LawDistrict
Engaging in the process of buying or selling a property for the first time is a significant endeavor with various challenges. This guide aims to demonstrate how strategic preparation and utilizing appropriate real estate forms and contracts from LawDistrict can streamline the process.
Identifying the Contract’s Key Parties
It’s essential to be fully informed about the person you’re transacting with, whether you’re purchasing or selling. For buyers, it’s important to review the deed. Ideally, the seller should provide a warranty deed form verifying their ownership and their authority to sell the property.
Furthermore, the sales contract must include the complete legal names of all involved parties. It’s prudent to request the other party’s identification as well. Proceed with caution if they hesitate to confirm their identity.
Describing the Property
Any contract you sign should fully outline the property and communicate any issues with it. This technically isn’t a requirement in most states, but it’s good etiquette. You must know if a property is in good condition before spending thousands on it.
“Caveat emptor” (buyer beware) states place the responsibility on buyers to verify the property’s condition. Whether you live in one or not, you should still ask questions about the property, such as:
- Have there been any major repairs on the property?
- How old are the property’s HVAC systems?
- Have there been any flooding or water issues?
- Has the property ever had a pest infestation?
- Are there property line disputes with the neighbors?
- What warranties exist on the property/appliances?
Verifying the Property’s Condition
Going beyond the seller’s confirmations, it’s best to see the home for yourself. You must always schedule a viewing before signing anything. Make time to go into each room — especially ones that aren’t prominent on the listing, as these may have issues they’re hiding.
However, even if you’re the seller, your property might have problems you’re unaware of. This is why you should commission a surveyor or inspector to check the home. They’ll show you if your property has any hidden defects that will affect its value.
If you commission an inspection of a property you plan to buy, you can use this to negotiate. For example, any major issue (even one the seller wasn’t aware of) could lower the price. No matter what side you’re on, a survey gives you peace of mind about the transaction.
Sale Contingencies
Your contract might (and ideally should) include key contingencies. These are conditions you or the other party must fulfill before the sale can go ahead. They should come with a deadline and must always be in writing — verbal promises won’t suffice. Common contingencies include:
Financing Contingencies
A financing contingency ties the buyer’s obligation to their success in getting a mortgage. If they can’t get one in time, they must cancel the contract but face no penalties as a result.
Home Inspection Contingencies
This lets the buyer carry out one of the aforementioned inspections. If there are any defects, this clause gives them the right to ask for a lower price or walk away.
Appraisal Contingencies
Similarly, this contingency lets buyers cancel the deal if an appraisal reveals the price should be lower. A discrepancy here can seriously affect the buyer’s ability to get a loan.
Sale of Existing Home Contingencies
Some deals can only go through if the buyer manages to sell their home first. The deadline here will likely be tight, especially as the seller won’t want to wait.
Financing Terms
Make sure you confirm the price and payment schedule with the other party. For example, will it be in installments or one lump sum? There’ll also be a down payment, which is usually 5-20% of the overall price.
The buyer (you or the other party) will also have to provide an earnest money deposit (1-3% of a home’s price). This deposit stays in escrow until you close the deal, whereupon it and the down payment finally go through.
The contract must clearly state the amounts and conditions for each payment. It’ll also elaborate on how you or the buyer plan to finance the sale. If it is a cash purchase (without any extra financing aid), specify this.
Extra Disclosures
Selling your home also means being honest about more than just its general condition. You also have to specify if it uses lead-based paint; this isn’t a hazard alone, but it can pose a problem as it chips away.
Other facts you should disclose depend on your state. California is especially rigorous and asks sellers to report the following risks under its Natural Hazards Disclosure Act:
- Flooding
- Dam inundation
- Very high fires
- Wildfires
- Earthquakes
- Other seismic hazards
- Radon gas
Final Thoughts
Use a real estate contract template to ensure the document has every necessary field. If you’re using the other party’s contract, compare this with a template, and don’t be afraid to speak up if anything’s missing.
