Contracts – For Sale of Real Estate
As the seller of home and property, there will be two sets of paperwork. 1st you will have listing documents that you sign with your agreement with the Realtor and Broker, Disclosure Statements, etc.
We are going to visit briefly about the Purchase and Sale agreement. There are basically three stages to the conventional transfer of real estate ownership.
First: The negotiating period is just that. Buyers and Sellers offer and counter-offer to agree to the property transfer terms that will appear in the contract. The buyer offers to buy an identified property and the seller agrees to sell under the terms and conditions they have negotiated and mutually agreed to. This becomes what is called a Signed Around Contract or reaching Mutual Agreement. Both parties have signed. There is mutual acceptance to the terms of the offer.
Second: When we have reached mutual agreement, the offer becomes a legal and binding contract and the transaction enters what is recognized as the pre-closing stage. Both parties now begin to work through the promises made in the Purchase and Sale Agreement.
Third: This is the Closing of the transaction, when the seller deeds title to the buyer, the buyer pays the purchase price, and all necessary documents are completed. At this stage of the transaction, the sale contract has served its purpose and terminates.
There are several steps in this process from start to finish but one I want to focus on because people are so afraid often to even make an offer. They become paralyzed and fear that they are making a bad decision. There are many safeguards that are built in to the contract when buying and selling real estate.
Default: Also part of the contract.
Since a purchase and sale contract is bilateral meaning that both parties have promised to perform, either party may default by failing to perform. Do be careful however because a party’s failure to meet a contingency does not constitute default. It does entitle parties to cancel the contract. There is Buyer default and Seller default.
If the buyer fails to perform according to the contract, the breech entitles the seller to legal recourse for damages and in most cases, the contract itself stipulates the seller’s remedies. The normal remedy is forfeit of the earnest money as liquidated damages, provided that the deposit is not grossly in excess of the seller’s actual damages.
If a seller defaults the buyer can or may sue for specific performance, damages and /or cancellation. Seller’s default remedies can vary by area.
Bottom Line: Real estate is an economic product and as such it is subject to laws and influences, much like all the other agreements/contracts in our economic system. Real Estate professionals do not have to be economists…thank God and in fact, it is better that they leave that part to the experts. We do need to have a basic understanding of how our Real Estate legal system works, and more specifically how it affects our clients and how real estate is working in our local economy. All of this affects the purchase and sale attitude of our property owner selling their home. Having this knowledge can ease the pressure for our Sellers. We need to know enough to lead our clients through the entire Purchase and Sale transaction all the way to closing and help them stay in the game, stay on target so there is no default on either side.