How to Review and Understand Real Estate Contracts
Whether you are in the process of buying, selling, or leasing a property, it is imperative to have a real estate contract that includes every detail of the property transaction.
Conducting a comprehensive review of the real estate contract is crucial for ensuring you understand all the terms and conditions involved; however, this can be a very complex process. For this reason, we have outlined the key elements to consider when reviewing a real estate contract and how to better understand these elements before finalizing the agreement.
It is important to note, however, that reviewing the contract on your own isn’t always enough. There are many ways in which a real estate lawyer can assist you before the contract is signed. As such, we will also discuss how a real estate lawyer can benefit either party when completing a property transaction.
What is a real estate contract?
A real estate contract is a legally binding agreement that outlines the rights and obligations of both parties involved in the real estate transaction, often acting as a framework to help guide the entire process with clarity and precision.
The most common real estate contract is the Agreement of Purchase and Sale, which can be used for either commercial or residential purposes. Other types of real estate contracts include the Listing Agreement, Lease Agreement, Buyer Representation Agreement, Mutual Release, and the Amendment to Agreement of Purchase and Sale.
Although these contracts are typically prepared by real estate agents, engaging a real estate lawyer early on in your property transaction will ensure that your contract is thoroughly reviewed and amended by a professional with extensive knowledge of real estate law. When enlisting a lawyer, you can be assured that the contract will be meticulously catered to your specific needs or circumstances.
What does a real estate contract include?
Although every real estate contract will be different depending on the details of your offer, the property, and the transaction type (purchase vs. lease, commercial vs. residential), there are several key elements that every contract must include to keep you and your interests protected. We have outlined these elements for you in the following sections.
Seller, Buyer, and Property Information
When reviewing a real estate contract, the first piece of information to look for is the identification details of both the buyer and the seller. You should verify that the legal names of both parties involved are accurately recorded and that each party is properly identified according to their position in the real estate transaction (i.e. buyer or seller, or in the case of a lease, lessee or lessor).
The contract’s property information should also provide accurate and relevant details, including the address of the property, its legal description, and any other identifying information necessary.
Purchase Price and Terms
The next key element to review in a real estate contract is the financial details. The contract must clearly outline the purchase or lease price of the property and the associated terms. For example, the contract may include a payment schedule, deposit details, and information regarding any additional costs or fees. It may also include how the purchase is being financed, outlining whether the buyer will be using a mortgage or an alternate method of financing.
Other possible financial details to review include closing costs and terms. These costs may consist of the agent’s commission if one was involved, inspection and appraisal fees, taxes, insurance, and lender’s fees. The terms in this section will detail which party is responsible for these closing costs.
Closing and Possession Dates
Another essential piece of information to review is the closing date of the agreement, which is the day the real estate contract is signed and ownership of the property is transferred over to the buyer. Funds for the property are also transferred on the closing date.
The possession date will also be included in the contract. This states when the buyer is allowed to move into the property; though, it is important to note that it is not always the same date as the closing date. Occasionally, the possession date is set for the day after the closing date to provide ample time for the completion of the transaction.
When selecting the closing and possession dates, the seller must factor in the necessary time for moving arrangements. Additionally, before approving either the closing or possession date, ensure that you, as the buyer or the seller, thoroughly understand any possible obligations required of you on these dates.
Contingencies of the Contract
Contingencies are conditions that both parties are required to meet for the real estate contract to proceed. Should the specific circumstances outlined in a contract’s contingency prove unsatisfactory, then the contingency is considered unmet, giving either party the right to renegotiate or cancel the contract. It is imperative that you review and fully comprehend the details and timelines for every contingency included in your contract.
Some of the most common contingencies found in real estate contracts are financing, inspection, appraisal, and home sale contingencies. For example, the inspection contingency allows the buyer to withdraw from the property transaction if they are dissatisfied with the results of a professional home inspector’s evaluation.
Disclosures of the Property
A final key element of a real estate contract that must be reviewed is the disclosures of the property. In this section, the seller must disclose any current defects, issues, or other relevant details of the property.
If the seller fails to disclose substantial defects or issues with the property, they can face serious legal consequences. The buyer has the right to file a lawsuit against the seller upon discovering property issues after the purchase of the property that should have been disclosed in the contract.
Whether you are the buyer or the seller in a property transaction, honesty and due diligence are crucial to avoid entering a lawsuit. Leveraging the services of a professional real estate lawyer can help you determine the issues that must be disclosed in the contract before finalizing the property transaction.
Why engage a real estate lawyer?
Buying, selling, or leasing property can be a significant milestone in your life. Working with a real estate lawyer can provide you with a sense of comfort in knowing that an experienced legal professional is assisting you during the property transaction, especially when the contract is more complex. Aside from reviewing your contract, a real estate lawyer will use their knowledge of real estate law to provide legal guidance throughout the transaction and may even help you negotiate better terms in your contract.
Engaging a real estate lawyer early on in the property transaction will also allow them to conduct a title search to verify that there aren’t legal problems affecting the title of the property. This could include potential legal claims, restrictions, or deviations from the property’s approved zoning restrictions.
Next steps after signing the contract.
Once you have thoroughly reviewed the real estate contract and are ready to sign, you may be wondering what next steps to take. Just as a real estate lawyer plays an essential role in the process of reviewing and amending the contract to suit your specific circumstances, they are also vital to the processes that take place after signing the contract.
The real estate lawyer will register the transfer of property, ensuring it is properly recorded within your region’s laws and regulations. The lawyer will also facilitate the financial transactions and prepare a statement of adjustments, which is a crucial document detailing all the transaction information. This document also serves as evidence of payment and compliance with the proper legal procedure for acquiring the property.
Final recommendations from a lawyer.
It is our hope that after reading through this article, you have a much better understanding of how to review a real estate contract and comprehend its key components. However, as we have discussed, the best way to ensure that the contract adequately outlines all the necessary terms and conditions is by having a real estate lawyer conduct a comprehensive review of the real estate contract.
Why work with an RSG real estate lawyer?
The real estate lawyers at RSG are here to provide you with guidance and support throughout the entire process of your property transaction. With legal services in both commercial and residential real estate matters, our lawyers have extensive knowledge and expertise, enabling them to adeptly review a wide array of real estate contracts. You can trust that our real estate lawyers will work hard to ensure that the contract protects your rights and reflects your best interests.
Contact an RSG real estate lawyer today and benefit from dedicated legal support tailored to meet your real estate needs.
