Intent of one’s desire to purchase a property requires the submission of a purchase contract. The purchase contract will include a deposit amount based on the purchase offer price. The deposit amount can be returned to the buyer within a specified period of time. If the buyer, however, does not remove contingencies before the expiration of the specified period of time or fulfill a condition, the buyer will forfeit their deposit.
Like all contract types, only parties who have the legal capacity to enter into a contract can be a valid party to a real estate purchase contract. A purchase contract includes the purchase offer price, down payment amount, closing date, days of contingencies, conditions, and other terms. The offer must have definitive terms with a lawful objective.
Figure 7-1 is a standard real estate purchase contract. The form also provides escrow instructions for the deal.
Figure 7-2 is buyer inspection form.
A purchase contract is only an offer until the contract is signed by the seller. The offer can be withdrawn before the seller signs the contract. Almost all purchase contracts will have changes on them, particularly as they concern closing dates, inspections, and buyer financing. There will usually be changes on the original contract many times before the deal closes.
Handwritten changes take precedence over pre-printed and typed material.
Specific information supersedes general information.
Information inserted into an agreement (date, instructions, comments) take precedence over preprinted material.
Job of the Broker
The job of the real estate broker or his or her associate licensee is to help guide buyers through the process of home buying. These duties include helping to explain the contract, filling it out, and presenting the offer to the seller or seller’s agent. The broker or licensee will be responsible for communication between parties.
Although a licensee cannot give real estate legal advice, he or she can, however, explain the terms of the contract to the parties. The listing agent or broker deals exclusively with the seller.
Realtor Purchase Contract
Below you will find point by point Instructions by paragraph on the Terms of the Real Estate Purchase Contract
Offer: The buyer must enter his or her full name. Then, the buyer must write the property address, including city, state, zip and full address numbers. The land description is next. Oftentimes, the legal description will not be necessary, as the full address is satisfactory.
Legal descriptions should be used in the case of rural property address, and would include acreage, where the border of home is and the lot and block description. If the offer requires a legal description it is advised to acquire the information from an online database or contact the seller’s agent and to copy the information accordingly.
The buyer should include the purchase price and the date that he or she will close escrow. The price should be written in numeric and word form.
Agency: The buyer will include descriptions of agencies and agency members involved in transaction.
Financing: The buyer will indicate the method of financing to pay for the home. Financing terms will generally have contingencies to the property purchase. For example, a widespread practice of real estate is a buyer will say the “purchase price is contingent upon access to financing.”
In the event the buyer cannot get the loan within the original allotted period the seller may be able to back away from the sale if the buyer cannot meet the original dates. When buyer cannot get access to financing (with efforts to attain financing) the buyer can get out the contract.
Allocation of Cost: Allocation of costs are the costs that will be allocated by buyer or seller to fix something. For example, the buyer may request that the seller get a pest inspection. The cost for testing and the various reports is negotiated between parties.
Costs for different reports and inspections are determined individually and does not have a definitive practice. Who will pay for the reports and for how much is also determined by market forces. For examples, in periods of strong housing (seller’s market) buyers may have to bear higher brunt of costs of inspection because seller may have more offers with home purchases not contingent on inspections.
Closing and possession: Closing and possession refer to the date in which the home will be transferred over. Real estate must be vacant when the property is sold and transferred. If the property is a rental property, the seller must deal with tenants before the completion of the sale to ensure home is ready to be occupied by new owner.
Keys, electronic entry devices, security pass codes and other home security related devices should be provided to buyer at time of purchase unless otherwise noted.
Statutory Disclosures: Mandated disclosures must be made available. This in includes disclosures on federal lead-based paint. Property that is located in an area of high fire hazard must be identified to buyer.
Condominium/planned development disclosures: The limitations on property that is located in condominium or common interest subdivisions must be disclosed to buyer. These disclosures will have information pertaining to parking, HOA meetings and other condominium based activity.
Items included and excluded: This section is self explanatory. It lists the items that are not included and those that are apart of the sale. Items that will be included must be labeled in the contract.
Condition of Property: The condition of the property section must be included in the contract. Sellers may typically sale a home in an “as is” condition, however they must still disclose known defects of the home such as mold, foundational problem, and other defects.
Buyer’s investigation of property: The buyer legally has the right to conduct investigations and tests on the property. This includes soil reports, mold testing, termite inspections, tests for lead based paint and any other inspections of the buyers choosing. The buyer assumes all risk and liability when doing the tests including for the workers or companies who assist in testing.
Seller disclosures/addenda/advisories/other terms: Disclosures by the seller are identified. There is a separate section just for Buyers Inspections Advisory.
Title and vesting: Title insurance insures the buyer’s ownership interest in the property. It gives the buyer assurance that they are the only owner of the newly acquired real estate.
Sale of buyer’s property: Refers to requirement that buyer must sell their property in order to purchase the new one.
Time periods/removal of contingencies/cancellation rights: This section refers to the dates in which contingencies must be removed and certain demands and/or obligations met.
Repairs: The repair section refers to repairs that must be made before the closing of the transaction.
Final Verification of Condition: This clause of the contract gives the buyer the security they need to move forward with the deal. It gives buyers a few days to inspect the property once again before moving forward with the transaction.
Prorations of property taxes and other items: This section of their contract is about how property taxes will be split amongst buyer and seller. Property taxes will be paid based on date of acquiring property based on separate periods of ownership during that calendar year. This means buyer will not be responsible for property taxes until they are owners.
Selection of service providers: This section simply informs buyers that brokers cannot guarantee service provided by their licensees or associated employees.
Multiple Listing Service(MLS): To use MLS broker and agent must be authorized. Unauthorized people cannot use service and make offers.
Equal Housing Opportunity: The sale of the property must comply under standards set forth under Equal Housing Opportunity by government.
Attorney Fees: After a legal dispute, the losing party must pay for legal costs of winner.
Definitions: The definitions section includes definitions of major keywords and factors which influence real estate transaction.
Broker Compensation: This section specifies the amount the broker will be compensated and from which party.
Joint escrow instructions to escrow holder: The terms of the agreement are used as instructions for the escrow holder and those involved in the transaction. It is a requirement for escrow instruments to the escrow holder within 3 days after the acceptance.
Liquidated damages: Liquidated damages cover sellers in the event a buyer does not perform an obligation that was agree to. If the obligation is not met, the seller has the right to keep deposit as liquid damages. If the property is at or below units and the buyer intends to live in the residence the maximum amount that can be charged as liquid damages is no more than 3% of the purchase price. To release funds both parties must sign off.
Dispute resolution: The dispute resolution is a clause which explains that buyers and sellers must attempt to resolve legal matters through mediation rather than trying to immediately enter legal lawsuit. If maters are not resolved arbitration may be the next step to come to resolution. Neither party have right to waive right of other party from court trial.
Terms and conditions of offer: The buyer and seller understand that purchase contract is not valid until seller signs off on the contract. If the buyer fails to meet any obligations, seller has right to keep deposit for damages inflicted including time lost, loss of sale, another month of mortgage payment paid or other circumstances.
Time of essence: entire contract; changes: This section of the contract states that other communications either agreed or not agreed upon either in writing or through verbal communication are superseded by the terms on the contract.
Expiration of offer: This section of the contract is where the date of the offer will be open until and for the duration the offer will be accepted.
Acceptance of offer: By signing the contract the seller officially claims to be the owner of the property or has the right to represent the property, usually through a power of attorney or out of good faith to assist property owner.
The real estate purchase contract states all the identities of the parties in the agreement including the buyer/seller and their respective agents. The contract will provide escrow directions for the transaction execution.