Understanding Real Estate Purchase Contract.
After viewing different properties and finding one you like, the next step is to make an offer to buy. To make an offer, a real estate agent will prepare a standard agreement. In Florida, most residential real estate transactions are governed by the “As Is” Residential Contract for Sale and Purchase, a form that has been approved by both the Florida Bar and the Florida Realtors association. This contract is typically referred to as the “FARBAR” contract by both attorneys and realtors. A Contract for Sale and Purchase is a legal agreement that creates rights and duties for the buyer and the seller.
Because a realtor is not a lawyer and cannot advise you on the terms of the Sale and Purchase agreement, it is important to consult with a lawyer who will explain to you the terms and conditions early on in the process, before you sign the offer-contract and commit to its terms. If a buyer is not satisfied with the terms in the agreement, he or she may ask the lawyer to make amendments or negotiate with the seller. A proper closing requires that the buyer and seller reach a mutual agreement. A Sale and Purchase agreement has to be in writing. The agreement will contain legal elements to make it enforceable. The elements include the following important provisions:
· Parties.The agreement should contain the names of the seller and the buyer. The Buyer should consider early on in the process how to properly title the property, either in a personal name or, for example, for estate and tax planning reasons, under an entity or a trust. Personal liability shields should be considered, especially when purchasing an investment/rental property.
· Property Description and Personal property. The agreement should contain a proper description of the property, including an address and a legal description as shown in the public records. Personal property such as dish washers, driers, refrigerators and other items that will remain in the property should be included in the Purchase Agreement.
· Purchase Price, Deposit terms and Escrow Agent. An escrow agent will be responsible for collecting a deposit and other moneys for the closing. Depending in which county your property is located, the buyer or seller will choose an escrow agent. For example, in Miami-Dade and Broward counties, customarily the buyer chooses a real estate attorney or a title company to act as the escrow and settlement agent for the transaction.
· Closing Date. The closing date is the date of settlement of the transaction when the buyer can take possession of the property.
Other key terms of the agreement include the following:
· Contingency clauses. Some of the important contingency clauses are inspection and financing contingencies. The inspection clause allows the buyer to perform property inspections within a limited time period. The financing clause addresses proper actions in case a buyer is unable to timely obtain financing.
· Closing Costs and Title Insurance.A standard Sale and Purchase agreement states which party pays the closing costs in a purchase transaction. The most negotiated fee is the Owner’s Title Insurance policy, which protects the buyer in case there is a lien or a claim on the property after closing. This fee is customarily paid by the buyer in Miami-Dade and Broward counties, and for most of the rest of Florida it is paid by the seller.
· Required Disclosures. Under the Sale and Purchase agreement, the Seller must provide certain disclosures to the buyer. Some of these disclosures are clear, such as the existence of a homeowners’ association, or whether or not the property was built before 1978, but the seller must also meet a more subjective standard that requires disclosure of any “facts materially affecting the value of the property which are not readily observable and which have not been disclosed to buyer.” It is important to ensure proper disclosures are being made, to avoid potential conflicts and litigation that might occur after the closing of the sale of the home, once a potential defect is discovered by the buyer.
· Additional Terms. It is important to remember that all terms of the contract are negotiable. The buyer or seller can stipulate any other provisions or costs to be paid by the other party.
To ensure that a contract is valid, both the buyer and the seller should agree and sign all paperwork. The closing process may become complex and also confusing at times. Consulting with your lawyer before signing the purchase agreement is key to having a successful closing of your house.