The Basics Of Real Estate Contracts
In the real estate business, contracts are extremely important. Without them, one cannot even think of even initiating a deal. But before we begin, we must clearly understand what a contract is. It is a legally binding agreement, which can be either verbal or documented (in our case we will be referring to documented ones only). There are many things a real estate agent / broker / investor should keep in mind before plunging into a deal.
What Are The Contract Basics That We Should Care About?
If you do not fully understand what a real estate contract (or what it says) is akin to a carpenter not having the knowledge of using a saw. Just imagine this thing. You have taken around to two to three months to survey a property, take another three months to cook it up and plan how to earn a profit out of it. Now the time has come to take away the profits. Only if you knew how to make a contract! You possess imperfect knowledge about it. There could be so many loopholes in it. One mistake and you could be losing out on millions.
No, you cannot skip this step. Eventually, you may get the deals done. But will you ever be good at it? No sir. If you ask my personal opinion, you are just like a soldier without armor or a weapon and is expected to finish the other party without these critical aids. To become a star at wholesaling pieces of real estate, you will need to understand all the intimate details of real estate and contracting. If you are not familiar with any aspect of the contract that you are about to use, then you will be screwing yourself out of all the hard work you have done.
The Terms In A Real Estate Contract
As we have mentioned earlier, a legal real estate contract exists between two parties, the seller and the buyer. It is an agreement between those two parties which will result in the transferring of ownership of the piece of real estate – be it a plot, an apartment, a house or a shared property. In India, the contract laws are complex in real estate.
The laws and practices of such nature control the velocity of the transfer of real estate. The amendments are based on the jurisdiction according to the location of the land. These contracts can be enforced legally, and not adhering to it can cause a case of civic culpability. So it is extremely important that you possess total comprehension of what your real estate contract says about the deal you are doing with the other parties.
What Are The Types Of Real Estate Contracts And How Should They Be Approached?
It’s debatable whether a seller contract is better than an lawyer’s one. Both of them have their own pros and cons. The short seller contract is simple minus all the real estate legal jargon. But it lacks specific instructions on handling certain issues. On the other hand, the long contract from a property lawyer can be complicated for some people. But it covers most of the terms, and hence, has clarity.
All valid real estate contracts must meet four criteria:
- The contract must be in writing
- It must contain both, an offer and an acceptance
- The purpose of making the agreement must be legal
- Must be an exchange of money for property which has value
What Does A Real Estate Contract Include?
Real estate contracts typically include the following things:
- Names of involved parties
- Description of the entire property
- Price of the property
- Offer expiration deadline
- Closing target date
- Amount of earnest money deposit
- Deadlines for completing inspections, surveys, and loan applications
- Details on which party pays for inspections, survey, title insurance, prorating property taxes, and other fees
If you are acting as an independent real estate seller, you should decide which contract to use. Don’t use a generic contract that you have downloaded from the Internet! Rather, it would be sensible if you use a state-specific contract. Why use a state to state real estate contract? That’s because real estate law changes from state to state. Every state in India has different laws in these regards:
- Who can close transactions
- How title is given
- How security interest amount is transferred to lenders
- Homestead
- Taxation
- Foreclosure
- Redemption rights
Know Your Contract
When you obtain a current contract from its source, make sure you read it well before taking any action. You can get it made from a local real estate agent, real estate attorney’s office, or Title Company, that doesn’t matter at all. What matters most is that you review the contract completely. Read the terms and clauses of the contract word by word, until you fully understand all that is written in it. If you need to consult an attorney or a closing agent for clarification, then you should do that also.
Many new investors make a common mistake. They wait until it’s time to fill the contract. They do not give any time to read the contract. At that point in time, everything happens so fast, you won’t have any time to scrutinize what decision you are making.
You need to have knowledge of one thing beforehand. You should know in advance what terms are all parties who are mentioned in the contraction agreeing to. Spend a few hours on researching. Deduce whether the contract can pay off big dividends. In addition to that, have some confidence in yourself. You will need to exude that when you are presenting a contract to a prospective seller. This approach will likely win you some deals in the time that is yet to come.
Be Confident While Making The Deal
Sellers depend on us real estate consultants for their real estate queries. So we need to research all this information beforehand. This way we are ready for offering a sound opinion on the questions that are put forward.
In addition, the opinions that are offered by us are valuable because they are well researched. All the facts will be verifiable too. All these factors have established our reputation as honest property consultants. That is priceless. Moreover, the information that is presented quickly and confidently is usually accepted as fact. Our agents begin their answers like this, “The way I understand it…” and then continue with what they want to say. If you preface your answer with, “I don’t know” or “I’m not sure” that causes doubts in the mind of the buyer or seller. And this uninformed attitude can certainly cost inexperienced or ill informed real estate brokers a good deal.
Whom Should You Employ While Contracting – A Real Estate Lawyer or Real Estate Agent?
A real estate agent oversees the closing of a real estate transaction. They are an impartial party to the transaction and provide all sorts of real estate consultancy services and information, facilitating the transfer of the property from the seller to the buyer at closing. Some countries have laws that require a real estate lawyer to close real estate transactions, and others allow a real estate agent at a real estate consulting company to close a deal. If you do business in a jurisdiction that allows brokerage companies to close transactions, weigh the pro and cons of using them vs an attorney.
There is always a risk that you will ruffle some feathers of the real estate agents who are in your circle. But still, I recommend that you take the risk. Ideally you must locate a real estate lawyer or attorney to help you in closing your deals. There are many investors out there in the market who think that if they employ a real estate consulting company for this deal, they might save some expenses and effort. However, in reality, a wise real estate lawyer will provide such excellent advice that it could be beneficial in the long run. So you can enjoy both the present and the future.
The fees of real estate attorneys will be usually on the higher side over and above the consulting fees that you pay to the real estate agent. But you should not worry about that. The additional information that is provided by a competent real estate attorney is priceless. So do not worry about pricing. As they say “Penny wise pound foolish”!
Seller Is The First Priority, Not The Deal
Lawyers and titular agents generally have no problem with the type of contract being employed in a deal. As real estate consultants we believe that our main objective should be in making the seller comfortable with the content in the contract. If this is not the case, then there is always a chance that the seller might want to walk out of the contract. So, the buying party should ensure that there should be no roadblocks due to the legal hassles involved.
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