A real estate contract is a document that provides the details of the sale and purchase of land. Contracts can cover the transfer of residential homes, business establishments, farms and ranches, vacant property, or any other type of real estate. To be legally enforceable, the contract should be in writing, and must provide essential terms, such as property description, price, deposit amount, terms of deferred payments, interest rate, and closing date. Real estate contracts are more complicated than most people realize, so it’s usually a good idea to get professional help if you need to prepare one.
What Other Provisions are Typically Included in a Real Estate Contract?
Most real estate contracts provide for more than just the essential terms. They might also identify personal property to be conveyed, such as furniture, appliances, or lawn equipment; fees for real estate brokers; move-out requirements; property inspections; liens retained by the seller or mortgage company to ensure payment by the buyer; and seller disclosures.
Moreover, the contract might not be for a standard arrangement where title passes to the buyer at closing. It might be a “contract for deed,” which requires the buyer to pay the seller for the property in installments over time and prevents transfer of title until the payments are complete.
What is a Seller Disclosure?
Most states require the seller to disclose any defects the buyer should know about before purchasing the property. For example, there might be plumbing leaks, foundation cracks, roofing leaks, mold issues, termites, appliances that are in disrepair, insulation deficiencies, electrical problems, and more. If such matters are not disclosed, and the house is purchased, the buyer can sue the seller for fraud and damages or possibly have the sale revoked.
Most major problems will be discovered in an inspection performed before closing. The inspection usually takes a few hours, is performed by a professional inspector, and provides valuable information for the buyer in making a final decision about whether to purchase the property. Depending on what the inspector discovers, the buyer might want to void purchase of the property, renegotiate the price, or require the seller to fix the problems before closing. Buyers should try to make sure the contract provides plenty of time for an inspection before the scheduled closing.
Sometimes property owners need the money from the sale of their property to enable them to purchase another piece of property. They might make an offer on a new home but make the purchase contingent on the sale of their existing property. The contract should clearly state this requirement, clearly stating the amount of time the interested buyer has to sell its own property since the seller will be reluctant to put the sale of its property on hold indefinitely.
Is It Necessary to Have a Real Estate Contract?
A real estate contract protects both parties to a sale. To ensure fairness, they should be drafted carefully. Non-experts who attempt to draft their own contracts can make serious mistakes – and these invite lawsuits. A real estate contract covers all the bases.
For example, the parties will typically allow enough time between executing the contract and closing the transaction to enable all relevant matters to be tended to. These include title examination, inspection and repairs, the buyer arranging for a possible mortgage, and the seller possibly finding a new property to replace the one being sold. The contract should clearly state where the closing will be held and when. It should provide details regarding who will pay the closing costs and other fees. While the question of which party pays certain fees is always negotiable, typically the seller will pay for the cost of title insurance, release of liens against the property, deed preparation, real estate broker fees, and taxes due on the property prorated for the year up to the time of closing. The buyer will typically pay for an inspection, preparation of mortgage and promissory note if the property is financed, recording fees, and a survey if needed. All of these matters, and more, need to be given close attention.
Think twice before trying to draft a real estate contract on your own. If you need help, the attorneys of the Cullotta Bravo Law Group can provide experienced counsel and representation. To schedule a free consultation, call 630-225-8341.