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Anatomy of a Real Estate Contract

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Although any given real estate contract can vary slightly from state to state, there are some commonalities.  As such, I thought I’d highlight the key components of a typical purchase agreement for today’s post.  Note that these components apply to an owner-occupied home as well as a rental property.

Of course any purchase agreement must have some basic information.  This includes the buyer’s and seller’s details, including legal names & addresses.  Also, the contract must document the specifics of the property – the address, legal description, what’s included, etc.  In states where a property survey is required, this information may be included here as well.

Obviously the details of the transaction are also included on every real estate contract.  Property prices, financing details, and any contingencies must be documented.  Contingencies refer to such things as the property inspection, the appraisal, and whether or not the sale is tied to another of the seller’s transactions.  Typically, the closing date will be disclosed in this section, and your ability to close the deal will be dependent upon the successful completion of all contingencies.

The inspection clause usually provides a set number of days for the buyer to complete the building inspection, a set number of days to provide the inspection results and any associated requests to the seller, and then a set number of days for the seller to respond.  Related to the inspection clause is the final walk through, which typically allows the buyer to do a quick inspection of the

property the day before closing to make sure the property is still in acceptable condition.  The appraisal contingency basically mandates that the property value must be enough to justify the sales price; if not, then typically the price would have to be adjusted.

Finally, all real estate contracts have a section called “seller’s warranties & representations,” which documents how the title will be transferred to the new owner.  This section also often includes details of the title work, such as which party will be responsible for funding it.

So, there you have it – a very basic outline of a standard real estate contract.  Please remember that this is informational only; your real estate agent or property attorney will have the specific legal documents to use in whichever state you’re located in.  So, always make sure you get the advice you need from the experts in your local market.

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