Chanikya Real Estate: July 2008

Residential examples

Residential examples

[edit] United States and Canada

The sale of a house in the United States or Canada might involve some or all of the following steps:

* Hiring of a real estate broker to represent the seller and handle the logistics of the advertising and sale, except for "for sale by owner" properties where the owner(s) may consult legal counsel or obtain copies of a real estate contract.
* A buyer may enter the picture in a variety of ways: from seeing advertisements in the media, seeing signs outside a property, or contacting a real estate agent to see a property.
* A buyer may engage the services of a real estate broker to represent her/him and handle the logistics of finding suitable properties, enabling him/her to become qualified to buy, and the showing of appropriate properties.
* Advertisement of the price and property details with a Multiple Listing Service, newspaper or web classified listing, lawn sign, or poster in the real estate office.
* Private showings or general open house for interested buyers or buyers' real estate agents.
* Interested buyers may get pre-approval for a mortgage of a certain amount from a bank, if they cannot afford the full purchase price in the range they are exploring.
* Preparation of a written offer to purchase. If prepared by a real estate agent on behalf of the buyer, it is generally done on pre-printed and legally-approved forms provided by the real estate broker's office. An agent representing the buyer will advise his/her client as to the value of including specific contingency clauses such as time to obtain a mortgage commitment or to arrange for inspections. The buyer includes an earnest money payment check which accompanies the offer and which is generally not deposited until all parties are in agreement.
* Submission of offers by interested buyers. Multiple offers may result in bidding, with best offer (not necessarily the highest bid) being awarded the sale. A single offer may often be below the initial asking price, resulting in negotiation between the buyer and seller over the final price, or possibly the rejection of the offer by the seller.
* After acceptance of a particular offer, a real estate contract is ratified by all parties. It usually creates a short interim period (typically no more than 30 days, often much less) to allow the buyer to thoroughly inspect the property (often with the assistance of a professional home inspector).
* Depending upon the jurisdiction and traditional practice, a title search is then ordered from a third party settlement or escrow company, pending final settlement.
* An Appraisal, commissioned, as per custom, by the buyer or seller to determine the value of the building and land in order to satisfy the lender.
* Depending upon how the contingency paragraphs are worded, if any defects are discovered during the inspection, the buyer may ask that they be repaired, ask that the sale price be lowered, or choose not to purchase the property.
* The closing of the sale ends the escrow period and completes the transfer of ownership to the buyer. At this time, and all monies change hands and a number of closing costs are paid by the buyer or seller.
* If as real estate broker is used in the transaction, closing is the time that payment is made to the brokers involved.

Real estate transaction

A Real estate transaction is the process whereby a property (or designated real estate) is transferred between two or more parties, one being the seller(s) and the other being the buyer(s). It can often be quite complicated due to the size and complexity of the property being transferred, the large amounts of money being exchanged, and complex government regulations. Conventions and requirements also vary considerably among different countries of the world and among the various smaller legal entities with their specific requirements.

Financial qualifications of buyer(s)

The better the financial qualification of the buyer(s) is, the more likely the closing will be successfully completed, which is typically the goal of the seller. Any documentation demonstrating financial qualifications of the buyer(s), such as mortgage loan pre-approval or pre-qualification, may accompany a real estate offer to buy along with an earnest money check. When there are competing offers or when a lower offer is presented, the seller may be more likely to accept an offer from a buyer demonstrating evidence of being well qualified than from a buyer without such evidence.

Earnest money deposit

Although, it is not absolutely required for a valid real estate offer or a contract, an earnest money deposit from the buyer(s) customarily accompanies an offer to buy real estate. The amount, a small fraction of the total price, is listed in the contract, with the remainder of the cost to be paid at the closing.

Riders

Riders (or addenda) are special attachments (separate sheets) that become part of the contract in certain situations.

