If you are a rental property investor in Kalamazoo, you recognize that buying properties is vital for portfolio growth. To purchase with confidence, you must have a thorough understanding of the real estate purchase contract. A typical real estate purchase contract outlines the terms and conditions of the sale between buyer and seller. This blog post will cover the key sections of a real estate purchase contract that every investor should be aware of!
Earnest Money Deposit
Earnest money deposits usually fall between 1% and 3% or 4% of the purchase price. This sum is placed in escrow when you submit your offer, showing the seller your commitment to buying the property. At closing, the earnest money deposit will be credited toward the purchase price.
Offer to Purchase
The Offer to Purchase section starts with a comprehensive description of the property. Carefully review this description to ensure it has the correct details of the property you are bidding on.
It will probably also include a list of items that come with the sale and those excluded from it. These lists require close attention since the seller can exclude virtually 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. Additionally, this section explains your payment method for the property, whether through financing or cash, and the cash amount expected at settlement.
Seller Disclosures
The seller disclosures section outlines any known issues, both physical and legal, with the property. This section includes any lawsuits, environmental concerns, or the need for a new roof.
This information should generally be considered when making an offer. If known issues aren’t disclosed by the seller and are found post-closing, the seller might be liable for damages.
Contingencies
Another crucial part of a real estate purchase contract is the contingency section. This outlines all the conditions that need to be fulfilled before closing, like securing financing, conducting an inspection, and obtaining a clear title.
These contingencies are typically waived automatically if the buyer doesn’t act. Reviewing these contingencies is important to understand the process and the time you have to meet the requirements.
Inspection Period
The inspection period is the time after you submit the offer when you can cancel the purchase contract for various reasons. For instance, you could identify a major defect with the property and decide not to buy 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 section outlines any present or future assessments and their financial responsibilities. If a major project is planned for the area where the property is located, this section will explain the project and its associated costs.
This section may also include any unpaid fees you’ll be responsible for at closing, like property taxes, HOA fees, special assessments, or utility bills. It’s crucial to carefully review this information to understand any financial obligations you might incur as a result of the purchase.
Closing and Settlement
This section of the contract details the timing and location of the sale settlement. It typically includes a projected date for property transfer. Although many buyers believe they can take possession at closing, that isn’t always the case. 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
When you have reviewed the real estate purchase contract and are ready to submit your offer, you need to sign at the bottom to show acceptance or rejection. If the seller agrees to your offer, the purchase agreement becomes legally binding, and you must proceed with the transaction according to the contract terms.
If the seller makes a counteroffer, which is their response to your initial offer, this paragraph will be part of your purchase agreement. The seller’s counteroffer might include different terms or propose a revised purchase price. Should you accept the counteroffer, you need to sign and return it to indicate acceptance.
Having an expert in the rental market guide you through the complexities of buying an investment property can be extremely helpful. Real Property Management Neighbors can help you at every step, from the initial purchase to ongoing property management in Kalamazoo. Contact us online or call 616-465-2378 to find out more about our services for investors.
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