Generally, within the context of the real estate market, all real estate contracts cannot be the same or follow the same format of approach.
Special modifications are crafted and implemented into each real estate contract, giving it its characteristic uniqueness to suit the needs and requirements of the particular buying and selling parties involved in the transaction.
This is obviously in addition to prerequisite conditions such as property address, payable amount, terms of payment, closing date that must be pre-included in the contract before completing any transaction.
Real estate contracts usually protect the interests of both the transacting parties, particularly securing the interests of the buyer. Hence it is very important for both parties to understand the fundamentals of real estate contracts and how they work before drafting and signing them.
It is to this end that we raise important questions such as; what is even a real estate contract, what does it contain and its significance to real estate transactions. These questions prompted the writing of this article that aims to delve into the aim of real estate contracts and contractual contingencies one needs to understand to effectively scale around real estate transactions successfully.
What is a real estate contract?
A real estate contract is a legal document that signifies the agreement between a buyer and seller to transfer the ownership of a landed property, usually from seller to the buyer. This is alternatively referred to as purchase agreements within the real estate world and is cosigned by both buyers and sellers once a reasonable offer has been agreed upon between the two parties.
These contracts/purchase agreements provide full details of every related aspect of the property sale, fully outlining the obligations of either party and included terms and conditions associated with the transaction as the need might be.
Real estate contracts provide the legal framework for any real estate transaction. So once a person gets it wrong from the start, even a seemingly straightforward deal can escalate into a big, legal threat. An ambiguous clause included in the contract or failure to meet certain obligations due to ignorance can, in the long run, prove to be extremely costly and spiral into complex, legal disputes.
To this end, it is very important to work with competent real estate attorneys when crafting these real estate contracts to help one to fully grasp the contractual terms and conditions embedded in them. This will aid either party to comprehend complex clauses included in these contracts, ensuring legal compliance from involved parties to contractual obligations
Content of a basic real estate contract
Though, as we have earlier discussed, most real estate contracts do not have the same, generalized format, they however share some essential details that are similar to all real estate contracts.
The average real estate contract should be able to reference important details pertaining to the estate transaction such as the property purchase price, methods of payment and any other specific conditions required of the buyer.
1. Property purchase price– This describes the agreed selling amount of the landed property
2. Property Payment terms– This covers other details about how the amount to be paid regarding the method of payments, mortgages incurred, installment services and other financing details.
3. Property description– this provides a general overview of the landed property in question. It indicates the working condition of the property prompting relevant disclosures about necessary defects when necessary.
4. Property Closing date– This shows the date that the transaction is officially completed. The closing date indicates the date the landed property is legitimately transferred to the buyer.
Clauses to observe in a typical real estate contract
Since real estate contracts and agreements act as one’s legal protection, defining how each party acts in a transaction. It is therefore important for both parties involved to become familiarized with some basic contractual clauses that might be included.
Contract clauses can be defined to be conditions that are used to keep the contract legally abiding once they are satisfied. Any contract can be annulled or cancelled by law provided these conditions (clauses) are not met
These clauses might come in the form of contingencies, liability clauses and closing conditions. These are the three main clauses one can encounter in any real estate contract
1. Contract contingencies:
These are specific conditions that are included in the contract that allows it to remain effective once these conditions are satisfied. They provide an escape route for either party to absolve the contract once these conditions are not satisfied.
2. Liability clauses:
This type of clause is used to determine which party is responsible for not adhering to his part of the contract. These conditions will identify any party that breaches the contract.
3. Closing conditions:
This clause is used to show well detailed final steps to be followed before the landed property can be properly transferred to the buyer.
The inclusion of any of these clauses in any real estate contract is always compulsory because of the way they protect the interests of the transacting parties. Without these clauses, the contract would become very weak, making it susceptible to legal disputes. Hence it is crucial to have a good understanding of these clauses to scale through most real estate transactions successfully.
Common examples of contract clauses
Inspection clause
This contractual contingency provides a chance for the buyer to have the property examined and checked, with negotiations arising from any underlying issues that have been discovered. It is a safety feature designed to avoid additional costs of repairs and replacements after closing the property deal.
Most inspection contingencies provide one of two options, namely; to either terminate the contract or agreement or negotiate repairs with the selling party.
Though these days, most buyers seem to wave off inspections to improve their bids and speed up the buying process amongst competition , it can prove to be a very costly mistake after closing the deal and discovering significant repair issues.
Financing clause
This contractual contingency is set to ascertain whether the buying party would be able to raise funds that can be used to complete the property purchase either immediately or in installments. This will provide an escape measure for the buyer to tap out of the property sale, if adequate financing cannot be sought within the specified time provided by the clause.
This contingency is particularly useful in mortgage agreements, in which the buyer has to secure loans to complete the property purchase. So when the mortgage is rejected, the contract might be cancelled with a penalty fee stipulated by the clause.
Title clause
This contract contingency is important to ensure that a good, clear, undisputable property title is being transferred to the buyer.
It is a well known fact that any good property sale is highly dependent on the seller’s ability to market a clear and free property. This means the landed property in question should not have any disputable ownership claims.
To this end it is advisable to conduct a quality title search using an estate attorney to ensure the seller has the legal right to sell off the landed property.
This contingency steps in when an outstanding title issue has been discovered, allowing the buyer to back out of the transaction entirely or provides a timeframe for the seller to abruptly resolve the issue.
As-in clause
This special contractual clause is used to indicate that the landed property is to be sold or purchased in its current condition. It implies that the property is not covered by any warranties or guarantees.
This contingency or clause will indicate to the buyer that backing out of the deal based on the structural condition which might include repair issues or defects of the said property is practically impossible.
Other notable clauses to note include; insurance clause, indemnity clause, sale of home clause, cancellation clause, dispute resolution clause etc
Conclusion
Any real estate transaction cannot be viewed as legally bound if necessary conditions are not satisfied or met. These contract conditions are designed to cover the financial interests of all involved parties in the real estate transaction, but might not be always balanced. It might favour one party at the expense of the other or vice versa, hence these conditions must be drafted and agreed between the two transacting parties.
It might prove crucial to consult with a competent real estate attorney to ensure your interests are legally represented and protected.
Recommended Articles
The Role of Escrow in Real Estate Transactions
Top 11 property listing websites for realtors in Nigeria