The sale of a real estate always involves various documents even at the start of the transaction. One primary legal form needed is the real estate purchase agreement or sometimes referred to as the property sales or purchase contract, deposit receipt or earnest money contract. This document specifically reflects the intention of a prospective buyer and his financial capabilities.
Purchase agreements vary depending on the type of property being purchased and its location. It can either be made by a real estate lawyer or a reprinted form used by a real estate agent. In order to be legally binding, the document must be in writing and must contain important information about both parties involved. The contract usually states the full names of the buyers and the sellers, identifies the property (legal description) and its location as well as stipulates a purchase price and the terms of the sale if the transaction is not all cash. To be enforceable, both parties must affix their signatures on the contract.
On the financial side, the purchase contract states the amount of earnest money or deposit required from the buyer. The agreement usually calls for a third party to hold the money, either an escrow agent or an attorney. The deposit will be deducted from the purchase price at closing and may be refunded to the buyer if some terms of the contract are not met. The money may also be forfeited if, for reasons not provided in the contract, the buyer withdraws from the deal.
Purchase contracts also include contingencies such as those on financing and inspection. A financing contingency is a condition for the buyer to secure a loan from a lender while the contingency for inspection allows buyers to hire professionals to inspect the property they are buying. If, for instance, the buyer finds out some defects in the property and the seller is not willing or not able to fix them, the contract can be voided and the buyer’s deposit may be refunded.
The seller’s responsibilities are also stated in a purchase agreement. These include delivering a clear and legal title to the property, maintaining the property in its current condition until closing, ensuring that the property is clean and free of personal possessions and fixing property defects.
Closing costs and who will be responsible for paying them are likewise included in the contract. These costs include title insurance, transfer taxes, loan origination fees and broker’s commission. Local custom usually dictates who pays for these fees but the seller and the buyer may negotiate to split them. In some cases, the seller offers to shoulder them as an incentive for the buyer. The closing date as well as the date of the transfer of title should also be stated in the agreement.
At closing, the remaining balance for the purchase of the real estate is paid for and the title is transferred from the seller to the buyer. The seller then signs a deed for the buyer or his attorney or other agent to record the transfer of ownership. Normally, the closing date is also the date when possession of the real estate is transferred to the buyer. However, it is possible that the contract may state a different date for this purpose. Possession of a house, condominium or building is usually transferred when the seller hands over the key to the buyer.
A provision in the contract may clarify the items in the property included or excluded from the sale. These items may be appliances or fixtures that the seller may want to dispose of.
It is important to note that any party involved in the sale or purchase of a real estate should carefully read and understand the terms and conditions of a purchase contract before signing it. Should you have any questions, feel free to consult your lawyer or agent.
