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When purchasing or selling an income property, you need quality legal documents to protect investment and legal rights.
Even if you do not need a legal review of your Real Estate Purchase Agreement, you will benefit from an attorney-drafted contract that you can prepare yourself.
What is a Real Estate Purchase Agreement?
A real estate purchase agreement is a legal document to enter a deal to buy and sell real property. Once you reach an agreement with a seller or a buyer, you sign a written agreement that includes all the terms of your deal.
Alternatively, you can submit a real estate purchase agreement to propose your terms for buying or selling real property.
After the real estate purchase agreement is signed, the executory period of a real estate transaction begins. During this time, the buyer obtains financing or prepares another form of payment to purchase the property.
A buyer might also inspect the property, hire a title company to review the property’s title history, and generally prepare for purchase (all according to the terms of the executed agreement).
The real estate transaction closes upon a signed deed transferring the property from the seller to the buyer.
Why Do You Need a Real Estate Purchase Agreement?
You need a real estate purchase agreement when you are ready to buy or sell a property.
Verbal contracts involving selling real property are usually not enforceable, so you must get the terms of your deal in writing and signed as a real estate purchase agreement.
If an agreement is not signed, the other party can back out of the deal or try to change the contract terms, and there will not be much, if anything, you can do about it.
When Do You Use a Real Estate Purchase Agreement?
It is time to get a real estate purchase agreement form when you are ready to offer a property.
Often the buyer fills out the agreement with an offer, and the seller signs the document if they agree to the buyer’s offer.
Most commonly, however, the seller will want to change the agreement, and the initial form is a starting point for negotiations.
What to Include in a Real Estate Purchase Agreement?
A real estate purchase agreement should include all the essential terms of the sale, terms concerning what will happen before closing, and details about closing.
These include the following, among others:
- The purchase price
- The amount of an earnest money deposit
- A specific description of the property, either by address or the legal description
- A warranty that the seller will convey good title to the buyer
- A list of any personal property or fixtures that are part of the sale
- The amount of any commission to real estate agents
- Whether the buyer has the right to conduct an inspection and under what circumstances the seller may walk away based on the results of the inspection
- Whether the deal is contingent on the buyer obtaining financing, and information about the funding, plus items connected to financings like appraisals and insurance
- Mandatory disclosures about the property, such as its condition and whether it involves membership in an association
- Details identifying the escrow company and escrow process
- Information about closing and closing costs
How to Write a Real Estate Purchase Agreement
Follow the steps below to write a real estate purchase agreement.
Step 1 – Enter Buyer and Seller Details
Write the name and address of the buyer and seller. Ensure you indicate if the buyer or seller is an individual or an entity, such as an LLC, a corporation, or a trust.
Step 2 – Describe the Property
Fill in the property’s street address, and include a legal description of the piece of real estate.
Step 3 – Note Personal Property
Summarize any personal property included or excluded in the sale.
Step 4 – Write Purchase Price and Details
Enter the purchase price and any earnest money deposit. Also, state how the buyer will pay the seller.
Step 5 – Note Disclosures
Specify any required disclosures included in the purchase agreement, such as flooding, environmental hazards, or other disclosures.
Step 6 – Enter Assumption of Loan Details
State whether or not the buyer will take over the seller’s mortgage, and include any mortgage details if the answer is ‘yes.’
Step 7 – Choose Financing Contingency Option
Note what you want the mortgage terms to buy and whether or not the sale is contingent upon an appraisal.
Step 8 – Provide Sale Contingencies
Indicate whether or not the sale is contingent upon the sale and closing of another property the buyer owns.
Step 9 – Include Representations and Warranties
Note any seller representations or warranties regarding authority to sell, title, codes, regulations, or permits.
Step 10 – Provide Property Inspection Details
State whether or not the sale is contingent upon the buyer’s property inspection.
Step 11 – Write Title Insurance Details
Explain who pays for title insurance, which company provides the title insurance policy, and whether or not there shall be any allowable exclusions or exceptions to the title insurance policy. Also, note the date the buyer must object to title issues.
Step 12 – Enter Closing Details
Describe the closing date and location, any required deliverables upon closing, closing costs, and processes for a delayed closing.
Step 13 – Enter Property Possession Date
Provide the date the seller must deliver the property.
Step 14 – Note Assumption of Leases
Choose whether or not the property is subject to any leases.
Step 15 – Fill in Governing Law, Disputes, and Miscellaneous Details
Choose the state’s law that governs the agreement. Also, note what happens in the event of a dispute and if there are any other details incorporated into the agreement.
Step 16 – Fill In Lead-Based Paint Disclosure Information
Include a lead-based paint disclosure if the property was built before 1978. Get the buyer’s acknowledgment of receiving the lead-based paint disclosure.