ELEMENTS OF A REAL ESTATE CONTRACT
REAL ESTATE CONTRACTS
Once you have found the house that you want to buy, its time to make an offer. Once the seller accepts your offer (usually after some negotiations), you have created a contract for the sale of the home. Real estate agents will usually suggest the use of a standard form that contains the required information for a home sale contract. The use of standard forms helps ensure that the specific requirements for a home sale contract are met, but it can still be a good idea to have a real estate contract reviewed by an experienced attorney before signing on the dotted line.
Real estate contracts are special instruments, and have unique requirements in addition to the standard rules for contract formation. This article explains some of the elements that contracts for the sale of a home must contain and offers advice on how to get the most favorable contract as a buyer. Pay particularly close attention if you are not using a real estate agent, or if you are buying directly from the owner, in order to avoid problems with the deal down the line.
The Statute of Frauds
The Statute of Frauds is an ancient piece of English common law that has been adopted in the United States. In essence, the Statute of Frauds requires certain types of contract to be in writing and contain specific sorts of details about the arrangement. This is to prevent a person from cheating someone else by claiming a breach of a fraudulent oral contract.
Sales of real estate fall under the Statute of Frauds, and so all contracts for the sale of a home must be in writing. As mentioned above, real estate agents should know this and should always make sure that the terms of the deal are in writing. If, however, you are not using an agent, always be sure to put the purchase agreement into writing so the seller cant back out later on the grounds that the contract violates the Statute of Frauds.
Not only does the home sale contract have to be in writing, it must also contain certain elements in order to be enforceable. Specifically, the contract must:
List the parties involved in the transaction.
Contain the description of the property. Usually this involves both the address of the property and its legal description.
Include the purchase price for the property.
Be signed by all the necessary parties to the sale.
In addition to what is required to enforce the contract under the Statute of Frauds, there are other elements that a home sale contract should include in order to protect the buyer and seller and ensure that the transaction goes down smoothly with as few opportunities for disagreement as possible. These additional elements that should appear in the contract include:
The date that for the settlement of the transaction and the date when the buyer can take possession of the property.
A guarantee that the seller possesses clear title to the property.
A clause that allows the buyer to make inspections of the property for damage, pest infestations, etc.
The names of the escrow and closing agents.
Contingency clauses that address the proper actions if certain situations arise. For example, if the buyer cant obtain financing by a certain date, a contingency clause could allow the seller to back out of the deal. A different contingency clause could also require the seller to pay for certain types of structural damage repair or pest eradication.
A clause, sometimes referred to as a liquidated damages clause, that requires the seller to pay the buyer a specified amount of money for each day that the buyer has to delay moving into the house.
Getting the Best Contract as a Buyer
Obviously the first step towards getting the best contract possible is to get the seller to agree to your preferred purchase price. Even if you have managed to achieve that, however, there are still other details you should include in the purchase agreement to make sure that you are protected in the deal. Decide beforehand which of these is the most important to you and be prepared to give up some of the others as concessions in order to keep the most important terms.
Every home sale contract should have a clause allowing for inspections, but make sure that there is also a contingency clause that covers situations that could arise out of the inspections. Basically, the clause should state that the seller is responsible for repairing any damage or dealing with any pest infestations. You may also want to include a provision that allows you to back out of the deal if the problem is too severe.
You may also want to include a contingency clause that allows you to void your offer if you cant secure financing before a certain date. Sellers will usually be happy to include this provision; after all, if you cant get the money to buy the house, the seller will want to keep looking for another buyer.
You should also try to include a clause that makes it clear that the seller is responsible for paying utilities, fees, taxes, etc. for the property up until the transaction is settled. Along the same lines, always include the liquidated damages clause mentioned above to cover you for any expenses you may incur from a delayed move in date.
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