Real Estate Purchase Contracts for Landlords

Purchase Contracts for Real Estate

A real estate purchase contract is a contract for the purchase and sale, exchange, or other conveyance of real estate between parties. They result in title to the subject property being transferred between the buyer and seller along with a new deed being recorded at the local town or city hall. Purchase contracts for real estate are typically bilateral contracts (or contracts agreed to by two parties) and have all the legal requirements as specified by contract law.

Basic Details of a Real Estate Purchase Contract

1.) In Writing:

The form of the contract must be in writing. To be enforceable, the Statute of Frauds in the United States requires that any contract involving the sale of real estate must be in writing. In addition, a purchase contract for real estate must also contain the following elements:

• Identify the real estate (property): The real estate purchase contract must specify at least the address of the property, but it's preferred to have the full legal description of the property on the contract.
• Identify the parties: The full name of the buyer(s) and seller(s) must be on the contract. In a real estate sales contract, the parties are the seller(s) and buyer(s) of the real estate. They are often called the principals to separate them from real estate agents, who are effectively their intermediaries (middlemen) and representatives in negotiation of the sale. If there are any real estate agents brokering the sale, they are typically listed also as the real estate brokers/agents who would earn the commission from the sale of the property.
• Identify the purchase price: The amount of the sales price or a reasonably visible figure (an appraisal to be completed at a future date) must be provided on the contract.
• Provide signatures: A real estate purchase contract must be entered into voluntarily (not by force or duress), and must be signed by the parties, to be enforceable.
• Must have a legal purpose: The contract is void if it calls for illegal action.
• Involve competent parties: Mentally impaired, drugged or drunk persons, etc. cannot enter into a contract. Contracts where one or more of the parties to it is a minor can be voided by the minor(s).
• Reflect a meeting of the minds: Each side must be clear and agree as to the essential details, rights, and obligations of the contract.
• Include Consideration: Consideration is something of value bargained for in exchange of the real estate. Money is the most common form of consideration, but other consideration of value, such as other property in exchange, or a promise to perform (i.e. a promise to pay) is also satisfactory.

2.) Offer and acceptance:

Like other types of contracts, real estate purchase contracts are formed when one party makes an offer and another party accepts that offer. As mentioned above, to be enforceable, the offers and acceptances have to be in writing, and signed by the parties agreeing to the contract.

Often, the party making the offer prepares a written real estate contract, signs it, and transmits it to the other party who would accept the offer by signing the contract. At their discretion, the other party may accept the offer, reject it - in which case the offer is terminated, make a counteroffer - in which case the original offer is terminated, or not respond to the offer - in which case the offer terminates by the expiration date in it.

Before the offer (or counteroffer) is accepted, the offering (or countering) party can withdraw it. A counteroffer may be countered with yet another offer. Such a counter-offering process may go on indefinitely between the parties.

To be enforceable, a real estate contract must possess original signatures by the parties involved. If the contract is altered in any way (by any party), it must be initialed by each of the parties involved to constitute acceptance. If the original offer is marked up and initialed by the party receiving it, and then signed, this is not an offer and acceptance but merely a counter-offer.

3.) Specify Conveyance of Deed:

A real estate purchase contract typically does not convey (or transfer) ownership of real estate by itself. To convey real estate, a different document called a deed is used. Different types of deeds can be used to convey real estate in the real estate contract, such as a general warranty deed or a quitclaim deed.

If the type of deed is not specifically mentioned in the contract, then "marketable title" may be specified, implying that a warranty deed should be provided. To protect their interests, lenders will insist on a warranty deed. Any liens or other deficiencies on the title to the real estate should be clearly identified in the real estate contract, so their presence would not make the contract null and void at or before the closing.

The buyer(s) signing the real estate purchase contract are legally responsible for providing the promised consideration (usually money in the amount of the purchase price) for the real estate.

4.) Contract Contingencies:

Contingencies are conditions that must be met (satisfied) if a contract is to be executed or performed.

There are two types of basic contingencies: Contingencies that suspend the contract until specific events happen are known as "suspensive conditions"; Contingencies that cancel the contract if certain events occur are known as "resolutive conditions".

In one form or another, contingencies are necessary elements of real estate purchase contracts, and few people can risk entering into a real estate purchase contract without them. Contingencies function to protect both buyer and seller. However, it is possible for a real estate contract not to have any contingencies.

The most common types of contingencies that can appear in a real estate contract include:

• Inspection Contingency - Purchase of the rental property is contingent upon a satisfactory inspection of the real property that reveals no significant defects. Contingencies could also be made based on the satisfactory repair of a defective item associated with the property.
• Mortgage contingency - The purchase of the real estate is contingent upon or subject to the buyer getting a mortgage to purchase the property. This contingency normally requires the buyer to apply for a loan within a certain time period after the contract is signed. This is the most common contingency for real estate purchase contracts.
• Another sale contingency - Purchase or sale of the real estate is contingent on a successful sale or purchase of another piece of real estate. The successful sale of another house may be needed to finance the purchase of a new one.
• Appraisal contingency - Purchase of the real estate is contingent upon the contract price being at or below a fair market value as determined by an appraisal. Lenders will often not lend more than a certain percentage (fraction) of the appraised value, so such a contingency may be useful for a buyer.

5.) Closing Date and Transfer of Possession:

A real estate contract normally specifies a date by which the closing must take place. The closing is the event in which the money (or other consideration) for the real estate is paid to the seller(s) and title (ownership) of the real estate is conveyed (transferred) from the seller(s) to the buyer(s). The conveyance is done by the seller(s) signing a deed for buyer(s) or their attorneys or other agents to record the transfer of ownership. Other paperwork is usually required at the closing.

For more information on real estate purchase contracts, please visit The Landlord's Library book collection. It's a great reference source for hi-value, practical information on the complete subject of residential landlording.

Return from Real Estate Purchase Contracts to
Buying Investment Property Or

Return from Real Estate Purchase Contracts to
Selling Your Rental Property