If you’re in the real estate business, big decisions and long-term investment start with contracts. That’s why it’s crucial to understand how they work and the types available for different deals.
In this article, we will cover the basics of real estate contracts. These include key terminologies, clauses, and provisions. Understand essential elements within each type of contract related to land use and rental agreements. You’ll also learn why using electronic signatures is one of the best ways to expedite contract signing.
What Is a Real Estate Contract?
A real estate contract is a legally binding agreement between parties that outlines the rights, duties, and obligations of each party involved in the transaction. It specifies terms that are mutually beneficial to both parties.
The purpose of a real estate contract is to specify all details on the sale or lease of a particular property. It includes setting out the purchase or rental price and other conditions the parties must fulfill before closing the deal.
Having a contract helps ensure both parties pay the corresponding taxes and follow local laws. It’s best to consult an experienced attorney or legal specialist to review the provisions in the contract.
Key Components of a Real Estate Contract
Let’s look closely at what makes up a standard real estate contract. Find out why each party must fully understand the implications before signing on the dotted line.
1. The buyer and seller
The contract should identify the buyer and seller’s names and addresses and other important identifying information.
2. Purchase price
Include the purchase price because it will help set up any transactions that need to occur.
3. Financing terms
You must also include the financing terms depending on the type of loan and payment terms. These are the loan amount, interest rate, or additional financing costs.
In some cases, the buyer or seller may need to disclose certain information about the property for sale to proceed. These are the details about any liens or encumbrances on the property and any known defects or related problems.
5. Inspection clauses
Both parties must know the kind of inspection performed on a property before making an offer. This clause should provide details about who is responsible for inspecting and paying for an inspection report. This clause can define what happens if any significant issues are discovered during an inspection.
6. Closing details
Once all other conditions have been met, this clause spells out when and where closing will happen. It also includes how the funds for closing fees and additional charges, like title insurance premiums, should be paid during settlement.
7. Contingency clauses
Contingency clauses give buyers a way out of purchasing a home if they don’t like what they find during inspections or if their loan doesn’t come through by a specific date. Examples include appraisal contingencies, financing contingencies, home inspection contingencies, and title contingencies.
8. Consequences for breach of contract
If either party fails to meet their obligations under a real estate contract, such as failing to make mortgage payments or refusing to close, consequences must be spelled out in advance.
Otherwise, either party could walk away from the deal without repercussions. These provisions usually address damages, attorney fees, or arbitration proceedings that might occur if one side fails to perform according to plan.
Different Types of Real Estate Contracts
Navigating the complex landscape of real estate contracts can be a daunting task for even the most seasoned entrepreneur. It is crucial to understand what types of contracts are available. This way, you know which suits best for your business’s particular needs.
1. Purchase agreement
A purchase agreement is a legal contract that specifies the sale price, closing date, possession date, and buyer and seller responsibilities during the transaction. It also shows other essential items, such as inspections and disclosures. It serves as a legally binding record of the purchase, ensuring that both parties meet their obligations in the transaction.
2. Lease agreement
A lease agreement is a legal contract between landlords and tenants. It outlines the rights and responsibilities of each party for a specified period. This document will consist of elements such as rental payment due dates, length of lease term, occupancy limits, security deposits, and tenant rights to access or repair the property.
3. Real estate assignment contract
This agreement between two individuals or entities allows one party to transfer their rights in a real estate transaction to another individual or representative. Investors use assignment contracts to quickly flip properties they have purchased by assigning them over to other investors who may be more interested in holding onto them long-term.
4. Power of Attorney
Power of Attorney (POA) is useful when granting someone else authority over your legal affairs without having to relinquish control. One party may need assistance closing on a real estate purchase or managing ongoing financial portfolios activities like daily trading decisions or asset transfers.
5. Listing agreement
Listing agreements are agreements between real estate agents and property owners. It lists specific terms about how long an agent has exclusive access to represent a property for sale or rent on the market before the listing must be renewed or expired if not sold within the designated time frame.
6. Rent-to-Own Agreement
Rent-to-own agreement allows tenants to eventually purchase their rented residential property at some point in the future. It may happen after fulfilling certain conditions throughout their lease term, such as making monthly payments on time and keeping up regular maintenance throughout occupying said residences.
Common Legal Issues in Real Estate Contracts
Knowing what to look for and having a firm understanding of the legal aspects of these contracts is essential to maintain a healthy relationship and avoid potential disputes.
Misrepresentation or non-disclosure of property information
This is a common legal issue in real estate contracts. This can include a seller not disclosing important information about the property’s condition, such as any potential defects, and failing to disclose any known past issues with the house.
Buyers can also be guilty of misrepresentation by providing false information when making offers or executing contracts. If a breach is found, it can result in substantial financial loss and other consequences for either party involved.
Breach of contract
A breach occurs when one party fails to fulfill its obligations under the contract or fails to act according to the terms and conditions outlined therein.
A breach of contract can occur if either party:
- fails to deliver what was promised
- does not meet deadlines
- does not properly transfer title
- breaches its duties in the agreement.
In some instances, this can involve both parties if each has failed to uphold their part of the bargain.
Unclear or ambiguous contract terms
All elements must be specific and transparent so that parties understand their rights and obligations. Ambiguity concerns the language around money matters such as deposits and closing costs. Without clear definitions, these agreements may be enforceable should a dispute arise later on.
Failure to meet inspection contingencies is another common legal issue. Buyers often rely heavily on inspections before making an offer on a property. The purpose of an inspection contingency is for buyers to review any potential problems with the property before committing themselves financially.
How Fill Can Help With Your Real Estate Contract Needs
When dealing with real estate contracts, it’s all about minimizing risk and maximizing profits. Whether you are a real estate company, an independent agent, or a corporate entity looking for contract services, Fill can help you get ahead in today’s competitive markets.
Our innovative contract solutions offer streamlined processes that save time and money while guaranteeing compliant standards every step of the way. Here’s what you can do with Fill:
- Create digital signatures for instant signing and verify the signer’s identity in a few clicks.
- Save time and money by avoiding manual paperwork or using any third-party applications.
- Assign roles to the people included in the document and add their email addresses, so they receive a notification.
- Store all documents securely on their private dashboard for future reference or further editing needs at any given time.
- Track the document to ensure the signees won’t miss signing it, giving extra peace of mind when dealing with sensitive documents.
Want to try other features? Sign up for a free account today and be amazed at how Fill can make your life easier, whether requesting a signature or managing contracts.