For McKinney rental property investors, buying property is a major step in expanding your portfolio. For confident buying, it’s important to deeply understand the real estate purchase contract. A real estate purchase contract is a standard document outlining the terms and conditions of the sale between the buyer and seller. This blog post will explain the most important parts of a real estate purchase contract that every investor must know!
Earnest Money Deposit
Typically, the earnest money deposit is between 1% and 3% or 4% of the purchase price. This amount is put in escrow with your offer to show the seller you are serious about purchasing the property. At closing, the earnest money deposit will go toward the purchase price.
Offer to Purchase
The Offer to Purchase section opens with a thorough description of the property. Examine this description closely to verify it contains the correct property details you are bidding for.
There will likely be a list of items that are included in and excluded from the sale. It’s essential to closely review these lists, as the seller can exclude almost anything from the sale.
Purchase Price
In the real estate purchase contract, the purchase price section is one of the most vital sections. This section details the amount you agree to pay to secure ownership of the property.
It’s also crucial to note any extra fees or costs related to the sale, such as the seller covering closing costs. Moreover, this section will describe how you plan to pay for the property, whether through financing or with cash, and the cash amount expected at settlement.
Seller Disclosures
This section, seller disclosures, includes any known physical or legal problems with the property. This includes outstanding lawsuits, environmental issues, or the need 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.
Typically, these contingencies are automatically waived if the buyer does not 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 permits you to cancel the contract without repercussions if you discover something missed in the initial inspection.
Assessments and Financial Obligations
This section specifies any current or upcoming assessments and their financial responsibilities. If a significant project is proposed in the area where the property is located, this section will describe the project and any related 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. It’s vital to thoroughly review this information to comprehend any financial obligations you may incur from the purchase.
Closing and Settlement
This section of the real estate purchase contract specifies the time and place of the sale settlement. It generally specifies an expected date for the property transfer. While buyers often assume possession happens at closing, this isn’t always the case. For this reason, it’s vital to closely review the closing section of your contract to avoid unforeseen timing problems.
Offer and Time for Acceptance
One of the final parts of a real estate contract will usually detail important dates to watch closely, including the offer’s expiration and contract deadlines. The real estate purchase contract is valid only if the seller accepts your offer. The offer and time for acceptance section indicates how long you have to make your offer, the seller’s period for acceptance, and when the buyer’s responsibility for providing a deposit starts. This section may also detail when the contingencies begin and the timeframe to meet these conditions.
Acceptance/Counteroffer/Rejection
Once you’ve reviewed the real estate purchase contract and are prepared to submit your offer, you must sign at the bottom to indicate acceptance or rejection. Should the seller accept your offer, the purchase agreement becomes legally binding, requiring you to proceed with the transaction per the contract terms.
However, if the seller makes a counteroffer in response to your initial offer, this paragraph will be part of 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.
An expert in the rental market can be very useful for guiding you through the more complex aspects of buying an investment property. Real Property Management Icon can guide you through every step, from the initial purchase to ongoing property management in McKinney. Contact us online or by calling 469-895-9788 to learn more about what we offer investors.
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