A real estate contract is surprisingly the least understood tool in investing despite its extensive use. These contracts are built upon general contract principles and laws. The majority of US States employ the use of standardized contracts to simplify the process for attorney and real estate agents. The contract, typically composed as an offer, is generally signed by an offerer or buyer and the contract is not binding unless the seller agrees too and signs it. If the seller does not agree, her or she will usually offer a counteroffer. This exchange of offer and counteroffer will continue indefinitely until a mutual agreement is reached or the entire contract is dissolved.
Every real estate contract must contain some basic and mandatory requirements to be considered valid:
There must be an area on the contract that states that the seller and buyer have reached a mutual agreement. This section will also usually contain boxes for the buyer and seller to sign and date because signatures are necessary for the contract to be considered enforceable. Along with signatures from the buyer and seller, a witness or legal representative must be present to also sign the contract.
The contract must correctly identify the buyer and seller. This usually entails providing full names and middle initials, the businesses involved, and contact information.
The property must be identified and thoroughly described within the contract. This assures that there can be no mistake and that one or the other party cannot in the future attempt to claim the contract is faulty because they were ill-informed of the actual condition of the property in question.
The contract must obviously confirm the price that has been agreed upon for this sale. If a value was achieved by evaluation from a certified appraisal company, it is recommended that the company name be included along with the price.
The fifth element vital for a real estate contract is something known as “consideration”. Consideration is essentially something that makes the contract binding. It is similar to the deposit you might place on a car or house purchase. However, consideration does not necessarily have to contain monetary value. The buyer can agree to stop browsing for property while the seller agrees to remove the property from the market. This would also be considered a consideration. Typically however, money is usually the best consideration to use. If money is offered as a consideration, details as to how it can be refunded are usually also recommended.
Somewhere on the contract, a brief description of how the property will be used must be provided. This is for the purpose of maintaining zoning areas within a typical community.
The contract should also list the acceptance and closing dates of the deal. The acceptance date refers to the point after which the offer has been taken off the table. Keep in mind that the buyer or seller is at his or her right to remove the offer anytime before that date, if they so wish to do. The closing date refers to when the transaction is officially performed.
The contract should also include any clauses regarding overall property condition and any repairs that may be necessary. Furthermore, any information regarding property and termite inspection should be thoroughly documented.
