At the heart of every real estate transaction, there is a Purchase Agreement. The Purchase Agreement is the document that the Buyer and Seller both sign to officially enter into the transaction. The Purchase Agreement is the fundamental document as the parties navigate through the real estate transaction process. The Purchase Agreement is a binding legal document that should be carefully prepared and reviewed by a licensed real estate broker/agent or real estate attorney.
However, there are a handful of items that Buyers and Sellers should know to look for or know to ask about to make sure all of their bases are covered, and their interests are protected.
Earnest Money is the amount that the Buyer must put in up front to initiate the transaction. The Earnest Money is the Buyer’s way of showing a commitment to see the transaction through to completion. If the Buyer backs out of the deal for reasons outside of the Seller’s control, the Buyer usually forfeits that money to the Seller. Both parties should be aware of how much Earnest Money is required under the Purchase Agreement, and who is responsible for holding that money until the date of closing.
Closing & Possession
Typically, the date of closing and the date of possession are one in the same, but that is not always the case. The Seller needs to be sure that the property is in the right condition to be taken over by the Buyer. For a residential Buyer, it is important to have the date of closing and possession coordinated with the Buyer’s previous living arrangement to make for a seamless transition. Problems will arise when the parties aren’t ready to move in and move out in a coordinated effort.
Risk of Loss
Buyers and Sellers need to be aware of who is bearing the risk during the time between the signing of the Purchase Agreement and the closing of the real estate transaction. Typically, the Seller is charged with the responsibility of maintaining the condition of the property, and consequently bears any risk in the event of damage or destruction to the property. However, certain risks and costs might be split or arranged differently, and it is important for the Buyer to understand exactly what risks are covered and by whom.
Most Purchase Agreements come with contingencies. It is important for both parties to know what those contingencies are, and how each might hinder the transaction from closing. Common contingencies include the Buyer obtaining adequate financing, or the Buyer’s selling their current property. If a contingency is not met, the Purchase Agreement is usually voided, and any damages due to either party would be spelled out in the Purchase Agreement itself. It is important to be aware of any contingencies, as well as the consequences if those contingencies do not occur.
A fixture is generally defined as physical property that is permanently attached to the real estate. However, the fixtures section of the Purchase Agreement can include other items. Certain items like washer, dryer, refrigerator, or outdoor children’s play equipment are often considered fixtures. If you are wondering if an item is included in the purchase of the real estate or if the Seller intends to take the item with them, check the fixtures section to determine what items are included or excluded in the sale.
During the period between the signing of the Purchase Agreement and the closing of the real estate transaction, the Buyer usually has the opportunity to conduct inspections. This can include a general home inspection, a radon inspection, a termite inspection, or a well/septic inspection. Generally, the Buyer will have the opportunity to conduct any inspections at their cost, and if issues arise, the Seller generally must fix the issues identified. If you are choosing to waive your rights to an inspection, make sure you have good first-hand knowledge of the property.
Always be sure to check the section labeled “Other,” as the party on the other side of the deal may try to include something that is out of the ordinary or unexpected. The best way to prevent issues with the closing of the real estate transaction is to make sure all parties have full knowledge of the entire situation
The Purchase Agreement is a complex legal document that is binding on the parties once it is signed, just like any other contract. It is important that Buyers and Sellers understand both their rights and obligations under the Purchase Agreement. With the help of a real estate or legal professional, understanding the terms and asking questions on the front end can resolve many issues that often arise in the period between the signing of the Purchase Agreement and the closing of the transaction.
Are you contemplating a real estate sale or purchase? Contact Goosmann Law Firm’s offices in Sioux City, Omaha, or Sioux Falls to learn more about the work we do to put together real estate transactions that are transparent, pain-free, and timely!