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A written real estate purchase agreement is essential when buying a home. It benefits the buyer and the seller and acts as a legally binding agreement. With strong negotiation skills and familiarity with purchase agreements, real estate agents can help protect their client’s interests and facilitate a smooth transaction.
What Is a Real Estate Purchase Agreement?
A real estate purchase agreement is a written document outlining the terms and conditions of a property sale. A well-crafted agreement can limit future challenges and legal issues like property line disputes or valuation discrepancies.
The role of a real estate agents is to ensure that purchase agreements are tailored to their client’s needs and protect the client’s best interests. Real estate professionals should be prepared with the knowledge and skills to address the appropriate concerns in a real estate purchase agreement and maintain a commitment to ethical behavior and best practices.
Who Prepares a Real Estate Purchase Agreement?
Agents are responsible for putting together the final draft of a real estate purchase agreement for a house or other property. However, several parties are usually involved in creating the real estate contract, including the buyer, seller, real estate agents, and sometimes real estate attorneys.
There should be a dialogue between the buyer and seller or their respective representatives while constructing a purchase agreement to determine the final terms. Seeking legal assistance is also recommended. Consulting with a lawyer before scheduling the signing can ensure the agreement is legal and binding.
Elements of a Real Estate Purchase Agreement
Every real estate purchase agreement is different. They’re individually constructed to reflect the specific requirements of the sale. However, real estate contracts also have some common elements that must be included to make the agreement valid; this includes price, contingencies, earnest money, and a closing date. It’s essential for real estate agents and the buyers and sellers to review the agreements to make sure they’re outlined clearly.
Price
The sale price, the down payment, and the payment terms of the transaction should all be stated in the opening section of the real estate purchase agreement; without a price, the document is not legal. If a bank or mortgage company is involved, their information should also be included in this section.
Contingencies
A contingency in a real estate purchase agreement is a clause that states a condition of the sale. One example is an appraisal or home inspection requirement before the property sale can be finalized. Another contingency could be a deadline for the offer to be accepted. Some contingencies are points to negotiate, while others are considered standard in many real estate contracts.
Earnest Money
Earnest money is money deposited into escrow by the buyer to show good faith to the seller when the purchase agreement is signed. This deposit is often around 3% of the home’s value and may or may not be refundable. Earnest money does not guarantee the close of the sale; it takes the house off the market until contingencies have been met.
Closing Date
The closing date is set when all other real estate purchase agreement points have been confirmed and both parties are ready to move forward. Real estate agents can accompany the buyer to the closing, but they cannot sign the sale agreement for them. A third party, usually an agent or real estate attorney, can represent sellers.
Preparing to Negotiate Real Estate Contracts
It’s essential to thoroughly research the property, the market, and any counterparties who might bid against the prospective buyer. This can be done by looking up other property listings in the neighborhood and studying market trends. Knowing current mortgage rates is also helpful. Additional resources are available from the REALTORS® Confidence Index.
Understanding clients’ priorities is equally important. Know what their needs and wants are and ask detailed questions. This can help align realistic expectations in finding properties that meet their requirements. Failing to do this can result in wasted time and lost clients.
4 Effective Real Estate Negotiation Techniques
Real estate agents need to be expert negotiators. Natural ability is certainly helpful, but there’s no substitute for experience. Seasoned real estate professionals develop negotiation skills over time as they work with different types of buyers and sellers. Here are some of the basics:
- Active Listening and Clear Communication: Listening to what buyers and sellers have to say and responding directly to questions is a key tactic in real estate negotiations. Pay close attention to the words spoken, the emotions behind them, and body language.
- Maintaining a Solution-oriented Mindset: Dwelling on the problems can prolong negotiations and frustrate all parties. Focus on solutions, especially when discussions get heated.
- Handling Counteroffers, Multiple Offers, and Complex Scenarios: A real estate agent can’t afford to get frustrated or fail to respond when multiple offers are on the table. Have a strategy prepared for each of these scenarios.
- Managing Emotions: Agents should avoid becoming emotionally involved in the sale. Agents and clients must manage emotions and stay composed. Real estate professionals can facilitate this with a pre-negotiation briefing and by providing detailed explanations of discussion points.
Safeguarding Clients' Interests with a Real Estate Purchase Agreement
As a REALTOR®, a member of the National Association of REALTORS®, you adhere to the REALTOR® Code of Ethics, which ensures you serve your clients' best interests. In this way, you become an advocate for your clients, and protecting them from potential pitfalls is necessary. This requires a high level of transparency and disclosure to establish trust. Tools like contingencies and protective clauses can safeguard your clients and mitigate concerns. For example, you can set up milestones for the tasks the seller requires in a purchase agreement, like requiring a water test by a specific date if it’s required by state law.
Navigating Purchase Agreements: Contingencies and Special Situations
Other common contingencies revolve around inspection, financing, and appraisal. Have clients handle these immediately to avoid delays or complications. If they’re buying a distressed property, the purchase agreement for the house may have more detailed contingencies and “as is” clauses. Pay particular attention to deadline dates to avoid canceled contracts before the deal can close.
Closing the Deal and Ensuring Compliance
Ensure your buyer meets all the terms of the deal before closing and prepare for potential last-minute challenges. Here’s a checklist to follow for a smooth closing process:
- Preparation: Review the terms and contingencies of the purchase agreement. Communicate those points to all stakeholders.
- Due Diligence: Search for the title and obtain the required home or property insurance. Conduct the final inspection and make sure repairs have been completed.
- Funding and Approval: Confirm the buyer’s loan approval and funds availability. Address any of the buyer's concerns before the closing date.
- Document Handling: Prepare compliant documents. Facilitate signings and disbursements so the closing goes smoothly.
- Completion: Record the completed documents and transfer the title to the new owners or the mortgage holder. Provide copies to your clients and offer post-closing support.
Empowering Agents: Purchase Agreement Negotiations for Lasting Client Success
Prioritizing clients' interests throughout the real estate purchasing process is of utmost importance for real estate agents. You can hone your craft by practicing negotiations with family members or close friends, learning from your mistakes, and staying current and up to date with ongoing training that showcases your Commitment to Excellence (C2EX) as a REALTOR®.