Protect yourself by getting the lowdown on real estate purchase and sale agreements and realtor contracts.
Whether you’re a grizzled old veteran of the business or a pink little newbie just starting out, it never hurts to get a better understanding of the real estate purchase and sale agreements and contracts you use on a daily basis. The idea is to learn how to structure these important documents in ways that protect you and your unique deals.
Purchase and Sale Agreements
The standard contract used in real estate every day is the Purchase Agreement and the Sale Agreement. These two common workhorse agreements are considered contracts, provided both parties have signed them.
Remember that a standard Purchase Agreement and a standard Sales Agreement are two different things. Meaning you should use a different contract for buying than the one you use for selling. You want to be in the driver’s seat in either situation. Whether you’re buying or selling, you want to insure you give yourself the maximum advantages. You are not trying to take advantage of other people, or pull the wool over their eyes. Goodness, no. You are simply trying to create the most advantageous situation for yourself. You create the terms of the agreement and then let the other party decide if they like the terms you are offering.
When it Becomes a Legal Contract
When you have drafted your agreement and signed it as the buyer and presented it to the seller it is considered the Offer. The Acceptance is the buyer’s signature on the Offer, accepting the document’s terms. At this point it becomes a legal, binding contract.
Remember, a contract doesn’t become binding until the last signature and initial goes on, and both the buyer and seller have acknowledged all the terms. If any term changes, the other party then has to acknowledge that the change was made. It’s great to want to buy a property, but until both parties have agreed to all the terms and both parties have signed the document, there is no contract.
Sometimes a seller may provide you with a counter-offer. For example, if the seller listed the house for $100k and you offered to pay $80k, the seller might change the $80k to $90k (the counter-offer) and send it back to you. That is officially a counter-offer, not an acceptance. You would then as the buyer have to acknowledge that change and accept the seller’s counter-offer in order for it to become a valid and binding contract.
Avoid the Boilerplate Contract
Every real estate transaction is unique. Whether you’re the seller or the buyer, you should be careful of the standard boilerplate contract. There are thousands of boilerplate contracts available for use, and they can even be downloaded from the Internet for free. But you have to get into the bones of the agreement to see exactly what is being said in the fine print. Depending on whether you’re a seller or a buyer, your situation can be drastically different. Make sure your contract reflects that.
You want to be able to understand the various terms of Purchase and Sale Agreements and how they affect your position. Don’t get caught up in the easy habit of just filling in the blanks on a contract. Why? Because when you get into some of the contingencies, especially if you’re buying rehab properties, you want to be able to understand what you are agreeing to and what is being provided to you through the terms of the agreement.
If you use a standard boilerplate contract and something goes wrong down the road, you might be stuck because you didn’t protect yourself by changing the language to meet the specific needs of your unique transaction.
Use the Word “Standard” in the Title of the Agreement
Always use the word “Standard” in the heading of the agreement, whether it is a sales or a purchase agreement. Why? It’s because the word “Standard” makes a contract much more likely to be accepted by people. It’s just human nature.
Most properties are bought from or through realtors. Realtors sell more than half the homes sold in the US. Realtors are in a good position to know what’s available in the marketplace because it’s what they do for a living. We advocate the use of a realtor, even if you’re buying houses that are not listed as ‘on-market’ properties through MLS or elsewhere in the public arena. Realtors have access to all the tools of the real estate trade, and they know how to use them.
However, realtors are in the habit of using the standard Realtor Contract. Usually the local or state realtor organization has created the contract. It is a one-size-fits-all boilerplate contract, and usually they don’t like it when you try to change it. The realtor contract provides boilerplate coverage for the majority of transactions, from the consumer’s standpoint. Meaning someone who is purchasing a house to use as a primary residence. It will typically cover all the bases in a consumer transaction. It will be very generally stated, and will not be specific.
If you’re a real estate investor coming in to purchase a property, you should stay away from boilerplate Purchase and Sale Agreements and Realtor Contracts. Why? Because they probably will not meet some, or all, of the terms and conditions of your deal, especially if the property needs to be rehabbed or is in disrepair. Remember, those contracts were created for consumer transactions. You want to make sure that all the terms and conditions in your offer are going to meet your business model so you don’t have surprises down the road.