As you enter a real estate transaction, whether you are buying your first home, selling a commercial property, or investing in land, the real estate purchase agreement is the most important legal document you will encounter.
Purchase agreements are crucial for both home buyers and sellers, as they define the terms, contingencies, and legal obligations involved in the transaction. In addition to the crucial terms and timelines, purchase agreements define and set deadlines for a buyer to perform invaluable due diligence.
The real estate purchase agreement establishes the terms of the sale, outlines each party’s obligations, and protects your rights as a buyer or seller. Home buyers, in particular, should understand the details of purchase agreements to ensure their interests are protected throughout the process.
At Burns Law LLC, it’s our mission to help our clients navigate real estate law with clarity and confidence, so, here is what an experienced real estate attorney looks for when reviewing a real estate purchase agreement.
Verify the Full Legal Names of All Parties to the Real Estate Contract
When conducting a real estate purchase agreement, accuracy matters.
Your real estate purchase agreement must include the complete legal names of both the buyer and the seller. The buyer’s legal name should be written exactly as it appears on identification or entity documents to ensure the buyer’s responsibilities and rights are clearly established.
Additionally, if one party is an LLC, partnership, or corporation, the business name must be written exactly as registered with the Secretary of State.
Errors, even minor ones, can create enforceability issues or title transfer delays. A qualified real estate attorney can help ensure the parties are properly identified before the contract is signed. Essentially, cross all your Ts and dot all your Is.
Confirm the Legal Description and Boundaries of the Property
When reading through a real estate purchase agreement, you must ensure that the property is clearly defined in legal terms, not just by a street address.
A strong real estate purchase agreement includes an official legal description, such as a lot number, and has references to recorded boundaries and surveys.
The agreement should also specify any personal property included in the sale, such as appliances or fixtures, to avoid misunderstandings about what is transferred with the property.
Throughout the years, as a real estate law firm, we’ve seen real estate deals become complicated when there are missing or vague descriptions of the property. It leads to title confusion or boundary disputes.
Whether it is a residential lot or commercial site, it is essential to verify that the description matches public records so you know exactly what you are purchasing, including both the real property and any personal property listed in the agreement.
Review the Purchase Price, Earnest Money, and Payment Terms
The real estate purchase agreement should clearly outline the total purchase price, the earnest money deposit, and the terms of the payment, such as whether the buyer is using cash, conventional financing, or seller-backed lending.
The agreement should also specify the required down payment, which is a critical part of the purchase price and plays a significant role in securing loan approval from a lender.
The purchase agreement should also state where the earnest money will be held, who holds it, and under what conditions it is refundable or forfeited. The buyer typically works with a lender to secure financing and obtain loan approval, ensuring they have the necessary funds to complete the transaction.
When all of these terms are laid out, you and the other party are not in for any financial surprises or misunderstandings.
Having these financial terms laid out protects both parties if the deal falls through due to financial, inspection, or appraisal contingencies, and confirms that the buyer agrees to the payment terms and conditions outlined in the agreement.
Evaluate Contingencies in the Real Estate Purchase Agreement
Contingencies are clauses that protect your investment in case something goes wrong in the real estate transaction.
A financial contingency protects the buyer if they can not secure a loan. Then, an inspection contingency allows for renegotiation or withdrawal if significant defects are found that were not listed.
An appraisal contingency ensures that the property’s value meets the purchase price. Lastly, a title contingency protects against ownership or lien issues.
From a real estate law attorney’s perspective, these contingencies should be written in clear, enforceable terms. Without these protections, buyers or sellers could face financial or legal exposure.
Understand All Key Dates and Deadlines
Your real estate purchase agreement is going to run on very strict deadlines. So, it is essential to look for key dates and times to ensure you are not missing anything on your end or the other party’s end.
Specifically, your real estate purchase agreement should clearly state the closing date, deadlines for inspections, financing approval, and title review, and detail a grace period for extensions or delays.
It is important to submit a pre-qualification letter by the financing deadline to show financial readiness to the seller. The buyer must also secure financing within the specified timeframe to avoid delays in the transaction.
Deadlines and dates should be treated as firm commitments. When necessary, negotiations can be made for extensions.
Review Seller Disclosures and Property Condition Statements
Sellers of the property are legally responsible for disclosing known defects and material facts that could affect the property’s value. This could include issues such as foundation damage, water leaks, environmental hazards, or boundary encroachments.
At this time, buyers should ensure that the Seller’s Disclosure Statement is attached and completed, as well. On the other hand, sellers should ensure that all disclosures are factual and up-to-date to avoid future litigation for nondisclosure or misrepresentation. Sellers are expected to provide disclosures in good faith to ensure transparency and avoid legal issues.
Examine Title, Deed Type, and Ownership Clauses
If you want to look at a real estate purchase agreement through the eyes of a real estate attorney, you want to confirm that the contract specifies how the title will be transferred and under what deed type, such as a general warranty deed, special warranty deed, or quitclaim deed.
The real estate purchase agreement should also indicate who is paying for the title insurance, title search, and closing costs. An escrow officer is typically responsible for managing the escrow account, verifying funds, and facilitating the closing to ensure all terms are met.
Ensuring the title is marketable and free of liens protects both parties, and it is essential that the title is transferred to the new buyer free of liens.
Assess Dispute Resolution and Default Provisions
While dispute resolution provisions may sound simple, they often involve complex legal considerations.
Every real estate purchase agreement should anticipate a dispute. A dispute resolution clause in your real estate purchase agreement will outline what happens if one party defaults.
You’ll want to look for clear language on whether conflicts will be resolved through mediation, arbitration, court litigation, and in which jurisdiction. At this point, it is also important to define remedies for breach of contract.
This could be retaining earnest money, seeking damages, or compelling performance. A real estate purchase agreement should have these terms in writing to provide clarity and prevent costly legal battles.
Your real estate purchase agreement is the legal backbone of your property transaction. It should be assessed with a careful eye. Transaction coordinators can help manage the process and reduce the risk of disputes by ensuring all steps are completed accurately and on time.
That’s why bringing in a real estate attorney can be essential. Contact the team at Burns Law LLC.f the terms you might come across when in the realm of real estate transactions. If you want to ensure you are stepping into your real estate deal with confidence, partner with a real estate attorney who will omit the jargon and focus on you. Contact the team at Burns Law LLC.