Whatever role you have in a real estate transaction, you need to understand the agreement. Here is your guide.
- Real estate contracts outline all terms of the transaction, including financing, price, contingencies, and closing information
- 5 important terms to watch for:
- Earnest money
- As-is addendum
- Closing date
Buying or selling a property already brings an onslaught of details and obligations, from working with an agent to financing to paperwork to negotiating. When the final contract comes along, it's hard to know what you should be looking for and what's reasonable, no matter what end of the sale you're on.
Real estate contracts in Florida don't have to cause you stress. Here's your guide to these agreements and why working with an attorney is always a good idea.
What is a real estate contract?
Real estate contracts, also known as purchase and sale agreements, outline all the terms of the deal. Key among these are the home purchase price, the address and description of the home, closing costs, date of closing, the inspection process, earnest money, title company, and information about the buyer, seller, and agents. The contract will also include details about how the home is being financed and by which institution.
As with any type of agreement, a real estate contract reflects the entire arrangement between the parties. It is common for one or both parties to suggest changes or include comments for the other to address before signing.
This is when it's helpful to work with an attorney to watch for anything strange, risky, or unfair, and to have them represent your interests in negotiations. While Florida law does not require that you hire a real estate lawyer, they will know all the ins and outs of Florida purchase and sale agreements, so you don't have to worry about missing anything.
The 5 most important real estate contract terms
Even while it's wise to have a real estate attorney closely review agreement details, you should still be aware of a few conditions in your contract and what they mean. Here are five terms to watch for in your real estate contract:
1. Earnest money
Earnest money is a deposit the buyer makes upon offer acceptance and is held in an escrow account until closing. This amount will vary based on location and market, but it is usually a small percentage below 10% of the total purchase price, often between 1% and 5%.
After certain deadlines, if the buyer decides to back out of the purchase, the seller will be able to keep the earnest money. If everything goes through as planned, the earnest money is put toward the purchase.
Purchase and sale agreements will include contingencies, which are terms that must be met for the sale to go through. There are a few common contingencies to watch for:
- Inspection: The buyer should always be able to back out of the deal after a home inspection, should it reveal any serious underlying issues.
- Appraisal: For the mortgage approval to go through, the funding institution will conduct an appraisal that determines the fair market value of the home. The appraisal contingency states that the buyer can back out of the purchase if the appraisal deems the home worth less than the buyer's offer.
- Financing/mortgage: The buyer must get mortgage approval before completing the purchase, so the financing contingency states that they can back out if they don't get approved.
- Title: Home title review could reveal problems about ownership. This contingency protects the buyer from having to move forward should a title issue be discovered.
- Home sale: If the buyer currently owns another home, sometimes they will want to include a home sale contingency that states that they can back out if they can't sell their current property.
3. As-is addendum
Some home purchases are made “as is” by the seller. This doesn't mean that the buyer won't be able to back out of a deal should something go wrong with the inspection; it simply means that if that's the case, the seller isn't going to make any repairs or offer anything to help cover the costs of repairs. You will see an as-is addendum in these contracts stating this arrangement.
If you're the buyer, carefully consider whether you're fine with the seller not providing any compensation should an issue arise. But remember that you will still have the inspection contingency if you find an expensive problem.
4. Closing date
You may think that the closing date on the home doesn't really matter, but pay close attention to the time frame in the contract. Most common are 30, 45, or 60 days from the offer acceptance. Make sure you can both be prepared to close on that date and that you can be physically present for closing if you're the buyer. There are lots of things that need to happen before closing, like the inspection, appraisal, and mortgage approval, so make sure to give it plenty of time.
Anything in the home that will be left behind by the seller, including all fixtures and appliances, needs to be clearly outlined in the contract. If you're the buyer and you expect a light fixture to stay in the property, don't assume it will happen just because it was there when you viewed the property. This can be especially important if the seller plans to take kitchen appliances with them. The final arrangement needs to be stated in the agreement.
Work with an attorney for real estate contract review
These terms to watch for will get you started in understanding real estate contracts, but working with an attorney will ensure that you're fully protected and your desired outcomes are being fulfilled by the agreement. Otherwise, you may be faced with expensive fees or headaches down the road.
The team at PeytonBolin is here to help you through the purchasing process. We understand all laws and regulations specific to Florida property agreements and will make sure your best interests are represented in any and all contracts.
Contact us today to get started with one of our board-certified real estate attorneys.