A Brief Introduction About the Real Estate Purchase Agreement
What is a real estate purchase agreement? We often sell our residential properties for different reasons like relocation, profit realization, inheritance, etc. The sale or transfer of such residential property is a deal between a buyer and a seller. The terms of such a deal, including the consideration, when written on paper and signed by the parties become a real estate purchase agreement. The agreement is an offer to purchase. There are different kinds of purchase agreements. Property-specific, general and state or association purchase agreement.
The real estate purchase contract is one of the types of real estate agreements. The other types are a lease agreement, real estate assignment contract, etc.
What is contracting?
Contracting is the action of entering into a legally binding written agreement that states the parties will do or not do something. However, in real estate, contracting can also refer to a real estate agent and their services. So, in a way, the broker or the agent is an independent contractor, who is being hired to facilitate the transfer of property and is being paid for the services rendered. Contracting is also the act of hiring the agent for a real estate deal.
What is a purchase agreement?
A purchase agreement is a document that lists down the rights and obligations of a purchaser who is willing to buy and a seller, willing to sell real estate. The agreement governs how the transfer of property will take place and the conditions for such transfer, including the consideration to be paid for it. The purchase agreement is used in many industries – anywhere where something is bought and sold.
Who Takes the Real Estate Purchase Agreement
Anyone who wants to buy or sell private residential property can enter into a real estate purchase contract. The agreement can also be entered into by family members. It only needs the consent of two parties – a seller willing to sell and a buyer willing to buy. However, the contract can only be taken if the property is pre-owned or the construction on such a property will be completed before the date mentioned in the contract for closing the deal.
The agreement is taken when an offer for the sale of private residential property is made and accepted by a buyer, generally with a real estate agent helping to negotiate the terms of the real estate purchase contract.
Purpose of Real Estate Purchase Agreement
The purpose of a real estate agreement is to facilitate the transfer of residential property while providing legal security to both the buyer and the seller. The document has another vital purpose of stating the consideration for the property deal that is to be paid at the time of signing the agreement or at a later date. It serves as a record of the terms and conditions agreed upon for the purchase of real estate and includes the contingencies for the same. It serves as an offer to purchase.
The contract is also known as a real estate sale contract and home sale contract.
Contents of the Real Estate Purchase Agreement
A well-drafted real estate purchase contract contains the following:
- Details of the parties, including their contact details
- Amount of consideration and payment schedule
- Details of the property, its address, and the condition
- Details of the movable properties like appliances, light fixtures, etc. that are a part of the deal
- The rights and obligations of the seller and the buyer
- Conditions to be fulfilled
- Contingencies that way of handling such contingencies (loans, repairs or anything else)
- The date of closing the contract and the date of possession
- The terms of possession of the property
- Signatures of both the parties
How to Draft the Real Estate Purchase Agreement
While drafting the purchase agreement, keep these key terms of the real estate purchase agreement in mind:
- Begin by referring to a real estate offer form that gives you an idea about what clauses are to be included in the contract.
- Include the boilerplate legal clauses like the clause of indemnity, entire agreement, etc.
- Include a termination clause that gives either party the option to terminate the contract. Also, mention the process of such a termination.
- Include a method to be followed for dispute resolution.
- You can also insert a deposit clause where the buyer is required to pay some amount as a token of good faith that can agree come into effect. This is also known as ‘earnest money deposit’.
- Mention a comprehensive list of fixtures, furniture or other appliances that are a part of the contract. You can also include items that are not a part of the sale.
- You can specify the contingencies that need to be met like inspection, loan procurement, appraisal or other conditions.
- Most importantly, mention which party is responsible for paying the closing costs for the contract, including the fees of the real estate agent.
- Include a clause for ‘liquidated damages’. This is the amount the seller owes to the buyer if the seller backs out from the contingencies agreed upon in the contract. Check the local laws to find out if the amount of liquidated damages is capped and to find out how this is to be calculated.
- Determine who will pay the utility bills until the closing date of the contract.
The real estate purchase agreement is considered as an offer. The offer can be rejected and replaced with a counteroffer, and this can continue until a suitable arrangement is arrived at between the buyer and seller of the private property. Negotiation plays an important role in helping the parties’ draft terms that are agreeable to both. A real estate agent can play an important role during negotiations.
Benefits & Drawbacks of the Real Estate Purchase Agreement
- It is a record of agreed-upon terms between the buyer and the seller.
- It covers every clause about the transfer of property, protecting from cheating or breach.
- It is enforceable, and the rights of both parties can be upheld in the court.
- It allows for deferred future payments, giving the buyer a better option for bank financing.
- It is an exhaustive document covering all the important terms of sale and transfer of residential property.
- It prevents unnecessary litigation and unburdens the courts.
- The agreement might be expensive to draft if the help of an attorney is needed.
- It takes out flexibility and may not cover all kinds of scenarios when it comes to property.
- As the role of a broker or the real estate agent is important in this kind of deal, additional expenses are incurred for the agent’s fees as they are often a part of the negotiations.
What Happens in Case of Violation of Real Estate Purchase Agreement
The contract can be violated in multiple ways. For example, a seller can violate a contract by refusing to transfer the title of the residential property in the name of the buyer. Or the buyer can default on a payment as scheduled. In case of a violation, there are some remedies available to the injured party like:
- Claiming monetary damages
- Opting for the termination of the contract
- Requesting the court for the specific performance of the contract
- Claiming liquidated damages as per the contract
A breach is a dispute. The parties adopt the method of dispute resolution that was agreed upon the contract like arbitration. Other remedies of breach of contract like reformation, rescission is also available to the injured party.
A real estate purchase contract is legally binding. With so many transfers of private properties taking place, it is important to have a written, binding agreement that can be enforced by law.
If you are buying or selling property through a broker, it is highly likely that the real estate agent will have a sample offer letter to purchase property ready to sign. You can also hire a real estate attorney if you want your contract to be well-drafted or refer to purchase contract template on the internet for reference before drafting. There are many home buyers’ letters to seller template agreements available online.