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Top 10 Key Parts of Buying Real Estate Every Potential Home Buyer Should Know

By Chika

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Last Updated: April 7, 2022

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A real estate contract is one agreement that you want to go through with a fine-toothed comb.

You have to make sure that you understand the fine print to avoid signing conditions that may not be favorable in the long term. This is why most people prefer to have an attorney go through the details before they append their signature to the contract.

However, the services of a real estate attorney should not absolve the potential buyer of any knowledge of the contract terms. It is important that you have some understanding of what is contained in a real estate purchase contract!

Your knowledge when combined with the expertise of an attorney will enable you to reach a better agreement.

Let's have a look at the terms and conditions in a real estate contract that every potential buyer needs to know. 

 

 

What Are Real Estate Purchase Agreements?

When purchasing a home, you will make an offer on a real estate purchase contract, which is specified by your state. This is also commonly referred to as:

  • a real estate purchase agreement
  • a real estate contract
  • a real estate sales contract
  • a home purchase contract
  • a home contract

In principle, this legally enforceable agreement states that the buyer will pay an agreed-upon price for the property and the seller will pass the title in exchange.

The agreement outlines the sale's terms and conditions. This includes the parties involved in the purchase contract, a description of the property, the sales price, the closing date, and the date of title transfer and possession.

Read this next: 21 Terrific Ideas For Scaling Your Finances by Investing in Real Estate

 

Who Prepares the Contract?

The buyer's real estate agent usually fills out the initial offer and sends it to the seller for evaluation. The seller may request date changes, refuse or accept contingencies, haggle the price and repairs, or even reject the offer entirely.

Until both parties reach an agreement on conditions, the contract is called a working document. When conditions are agreed upon by both parties, and the contract is signed, it becomes binding.

 

The 10 Key Components of a Home Contract

A real estate contract contains a lot of legal jargon, but the main points are rather straightforward. These are critical information that both the buyer and seller must be aware of in order to complete the transaction in a timely and legal way.

1. Identity of the Parties

A legal contract requires complete identification of the contract's parties, as well as the parties' competence to engage in the contract.

2. Details of the property

The property must be precisely described. This is a legal description of the property that has been recorded with the county recorder's office.

3. Rights, and obligations of parties

Buyers and sellers agree to certain responsibilities and obligations in entering into a real estate contract with each other.

Some of the responsibilities and obligations include:

  • acting in good faith
  • keeping to stipulated deadlines
  • having a clear understanding of the legal and tax ramifications of entering into a contract

4. Purchase Price & Financing

The real estate contract specifies the purchase price, down payment amount, and payment method. The contract also includes a provision for earnest money.

This is a deposit kept in escrow by a third party to show the seller that the buyer is making a good-faith attempt to complete the house acquisition. If the buyer fails to satisfy the terms of the transaction, the earnest money may be forfeited to the seller.

It is also recoverable to the buyer under the contract's stipulations.

5. Contingencies

A real estate purchase contract usually includes contingencies. These are terms set by any of the interested parties or both, that must be satisfactorily met for the contract to become binding. One of the most common contingencies is a home inspection.

If all the things on the checklist for a home inspection reveal something that is not to the buyer’s standards, they are able to cancel the contract and have their escrow money returned to them.

Other contingencies which may be included in the real estate purchase contract include:

  • financing
  • sale of the buyer’s home
  • title review
  • appraisal
  • survey
  • HOA document review

6. Closing Date

The closing date is the day on which the deal will be completed.

Buyers frequently question how long it takes to close on a house, and the answer varies greatly based on the property and the buyer and seller's conditions. If you're seeking for a hard number, historical data shows that it takes between 30 to 45 days to close on a real estate purchase.

Parties will agree on a closing date, designate the title company, and reveal any additional details for the ultimate transfer of the property in the contract.

The final signing takes place, the transfer of ownership is documented, and the buyer is frequently given the keys to the property (Though possession can occur in subsequent days, as per the agreement between the buyer and seller).

7. Possession Date

The possession date is the first day when the buyer may live in the house. Possession might take place immediately after closing, at an earlier or later date agreed upon by the parties. It is usually specified as the closure date or the day after closing.

8. What Is Included in the Sale?

Buyers can negotiate what is included in the sale of the property. Common items listed are the washer and dryer, refrigerator, and other heavy items that are not easily moved.

9. Closing Costs

Though the actual closing fees will not be specified in the real estate acquisition agreement, the contract might specify who would pay for closing charges.

It's usual, for example, for a buyer to make an offer that is higher than the property's list price and then ask the seller to assist cover the buyer's closing expenses with the excess sum.

Do you want to know how much average closing fees are? They typically range from 2% to 5% of the loan amount.

10. Addendums

An addendum is a document that supplements the real estate purchase agreement by including extra information or buyer requests that were not included in the original contract. It has the authority to overrule the original contract's stipulations.

 

Can Purchase Agreements Be Canceled?

The process of canceling a contract differs for buyers and sellers. Buyers typically include contingency provisions in their purchase agreements. If certain requirements of the sale are not satisfied, the buyer has the option to cancel the contract and receive their earnest money back. 

It's very common for a buyer to terminate a real estate deal if major faults are discovered during a house inspection.

If an inspection contingency is in place, any foundation, electrical, pest, mold, or other issue discovered during the house inspection will allow the buyer to terminate the contract.

Buyers may also cancel the purchase agreement for any reason, but they risk losing their earnest money or facing legal action if the cause and timing for breaking the contract do not fit within the contingencies mentioned in the contract.

In contrast, a seller has fewer alternatives for terminating the purchase agreement. If the buyer fails to satisfy the contract's criteria and timeframes, the seller has the right to cancel the deal.

Sellers who breach the contract for various reasons may be obliged to pay the buyer the earnest money deposit. They may also be sued by the buyer to enforce the contract.

 

Key Takeaway on Buying Real Estate

Though the article is not exhaustive, it covers the basic need-to-knows that potential buyers need to be aware of before signing a real estate purchase contract.

This knowledge will definitely help you avoid making bad decisions when they intend to purchase their homes. However, if you find any part of the contract unclear, you can always seek the services of a real estate lawyer.

They would be able to guide you through the process of a home purchase.

Photo by Sidekix Media on Unsplash

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