development.
