Wed January 16, 2013, 6:32pm
Using Real Estate Contracts to Sell Real PropertyDespite its vigorous use in the property market, real estate contract is barely understood in the business. Whether a seasoned expert or a beginner, thoroughly perceiving this tool is essential, should you desire to facilitate trust and corporation, vital in creating your robust brand image and business expansion in the property market.
Real estate contract is built on the laws governing the contract fundamentals, therefore acknowledging the essence of the contract law becomes important. Usually, most states follow a standardized contract format. Usually, it is drafted as an offer letter, and duly signed by the buyer. The contract remains open until the seller accepts the terms and conditions enlisted in the contract agreement. The process of arriving at a communal consent is called “mutual assent.”
Offer, Counteroffer and Acceptance:
The fundamental principle of a contract is that there is mutual agreement. However, if the seller does not agree to the exact terms of the offer and suggests some changes, the contract is a counteroffer.
Further, if the offer is not accepted in the stipulated period and the procedure set forth by the buyer, then no contract exists. For instance, if the contract specifies that acceptance must be made by mail, then receipt by e-mail or fax will not suffice, and the contract ceases to exist.
Unilateral Contract vs. Bilateral Contract:
A real estate sales contract is a “bilateral” agreement. It is a two-way accord where the buyer agrees to buy the seller’s offerings. A bilateral contract yields the same result in terms of liquidated damages, if the buyer fails to close escrow, the seller retains the buyer’s earnest money and the deal closes.
On the contrary, a “unilateral” agreement is the process under which the seller is obligated to sell, but the buyer is not compelled to make a purchase. The seller makes an offer but making the purchasing is at sole discretion of the buyer. The concept of unilateral contract is used by courts to hold a party liable for a promise despite the other party did not give appropriate consideration.
Fundamental Legal Requirements of a Real Estate Contract:
Here are a few basic requirements that must be written in a real estate contract to hold it valid:
In Writing – For real estate contracts to be enforceable, they must be given in writing. In United States, the Statute of Frauds makes it obligatory for real estate contracts to be written and duly signed and authorized by the public notary. The Alienation of Land Act in South Africa, specifies that any agreement on the sale of an immovable property must be in writing.
Meeting of minds is essential for a contract to be valid. Hence, Mutual Assent is utmost important.
Identify the Property - The contract must identify the property. The minimum requirement to bind the contract is the legal description of the property, i.e., a mention of the physical address.
Identify the Parties - The contract must bear the full names including any middle initials of both the parties – seller (s) and buyer(s) of the property. This facilitates the distinction of the involved parties from the real estate agents, who are their representatives and intermediaries in negotiation of the price. Further, any real estate agents brokering the sale are mentioned in the preparation of the contract.
Purchase Price - The contract must state the purchase price of the property or a reasonably define discernible figure.
Consideration – It is defined as the benefit, value or interest that induces the guarantee/contract. The presence of consideration is important for the contract to become enforceable.
Signatures - A duly signed contract is considered valid. The party signing it must be of legal age and mentally stable. As long as the contract states that facsimile signatures are valid, the facsimile signature is acceptable.
Essentials Prior Signing the Real Estate Sales Contract:
Prior to signing the contract, check the written document with your attorney in advance. Usually, the sales contract is signed over the weekend, when the legal department is not working.
Although it is essential to bind the contract with legal clauses, nevertheless, as a buyer do not commit to any commitment your attorney thinks is risky.
A Few Good Points To Keep in Mind:
Akin to the crowd, you must obtain a mortgage to purchase your property. Then the contract should state that your offer is reliant on attaining finances at a specified interest rate. For instance, if you are aware that cannot afford the monthly repayment on the mortgage if the interest rate is greater than 6%, don't vouch for 6.5% in your contract. Doing so, will offer advantage to the seller, as the party maintains your earnest money if you decide to let go the deal.
Specifying any special loan request like FHA or any cash payment will make your offer more attractive to sellers.
Buyers who intend the seller to share the closing cost, should mention it in writing and the amount as well.