Condition of property

A real estate contract may specify in what condition of the property should be when conveying the title or transferring possession. For example, the contract may say that the property is sold as is, especially if demolition is intended. Alternatively there may be a representation or a warranty (guarantee) regarding the condition of the house, building, or some part of it such as affixed appliances, HVAC system, etc. Sometimes a separate disclosure form specified by a government entity is also used. The contract could also specify any personal property (non-real property) items which are to be included with the deal, such as washer and dryer which are normally detachable from the house. Utility meters, electrical wiring systems, fuse or circuit breaker boxes, plumbing, furnaces, water heaters, sinks, toilets, bathtubs, and most central air conditioning systems are normally considered to be attached to a house or building and would normally be included with the real property by default.

Date of closing and possession

Date of closing and possession

A typical real estate contract specifies a date by which the closing must occur. The closing is the event in which the money (or other consideration) for the real estate is paid for and title (ownership) of the real estate is conveyed from the seller(s) to the buyer(s). The conveyance is done by the seller(s) signing a deed for buyer(s) or their attorneys or other agents to record the transfer of ownership. Often other paperwork is necessary at the closing.

The date of the closing is normally also the date when possession of the real estate is transferred from the seller(s) to the buyer(s). However, the real estate contract can specify a different date when possession changes hands. Transfer of possession of a house, condominium, or building is usually accomplished by handing over the key(s) to it. The contract may have provisions in case the seller(s) hold over possession beyond the agreed date.

The contract can also specify which party pays for what closing costs. If the contract does not specify, then there are certain customary defaults depending on law, common law (judicial precedents), location, and other orders or agreements, regarding who pays for which closing costs.

Contingencies

Contingencies are conditions which must be met if a contract is to be performed.

Contingencies that suspend the contract until certain events occur are known as "suspensive conditions". Contingencies that cancel the contract if certain event occur are known as "resolutive conditions".

Most contracts of sale contain contingencies of some kind or another, because few people can afford to enter into a real estate purchase without them. But it is possible for a real estate contract not to have any contingencies.

Some types of contingencies which can appear in a real estate contract include:

* Mortgage contingency - Performance of the contract (purchase of the real estate) is contingent upon or subject to the buyer getting a mortgage loan for the purchase. Usually such a contingency calls for a buyer to apply for a loan within a certain period of time after the contract is signed. Since most people who buy a house get a mortgage loan to finance their purchase, mortgage contingencies are one of the most common type of contingencies in real property contracts.
* Inspection contingency - Purchase of the real estate is contingent upon a satisfactory inspection of the real property revealing no significant defects. Contingencies could also be made on the satisfactory repair of a certain item associated with the real estate.
* another sale contingency - Purchase or sale of the real estate is contingent on a successful sale or purchase of another piece of real estate. The successful sale of another house may be needed to finance the purchase of a new one.
* appraisal contingency - Purchase of the real estate is contingent upon the contract price being at or below a fair market value determined by an appraisal. Lenders will often not lend more than a certain percentage (fraction) of the appraised value, so such a contingency may be useful for a buyer.
* 72-hour kick out contingency - Seller contingency, in which the seller accepts a contract from a buyer with a contingency (typically a home sale or rent contingency where the buyer conditions the sale on their ability to find a buyer or renter for their current property prior to settlement). The seller retains the right to sell the property to another party if he so chooses after giving the buyer 72 hours notice to remove their contingency. The buyer will then either remove their contingency and provide proof that they can consummate the sale or will release the seller from their contract and allow the seller to move forward with the new contract.

Deed specified

Deed specified

A real estate contract typically does not convey or transfer ownership of real estate by itself. A different document called a deed is used to convey real estate. In a real estate contract, the type of deed to be used to convey the real estate may be specified, such as a warranty deed or a quitclaim deed. If a deed type is not specifically mentioned, "marketable title" may be specified, implying a warranty deed should be provided. Lenders will insist on a warranty deed. Any liens or other encumbrances on the title to the real estate should be mentioned up front in the real estate contract, so the presence of these deficiencies would not be a reason for voiding the contract at or before the closing. If the liens are not cleared before by the time of the closing, then the deed should specifically have an exception(s) listed for the lien(s) not cleared.

