Real estate agents deal with a lot of contracts. Although some of these legally-binding documents are almost always standard, others require special attention.
To avoid misinterpreting contract terms and committing legal errors, it is important to understand how these contracts work. To help with this, we will discuss key real estate contract components.
Buyer’s Agent
Real estate contracts are crucial in real estate transactions. They provide a legally binding document that describes each party’s obligations and responsibilities. They’re also used to seal the deal in property sales, transfers, leases, and other transactions. Real estate agents often prepare and review these documents for clients. However, they’re not the only parties that need to understand how real estate contracts work.
A real estate contract must contain four elements to be valid: an offer, acceptance, consideration, and identification of the property. In addition, the signatories must be of legal age and deemed legally competent to enter into the agreement. The contract must also have a specific purpose and identify the parties and the property. Finally, the consideration must be monetary or of some other value that’s exchanged for the promise to perform.
After an agent presents a buyer’s offer to the seller, they then act as a conduit by relaying the seller’s response back to their client. This is more than just an informational transfer; it includes crucial context, analysis, and professional advice to help buyers determine their most strategic next steps. For example, the agent may suggest accepting a counteroffer from the seller if it aligns with their client’s goals or further negotiations on price and terms to secure an even better deal.
For residential contracts, the buyer typically delivers a down-payment to the seller, usually made by check and held in an escrow account until closing. Most contracts will include a contingency that allows the buyer to terminate the contract if they cannot obtain satisfactory financing for the purchase. In addition, some commercial real estate contracts include financing and zoning contingencies, as well as environmental, engineering, and termite inspections.
Seller’s Agent
Real estate is a complex business, and there are many wrinkles that need smoothing before you’ll actually purchase your new home. One of the most important aspects of real estate deals is the real estate contract. These contracts establish the terms when purchasing, selling, transferring or leasing property and define the parties’ responsibilities and duties. Real estate contracts are enforceable by law. A breach of contract can lead to damages for the affected party.
The most common type of real estate contract is a purchase agreement. These contracts are typically written by the seller’s attorney and contain the details of the sale including the property address, closing date, amount due, earnest money deposit, financing terms, inspection contingencies and a legal description. The contract will also state how the buyer and seller will deliver and return the document.
While a real estate agent can act as the listing and buying agents, they cannot be both at the same time. This is because the fiduciary responsibility for each party is different and they may not represent your interests at the same time.
The key factors in a legally binding real estate contract include an offer and an acceptance of those terms. The offer must be definite and must contain essential terms such as the purchase price, closing date, contingencies, earnest money deposit and property taxes and insurance. In addition, all signatories must be of legal age and must have the authority and capacity to enter into a binding agreement. A written contract is preferred, but verbal agreements can be valid if they meet the requisite criteria. If you’re thinking of entering into a real estate transaction, consult with an experienced lawyer to help you understand your rights and obligations.
Closing Costs
Real estate contracts are typically written and legally binding documents that spell out all the terms of a real estate transaction. They contain the offer, acceptance, contingencies, property address and closing date. They must be signed by both parties and have consideration (money, goods or services) exchange between the parties for the contract to be valid and legally enforceable.
A key term to understand in real estate contracts is closing costs. Closing costs are fees that home buyers must pay at the final closing or settlement of a real estate purchase. They include such items as escrow fee, mortgage origination fee, title insurance, notary fees, recording fees and transfer tax.
In general, closing costs are divided between the buyer and seller based on the terms of their purchase agreement. For example, if a buyer offers a seller concession of 3% of the purchase price, the seller may agree to cover some or all of the buyer’s closing costs. This concession can be used to sweeten an offer in a buyer’s market or to boost competitiveness in a seller’s market.
If either party breaches a real estate purchase contract, the breaching party can be held responsible for monetary damages by the other party. In addition, the court can order specific performance, requiring the breaching party to comply with the terms of the contract.
Understanding how real estate contracts work is essential for any prospective homeowner or investor. However, the process can be daunting when reading a contract filled with legal jargon. A real estate attorney can provide guidance and help ensure that you have a clear understanding of all the aspects of your contract. Contact a real estate attorney today to schedule a consultation.
Contingencies
In a real estate transaction, there are several terms that must be agreed upon to create a binding contract. These terms include the purchase price, closing costs, and contingencies. Real estate contracts can also contain other provisions such as lease agreements, easements, and mineral rights or gas/oil use. Regardless of the type of real estate transaction, it’s important for both parties to understand how a real estate contract works.
Contingencies are clauses in a purchase agreement that safeguard both buyers and sellers. These contingencies give both parties the ability to back out of the deal under certain conditions that must be negotiated between both parties. For example, a home buyer’s mortgage contingency states that the sale can only occur once the buyer has been approved for a loan and the property has passed an inspection. This is a common practice to protect buyers from being locked into a contract with a home they can’t afford if the market turns.
Similarly, a seller’s settlement contingency states that the sale can only go through if the buyer sells their current home by a certain date. This protects sellers from being unable to find a new buyer and keeps them from losing their earnest money deposit if they can’t close on their existing home.
A buyer can add as many or as few contingencies to a contract as they wish, but most have at least one. The more contingencies a buyer has, the longer it will take for the sale to close. If the buyer wishes to speed up the process, they can consider waiving contingencies. However, it’s best to only waive contingencies if you’re confident that your home buying plans are solid.
Financing
Real estate investors often use a variety of contracts to “seal the deal.” Contracts can be used when buying, selling, transferring or leasing property, not excluding houses in Nicosia. Whether you’re an experienced investor or a newbie, understanding how real estate contracts work can make the difference between success and failure in the market.
A real estate purchase contract can have many different terms, including how the property will be paid for. If a buyer isn’t paying in cash, they’ll typically take out a mortgage loan. The contract will specify the amount of the loan and the payment schedule. The buyer can also choose to assume an existing mortgage or to arrange seller financing.
If one party breaches a real estate purchase contract, the other parties can claim damages. Depending on the circumstances, these damages could include money or specific performance. In the latter, a court orders the breaching party to fulfill all their obligations under the contract.
Another common real estate contract is an assignment agreement. This is used when a seller wants to transfer ownership of a property, but doesn’t want to go through the sales process. This is usually the case when a seller sells an investment property, like a rental home or an apartment building.
A power of attorney can also be included in a real estate contract. This document authorizes one person to act on behalf of another, such as a child who can’t sign the contract on their own. It’s also commonly used when a buyer or seller is hospitalized or otherwise incapacitated.