For Columbia rental property investors, buying property is a major step in expanding your portfolio. To purchase with confidence, you must have a thorough understanding of the real estate purchase contract. The real estate purchase contract is a document that defines the sale’s terms and conditions between buyer and seller. In this blog post, we will discuss the essential sections of a real estate purchase contract that every investor needs to understand!
Earnest Money Deposit
Typically, the earnest money deposit is between 1% and 3% or 4% of the purchase price. This is the amount placed in escrow with your offer to signal to the seller your intent to purchase the property. The earnest money deposit is applied to the purchase price when the sale is finalized.
Offer to Purchase
The Offer to Purchase section starts with a comprehensive description of the property. This description must be scrutinized to confirm it includes the accurate property details you are bidding on.
It will probably also include a list of items that come with the sale and those excluded from it. Paying attention to these lists is crucial, as the seller can exclude nearly anything from the sale.
Purchase Price
The purchase price section is a key part of the real estate purchase contract. Within this section, you agree to the payment amount for acquiring property ownership.
Additionally, make sure to note any extra fees or costs linked to the sale, like the seller covering closing costs. This section outlines your payment method for the property, whether it’s financing or cash, and the amount of cash you’ll bring at settlement.
Seller Disclosures
The seller disclosures section details any known physical or legal issues with the property. This covers any pending lawsuits, environmental concerns, or the necessity for a new roof.
When making an offer, you should generally take this information into consideration. If the seller omits any known issues and you discover them after closing, the seller could be liable for damages.
Contingencies
Another important section of a real estate purchase contract is the contingency section. This section specifies all the conditions that must be met before closing, such as obtaining financing, conducting an inspection, and having a clear title.
These contingencies are typically waived automatically if the buyer doesn’t act. However, it’s important to review these contingencies to understand what to expect and how much time you have to fulfill them.
Inspection Period
The inspection period is the period after your offer is submitted, allowing you to cancel the purchase contract for several reasons. For example, you might find a significant defect with the property and choose not to purchase it, or you may have buyer’s remorse.
The inspection period lets you cancel the contract without penalty if you discover something that wasn’t found in the initial inspection.
Assessments and Financial Obligations
This part describes any current or future assessments and their related financial obligations. Should a major project be proposed for the property’s area, this section will detail the project and any associated costs.
It might also detail any outstanding fees you’ll be responsible for at closing, including property taxes, HOA fees, special assessments, or utility bills. Reviewing this information carefully is important to understand any financial obligations you may have from the purchase.
Closing and Settlement
This part of the real estate purchase contract outlines the date and location for finalizing the sale. It typically includes a projected date for property transfer. Many buyers assume they can take possession of the property at closing, but that isn’t always true. Consequently, it’s important to carefully review the closing section of your contract to prevent any unforeseen timing issues.
Offer and Time for Acceptance
One of the concluding sections of a real estate contract usually includes important dates to note, like the offer’s expiration date and time, as well as contract deadlines. The contract is only valid if the seller agrees to your offer. The offer and acceptance section explains how long you have to make your offer, the seller’s time to accept it, and when the buyer must provide a deposit. Additionally, this section might include the start date for contingencies and the duration you have to meet them.
Acceptance/Counteroffer/Rejection
Upon reviewing the real estate purchase contract and being ready to submit your offer, you must sign at the bottom to indicate acceptance or rejection. If the seller accepts your offer, the purchase agreement is legally binding, and you must follow through with the transaction as outlined in the contract.
If the seller decides to counteroffer, responding to your initial offer, this paragraph will be included in your purchase agreement. The counteroffer from the seller might include different terms or suggest a new purchase price. Accepting the counteroffer requires you to sign and return it to indicate acceptance.
A rental market expert can be invaluable for guiding you through the complex aspects of purchasing an investment property. Real Property Management Seasons can guide you through every step, from the initial purchase to ongoing property management in Columbia. Contact us online or by calling 615-333-6858 to learn more about what we offer investors.
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