The buyer(s) signing the real estate contract are liable (legally responsible) for providing the promised consideration for the real estate, which is typically money in the amount of the purchase price. However, the details about the type of ownership may not be specified in the contract. Sometimes, signing buyer(s) may direct a lawyer preparing the deed separately what type of ownership to list on the deed and may decide to add a joint owner(s), such as a spouse, to the deed. For example, types of joint ownership (title) may include tenancy in common, joint tenancy with right of survivorship, or joint tenancy by the entireties. Another possibility is ownership in trust instead of direct ownership.

Offer and acceptance

Offer and acceptance

As may be the case with other contracts, real estate contracts may be formed by one party making an offer and another party accepting the offer. To be enforceable, the offers and acceptances are normally in writing and signed by the parties agreeing to the contract. Often, the party making the offer prepares a written real estate contract, signs it, and transmits it to the other party who would accept the offer by signing the contract. As with all other types of legal offers, the other party may accept the offer, reject it - in which case the offer is terminated, make a counteroffer - in which case the original offer is terminated, or not respond to the offer - in which case the offer terminates by the expiration date in it. Before the offer (or counteroffer) is accepted, the offering (or countering) party can withdraw it. A counteroffer may be countered with yet another offer, and a counteroffering process may go on indefinitely between the parties.

To be enforceable, a real estate contract must possess original signatures by the parties and any alterations to the contract must be initialed by all the parties involved. If the original offer is marked up and initialed by the party receiving it, then signed, this is not an offer and acceptance but a counter-offer.

Details explained on the contract

In many countries, real estate contracts must be in writing to be enforceable. In the United States the Statute of Frauds require real estate contracts to be in writing to be enforceable. In South Africa, the Alienation of Land Act specifies that any agreement of sale of immovable property must be in writing.

Additionally, a real estate contract must:

* Identify the parties: The full name of the parties must be on the contract. In a sales contract, the parties are the seller(s) and buyer(s) of the real estate, who are often called the principals to distinguish them from real estate agents, who are effectively their intermediaries and representatives in negotiation of the price. If there are any real estate agents brokering the sale, they are typically listed also as the real estate brokers/agents who would earn the commission from the sale.
* Identify the real estate (property): At least the address, but preferably the legal description must be on the contract.
* Identify the purchase price: The amount of the sales price or a reasonably ascertainable figure (an appraisal to be completed at a future date) must be on the contract.
* Include signatures: A real estate contract must be entered into voluntarily (not by force), and must be signed by the parties, to be enforceable.
* Have a legal purpose: The contract is void if it calls for illegal action.
* Involve Competent parties: Mentally impaired, drugged persons, etc. cannot enter into a contract. Contracts in which at least one of the parties is a minor are voidable by the minor.
* Reflect a meeting of the minds: Each side must be clear and agree as to the essential details, rights, and obligations of the contract.
* Include Consideration: Consideration is something of value bargained for in exchange of the real estate. Money is the most common form of consideration, but other consideration of value, such as other property in exchange, or a promise to perform (i.e. a promise to pay) is also satisfactory.

Notarization by a notary public is normally not required for a real estate contract, but many recording offices require that a seller's or conveyor's signature on a deed be notarized to record the deed. The real estate contract is typically not recorded with the government, although statements or declarations of the price paid are commonly required to be submitted to the recorder's office.

Sometimes real estate contracts will provide for a lawyer review period of several days after the signing by the parties to check the provisions of the contract and counterpropose any that are unsuitable.

If there are any real estate brokers/agents brokering the sale, the buyer's agent will often fill in the blanks on a standard contract form for the buyer(s) and seller(s) to sign. The broker commonly gets such contract forms from a real estate association he/she belongs to. When both buyer and seller have agreed to the contract by signing it, the broker provides copies of the signed contract to the buyer and seller.

Real estate contract

A real estate contract is a contract for the purchase/sale, exchange, or other conveyance of real estate between parties. Real estate called leasehold estate is actually a rental of real property such as an apartment, and leases (rental contracts) cover such rentals since they typically do not result in recordable deeds. Freehold ("More permanent") conveyances of real estate are covered by real estate contracts, including conveying fee simple title, life estates, remainder estates, and freehold easements. Real estate contracts are typically bilateral contracts (i. e., agreed to by two parties) and should have the legal requirements specified by contract law in general and should also be in writing to be enforceable.

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