Reading A Real Estate Contract
A Real Estate Contract, Real Estate Purchase Contract or REPC is the contract to buy land or other types of real estate. These contracts are created by the state real estate department and used by real estate agents. Individuals use the same or similar contracts.
The contracts vary from state to state but are similar. The main sections are listed and explained below. The first section lists the names of the buyers, sellers and realtors. The Real Estate Contract is about as boring as it gets, but necessary to understand when buying land.
The property section describes the property included in the sale. This includes the real estate, any appliances included with a house and any water rights, mineral rights etc. Any items not included in the sale are also listed.
The price section includes the purchase price and any financing. The financing might include bank loans, private loans or owner financing.
This section may also state the contract is subject to loan approval. The buyer will not be required to complete the purchase if their loan is denied. There also may be a appraisal condition which allows the buyer to cancel the contract if the property appraisal is lower than the purchase price.
Settlement and Closing
The settlement section covers items that must be completed before the closing. This includes documents to be signed, money to be paid, and required disclosures.
This section gives the date when the buyer can take possession of the property. This is usually a certain period of time after the closing occurs.
Its very important to review this section. The realtor(s) disclose who they represent which is either the buyer or the seller. Keep this in mind when dealing with a realtor.
Every buyer should demand title insurance when they purchase real estate. This section details the title insurance policy requirements and who pays for it.
Seller disclosures often include the following:
- Property condition disclosure
- Commitment for Title Insurance
- Any leases not expiring before closing
- Any environmental liens or issues
- Any building or zoning code violations
- Other issues seller is aware of that affect the property
Buyer’s Right To Cancel
Conditions allowing the buyer can cancel the contract may include:
- Buyers approval of seller disclosures
- Buyers inspection of the property
- Buyers approval of a land survey
- Buyers ability to get home owners insurance
- Other test and evaluations as listed
The Seller guarantees the property will be in good condition with a clear title and be broom clean. This includes all appliances work, there are no roof leaks, foundation cracks, or other problems not disclosed to the buyer.
It also discloses if the seller will provide a home warranty and what coverage will be included in the warranty.
The Buyer is entitled to inspect the property before the closing. The Seller agrees to correct any problems found during that inspection within the limits described in this section, and to allow buyer to enter the property for the inspection.
Changes During Transaction
Seller agrees none of the following will occur without buyers consent:
- No changes to existing leases
- No new leases shall be entered into
- No substantial improvements or alterations made to property
- No loans or other encumbrances placed on property
Buyers and Sellers agree that this contract and the attachments and addendum’s is the complete contract. This precludes any claims of verbal agreements or other buyer said/seller said issues.
This details how any disputes will be resolved. Often the parties agree to a mediation instead of court.
Both buyer and seller may default (not complete) this contract. This explains the remedies in a default, which may include retaining the earnest money or filing a lawsuit to force contract completion.
There may be separate completion deadlines for parts of the transaction or contract. These could include:
- Buyer Loan Application deadline
- Seller Disclosure deadline
- Property Inspection deadline
- Loan Denial deadline
- Appraisal deadline
- Settlement deadline
Not meeting any of these deadlines by the responsible party (buyer or seller) allows the other to cancel the contract.
Offer And Time For Acceptance
Either the buyer or seller could make the original offer to the other, although the buyer more commonly makes the offer. This states how long the other has to accept, reject, or make a counter offer.
Nothing is more boring than a Real Estate Contract. I know because I read them all the time. However, if you are buying or selling real estate you better read it and understand it. There is too much money at stake to sign this contract without fully understanding it. You may also want to have your attorney review the real estate contract before you sign.