The real estate purchase contract is the type of contract used to buy property. It outlines the conditions and terms of the sale. It takes the parties through a step by step legal framework with an aim of closing in a timely manner. It will contain basic info about the property like the physical description, the sales price and a closing date.
It can contain contingencies or addendums. You can write your own contract but we do not suggest it. Contracts should be state specific and have enough basic rights and responsibilities written into them to keep both parties involved legally safe.
Buy and sell all real estate using an entity.
LLC and trusts are the first choice favorites. C corps and LLP are good also but it's the LLCs and trusts that have more maneuverability and are easier to assign and transfer with the property. Plus they have the best tax advantages.
We suggest tweeking the contract to add a few paragraphs to meet your needs and any unique property conditions. You should use a contract to buy and a different contract to sell. Real estate purchase contracts are not one size fits all.
When you are purchasing your earnest money deposit should be as low as possible but enough to be respectable. Example you can put down $10 but $500 is much better. And you should have it worded so that if you do not buy the property
you get your money back or the seller gets to keep the earnest money and there is no recourse back on you.
However if you are selling the property you will want to use different wording.
You will want a large amount of earnest money, 1-3% of the asking price and it is non-refundable. This gives the buyer incentive to find funding and close. If you make the earnest money too low then it is easy for a buyer to walk away from the contract. So keep it tight.
The real estate purchase contract is not valid until earnest money exchanges hands.
As soon as the contract is signed, take it and the earnest money straight to the title company, escrow company or closing attorney. It is important for them to begin a title search immediately. In case they discover any issues there will be enough time to resolve them and not delay the closing.
Make sure you choose the escrow company, title company or real estate attorney that your state recognizes as a legal agent. You will want them to be investor friendly with an understanding of simultaneous closings, trusts and 1031 exchanges for investors.
Sellers do not want to see a bunch of contingencies - it makes them nervous. The three main ones to overcome are inspection, appraisal and financial.
If you are buying and paying with CASH then you don't need a financing contingency in your real estate purchase contract. If you are paying with hard money or angel financing then the financing is based on 70% of ARV (after repaired value) and will definitely cover the cost of the sales price.
If you are selling and the buyer wants to pay with financing then make sure that they provide you with a prequalified approval from their lender before you accept the contract. It means that they have already submitted their paperwork and the lender approved them for a loan amount.
Inspection contingencies can be a little more tricky.
If you are buying do a physical inspection of the property. If you are unable (in a different city or state) or if you are inexperienced and don't know what to look for then hire a professional. Home inspections start around $250 and they offer a lot of insight and peace of mind. Plus it can get written off on the taxes.
If you are selling, always give an appliance/ home warranty. It covers the appliances, water heater, ac/ heater and garage door opener. The cost is small + we write this expense off also. It builds trust and value. And provides an extra layer of protection in case an appliance fails after closing. Plus we always advertise it when listing our properties it gives a slight advantage over the competition.
As for the appraisal contingencies for a real estate purchase contract, if you are selling make sure the property is repaired and cleaned. To give the best impression and create value stage the house. If you have done your research correctly, your comps will be the same as the appraisal.
Sometimes an addendum will be added. It usually occurs as a result of an inspection or when a condition needs to be added to the contract. example- If an inspection brings back findings that the septic tank is at capacity and needs to be emptied then an addendum would be added to the contract and the issue would need to be resolved before closing.
REAL ESTATE PURCHASE CONTRACT
PARTIES: ___Sally Jane_______________________________their heir(s),successors, administrators and assigns, as Seller who’s address is: _________________________________________________________
and______Your Company_Name____________________________________ their heir(s), successors, administrators and assigns, as Buyer, whose mailing address is ___________________________________________________
WITNESSETH: That Seller, in consideration of the payments, covenants, agreements and conditions herein contained which on the part of the Buyer are to be made, done and performed, has this day sold, upon the conditions hereinafter recited, to the Buyer the real property legally described as:
SUBJECT PROPERTY: __________________________________ hereinafter the property,
LEGAL DESCRIPTION: _________________________________________________ ________________________________________________________________
SALE PRICE: $_______________________
SUBJECT TO: ____________________ $_______________________
PAYABLE: This is a CASH transaction. Buyer pays ALL closing costs. Purchase price is NET.
