The most basic rule to keep in mind in a real estate contract is that unless you are an attorney, you should not create a contract from scratch. Whether a buyer or seller, you should only fill in the blanks in existing contracts. Real estate contract rules are numerous, and their various entanglements are even much more involved. Drafting your own contract without professional assistance can leave you unprotected if something goes wrong during the sale process.
Buyer and Seller Requirements
Whether you are a buyer or a seller, disclosure is essential. If you are a buyer, get preapproved for financing so that you do not waste time looking at properties you may not qualify for. As a seller, you must provide in writing everything you know is wrong with the property. For example, if your property had a roof leak and it was fixed, it must be written in the seller’s disclosure. If you had your dishwasher fixed because of an electrical problem, write it down. If the property's septic tank had a crack, disclose that, too.
The Contract Process
When a real estate buyer makes a purchase offer in writing, it is subject to the seller’s approval. The offer should include an expiration date--a date and time by which a seller needs to respond to the offer. With a signed contract in hand, the seller can take one of several actions. The seller could do nothing, which makes the contract null and void after the expiration date. The seller also could accept or deny the offer or make a counteroffer with a new contract expiration date. In this case, the buyer can choose to do nothing, making the offer null and void; make a new counteroffer; or accept or deny the seller's counteroffer.
Wrapping Up the Details
Once both buyer and seller accept an offer, the real estate contract details several requirements, as well as a time frame for meeting those requirements. The contract will stipulate where a buyer's down payment needs to be placed and the date when it must be deposited by, depending on the state where the transaction is taking place. If the buyer or seller is using a real estate agent, the down payment can be deposited into the agent's broker escrow account and cannot be commingled or deposited into a personal or nonrelated business account.
The contract also usually outlines assessing the property's value and land boundaries, a requirement when the buyer is obtaining financing for the purchase. Even if the property purchase will be in cash, an appraisal can protect the buyer by ensuring the property's value and land limits.
Depending on the state, the contract will have a default date allowing for inspections. As a buyer, you can change the default date on the contract and write in how long you will allow for inspections before you can get out of the contract without losing your deposit.
The contract also may include provisions related to title insurance--this ensures that buyers know they are getting a clean title to the property, free of liens and other debts.
All of the above contract requirements, as well as additional deposits and the closing date of the sale, are subject to the buyer and seller agreeing. If both agree and one party does not follow through, then the one who did not follow through is subject to default.