What You Must Understand About the Real Estate Sales Contracts?
June 21, 2017
There are only two types of general real estate contracts i.e. the sales contract and the purchase agreement. This article talks about the selling aspect of real estate transactions. When selling a home, you must be aware of contracts, their limits, contingencies and legal terms. If you are working with a realtor, he/she will guide you about these terms. However, it is crucial that you have a good understanding of the legal paperwork before you sell your home.
So, what is a Real Estate Contract?
A contract is a written agreement signed by two or more parties indicating the sale/purchase of land or property. Being a seller, you only need to concentrate on two types of contracts:
- As-Is Agreement
- Non-As-is Agreement
These contracts do what their name indicates. The first type suggests that you will sell the home as-is without making any repairs. This option is a good way to target investors and professional rehabbers who will buy your house as-is and in most cases, they will pay cash.
The second type is the typical real estate contract. It suggests that you will make any repairs if necessary after mutual discussion with the buyer. In most cases, it is not wise to use an as-is agreement. You should be looking for a favorable deal, and if you can make more money by spending on repairs, then you should do it. With an “as-is agreement,” buyers can withdraw their offers within ten days for any reason. You cannot hold the sale because you have signed an as-is agreement.
The “non, as-is agreement” has many clauses and contingencies. The rest of this article will discuss just that.
Real Estate Sales Contracts: Clauses & Financial Contingencies
A real estate contract is formed when a seller accepts the given offer. Acceptance of an offer indicates that the seller has not agreed just to the price, but to all the conditions requested by the buyer. Your broker will then create the contract, both parties will sign the contract, and the sales process will begin. At this point, both parties can move out of the contract for various reasons including the following contingencies and clauses:
Kick-Out Clause:
Buyers can leave a house. Similarly, sellers can choose another buyer. In that case, the kick-out clause determines the solution. If the seller goes with another customer, then the current buyer must close quickly. Buyers usually get 1-3 days to pay the money otherwise the home goes to the second buyer.
Repair Limits
According to the standard template, 1.5% of the selling price can be used to make any repairs. The seller will pay this money from his pocket. So, let’s say the buyer orders a home inspection and the property needs some repairs that are below the 1.5% of the sales price. In that case, the contract remains intact because the seller will make these repairs.
Property Sale Contingency
This term says that the buyer will first sell his home and then he will purchase yours. In simple words, if the buyer fails to sell his/her home then they can move out of the purchase agreement. In many cases, an experienced Realtor can help you negotiate this contingency.
Mortgage Contingency or Financial Contingency
Banks do not give loans unless the property is under contract. If the buyers are not pre-approved, then there are high chances that the bank won’t lend the money. In some cases, even pre-approved buyers get their request rejected for various reasons.
When this happens, the seller cannot finance the home, and they will withdraw their offer.
Inspection Contingency
Almost every lender requires that the property in question must pass the inspection test. The home must be a profitable investment otherwise the bank won’t lend the money. It is best to inspect the home in detail before putting it for sale. It will help you avoid any issues at the later stage, because, you must disclose any property flaws in the sales contract.