EXISTING MORTGAGE (S): Existing financing on subject property will be current in all payments of principal, interest, late charges and escrow amounts required by the mortgagee. Escrow balance has been calculated into the price and will transfer to the Buyer along with title. Buyer will take title subject to his debt.
EXPENSES: Buyer pays all closing costs.
INSURANCE: As consideration for this purchase the Seller will assign all insurance policies on the property to the Buyer and Seller will grant a limited power of attorney to the Buyer to deal with the lender(s) and insurance provider(s).
RISK OF LOSS: If subject property is damaged prior to transfer of title, Buyer has the option of accepting any insurance proceeds with title to the property in “as is” condition or of canceling this contract and accepting the return of the deposit.
PRORATIONS: Real property taxes will be prorated based on the current year’s tax without allowance for discounts, including homestead or other exemptions. Rents will be current and be prorated as of the date title transfers.
DEFECTS: Seller warrants subject property to be free from hazardous substances and from violation of any zoning, environmental, building, health or other governmental codes or ordinances. Seller further warrants that there is no material or other known defects or facts regarding this property, which would adversely affect the value of said property.
NO JUDGMENTS: Seller warrants that there are no judgments threatening the equity in subject property, and that there is no bankruptcy pending or contemplated by any titleholder. Seller will not further encumber the property and an affidavit may be recorded at Buyer’s expense putting the public on notice that the closing of this contract will extinguish liens and encumbrances hereafter recorded.
RADON GAS & LEAD PAINT: Lead based paint and Radon, a naturally occurring radioactive gas that may present health risks to persons who are exposed to it over time, may exist in this property. Buyer may obtain a risk assessment of “the property” by licensed inspectors. Dangerous circumstances and the conditions, which caused said circumstances will be corrected at the Seller’s expense before title transfers.
LICENSURE: The trustee of the above-mentioned Buyer’s Trust may or may not hold an inactive real estate license.
POSSESSION: Possession of the property and occupancy (tenants excepted), with all keys and garage door openers, will be delivered to the Buyer when title transfers. Leases and security deposit will transfer to the Buyer with title.
INSPECTIONS: This contract is contingent upon the Buyer’s inspection and approval of the property prior to transfer of title. Seller agrees to provide access to the Buyer’s representatives prior to transfer of title for inspection, repairs and to market the property.
ACCEPTANCE: This instrument will become a binding contract when accepted by the Seller and signed by both Buyer and Seller. If it is not accepted and signed by the Seller prior to _________________, this contract shall be void.
DEPOSIT: Upon acceptance Buyer will place in escrow an earnest money deposit of $ ____________ with title company which will be part of the cash paid to the Seller when title transfers. This deposit will be returned to the Buyer if title does not transfer in accordance with this agreement and said title company will close this transaction.
SELLER: Agrees that the buyer may place signs and show the property immediately upon acceptance of this contract by both parties.
CLOSING: Closing will take place on or before: _____________ at ________________________________________Subject to a 90 day period in which the buyer/seller shall be permitted to clear any title problems.
OTHER AGREEMENTS: This is a CASH transaction. Buyer pays ALL closing costs. Purchase price is NET.
TIME IS OF THE ESSENCE with this agreement. Each contingency contained herein shall be satisfied according to its terms by the closing date or this contract extends to provide time for satisfaction of said contingencies. Each party shall diligently pursue the completion of this transaction. Each warranty herein made survives the closing of this transaction.
PROHIBITION: This agreement establishes a prohibition against transfer, conveyance or encumbrance to the property.
#1 Seller Name Date
#2 Seller Name Date
Buyer Name Date
STATE: ________ COUNTY: ________________________
The foregoing instrument was acknowledged before me this _________ day of _________________, 200_, by ________________________________ and __________________________, who have provided driver’s license as identification and who did not take an oath.
My Commission Expires: ___________________________
Share & Like the real estate purchase contract