Purchasing Real Estate:  General Contract Considerations

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Purchasing Real Estate:  General Contract Considerations

By:     Jonathan Sriro, Esq.
           LegalInformationNOW.com Staff

     I frequently receive telephone calls from clients interested in purchasing real estate.  The typical situation that I am presented with is that a client has seen a parcel of property or a home that he/she wants to buy and he/she wants to immediately submit an offer to purchase it.  The most common questions posed to me by clients are as follows:

Usually the client is excited about the prospect of purchasing the property, but worried that if they delay, they may lose the property to another buyer.

     My recommendation to clients is typically the same.  The first thing that should be done is that a purchase agreement should be prepared.  Depending on the nature of the sale, the purchaser should begin discussions with the seller regarding the terms and conditions of the sale, and then the contract should be prepared.  Otherwise, a purchase agreement offering to purchase the property based upon the terms and conditions that the buyer desires should be prepared and presented to the seller as an offer to purchase. I do not recommend depositing money for the purchase of the real estate until after a written contract is prepared, and until after the contract is accepted and signed by the seller.

In most jurisdictions, simply depositing money with a seller before a contract is accepted and signed will not always prevent the seller from selling the property to another buyer.  In order for a real estate contract to be valid and binding, it must be in writing.  Further, the contract must be signed and contain, at a minimum, the following terms:

A real estate contract that contains anything less than these minimum terms is generally not binding on the seller in most jurisdictions.  Therefore, I advise my clients that in order to bind the seller to an agreement to sell property to them, they should have the seller sign a written contract, containing the minimum contractual requirements discussed above, and then deposit a nominal amount of money with the seller.

     After I give my clients this advice, they invariably say, “That’s it?  I will type up a quick contract, have the seller sign it and give him my deposit.”  Although my clients are correct, that would create a binding contract, it would not necessarily include all the contingencies or provisions that they may deem important.  For instance, one may want the purchase of the property to be contingent upon the sale of another property, or the purchase of the property to be contingent upon satisfactory results from an environmental assessment, or the sale of the property to be contingent upon satisfactory results from an inspection of the house or building on the property, or the sale of the property to be contingent upon zoning approval or financing.  After the contract is signed, there is no guarantee that the seller will agree to add additional terms and conditions to the purchase.  Therefore, if there are contingencies that you require, you should include all of these terms in your initial contract. 

     On one occasion, I represented a seller in the sale of her farm to a residential development corporation.  The real estate transaction was contingent upon approval by the township of the buyer’s plans to develop the farm land into a subdivision.  The zoning board for the township approved the development and authorized the re-zoning of the property from agricultural to residential, but some of the townspeople did not want the development of the subdivision in their semi-rural community.  The township was petitioned to hold a referendum and place the issue on the ballot for the townspeople to vote upon.  A referendum was subsequently held and the township’s approval of the development was overturned.  If the buyer had signed a simple contract for the purchase of the property, which contained only the terms related to price, property description and time of closing, the buyer would have been contractually obligated to close on the property, despite not being able to use the property for its intended purpose.  Further, if a skeleton contract with the bare minimum terms had been signed, my client, the seller, would not have been obligated to terminate the contract and release the buyer from its obligation to close on the property.  My client would have been able to force the buyer to buy the property, or would have had a great lawsuit for breach of contract. 

     On another occasion, I represented a buyer in a real estate transaction involving the purchase of a home.  In the purchase agreement, we included a contingency that provided that the buyer had the right to inspect the home and that if the inspection results were not satisfactory, he could terminate the agreement and have his deposit returned to him.  After the contract was signed, my client had the home professionally inspected and found that the roof needed to be replaced.  As a result, he was able to terminate the contract and recover his deposit.  In the end, my client negotiated a new contract with the seller and purchased the property at a much lower price.

     Real estate is unique; there are no two properties that are exactly alike.  As a result, time is usually of the essence in real estate transactions.  Therefore, I typically recommend to clients that if they know that they are in the market to purchase property, that they begin working with me, or that they begin researching the issues related to the purchase of real estate, before beginning their search.  The following are some of the things that I ask my clients to consider:

     It is always a good idea to consult with a professional in the area of real estate law before entering into a real estate agreement.  There are a wide variety of issues that should be considered, which are dependent upon the type of real estate being purchased and how the real estate will be used.  The considerations identified in this article are only illustrative, and are by no means meant to be an exhaustive list of terms and conditions one should consider.        

(Article: 03RE00001)