Understanding the Real Estate Purchase Contract

Deciding to sell your property without a realtor (FSBO) is always an option and it is easy to become overwhelmed with paperwork. One document you really need to know your way around is the purchase contract. The contract outlines who is responsible for covering which costs and it dictates the terms of the sale. The contract is also State specific, which means it outlines State required disclosures.  If you are selling your property you should have an attorney review the contract to secure your interest in the sale. 

Here are the basic components of a real estate contract:

Property identification: In the contract, the property needs to be identified. The property should have the sellers and buyers name along with the correct address, parcel identification number and a short version of the legal description. 

Purchase price: There should be clear legible monetary number in which you’ve decided would be best to sell the property at. The purchase price is something that can change depending on the inspection and appraisal of the property. It is advisable to conduct these things prior to entering into a contract. 

Earnest Money: This is the deposit that you are requiring from a buyer to secure the contract. The amount of earnest money is governed by state law. At the very least $1,000.00 shall be given as deposit to secure the transaction. If and when the sale closes, the earnest money goes toward the down payment of the purchase. Also, as the seller, you can add a contingency which says that if the buyer defaults on the contract, you get to keep the earnest money. Keep in mind that the buyer has right to add their own contingency which would read that if the seller defaults on the contract, they get their earnest money refunded. 

Closing date and costs: The contract needs to have a realistic expected closing date. The closing date can change if both seller and buyer agrees at any point to extend the contract. In the state of Florida, the seller usually pays for the title insurance policy and for the commission of the buyers agent. The requirements of who pays what changes by state but, regardless of who is paying the costs they need to be specifically delineated in the contract. Please note that there are exceptions to this in both Miami-Dade and Broward County, Florida.

Financing: This section only applies if your buyer is taking on a loan for the purchase. If a loan is being procured there will be a contingency detailing the specific terms of and type of financing.  

Appraisal: Assuming the buyers are using a lender to fiancé their purchase, the lender will conduct their own appraisal to make sure the home is marketed at the correct price. As long as the appraisal comes back at a number amount that is the same or greater than the purchase price the buyer will receive a loan assuming all other lending conditions are met. 

Home Inspection: Most likely the buyer is purchasing the property for a specific use. They will request a home inspection to make sure the property is satisfactory. As the seller, you can protect yourself by placing a time limit on the inspection usually ten (10) days is enough for completion. 

DisclosuresThe seller by law is required to make certain disclosures about the property the most commons are:

  • Lead Paint
  • Radon Gas
  • Termite Damage
  • Adequate Facility Taxes

Appliances and Fixtures: This section outlines what other than the structure of the property is included. Examples are the refrigerator, washer, dryer, and what kind of hardware will be staying. It all needs to be detailed in the purchase contract. 

Real Estate Taxes and Special Assessments: This section detailed the prorated taxes, maintenance, HOA fees (if applicable) and other costs associated with the property. The seller usually pays for these costs up to the sale date. 

Default: If the seller or buyer fails to meet the demands of the contract this section outlines how the default will be handled. In this section is where you commonly would find the language for who gets to keep the earnest money in case of the default. 

If you an questions or concerns regarding your real estate closing feel free to contact us at 305-227-4030 or legal@raygarcialaw.com

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Law Office of Ray Garcia, P.A.

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