Buying a new home, commercial property, condo, or any real estate is a hair-raising process, particularly for first-time home buyers or newly minted business owners and entrepreneurs. If you’re thinking about purchasing a home or buying property, there are several ways you can avoid getting into any legal hassles during the process and after the transaction is complete.
Understand the Purchase Agreement & Its General Terms
In real estate, a purchase agreement is the document that spells out all the terms of the purchase. Sometimes referred to as a sales agreement and purchase receipt or a residential purchase agreement, this document is a legally binding contract. While it’s possible to draft this document yourself if you have experience, ensuring its legality and that it includes everything it should is best accomplished by a lawyer or a real estate agent who has legal experience.
Here are some of the items that you should see in a purchase agreement.
- Deposit – The amount of the deposit received from the buyer and what may happen to the deposit if the parties involved decide to cancel the purchase agreement.
- Closing Date – The date when the escrow transaction will occur and what may happen if the closing is canceled or delayed.
- Default Provisions – What will occur if one or both parties to the transaction fails to hold up his or her side of the deal.
- Inspections – Who must pay for the inspections for termites and other potential issues that could impact the mortgage approval and sale.
- Proration – The division of costs associated with taxes and other bills that will transfer from the owner to the buyer.
- Occupancy Date – The date when the new owner can move into the property or begin using it, as well as when the previous owner will fully vacate the property.
- Financing Information – Time limits on funding the purchase and how long the buyer has to apply for a loan and gain approval.
If you decide to put your purchase agreement together on your own, you should still have the contract examined by a lawyer. Some purchase agreements actually include verbiage regarding the amount of time each party has to bring the completed document to a lawyer for examination of its contents.
What Happens if You Back Out of a Real Estate Transaction?
The purchase agreement that guides the buying process will usually spell out just about everything that must occur before the transaction is final, as well as any penalties each party may endure if the deal falls through or someone backs out of the purchase.
The Balance explains:
“This is a serious consideration and may result in the loss of your deposit, or worse, being sued for specific performance, or completion of the contract. If you feel you have to get out, the best time is while the contingencies are being met. Contingencies are escape hatches and can legitimately be used, but not really for the purposes of if the buyer gets cold feet. There is no contingency for cold feet.”
In most cases when a real estate deal falls through, it’s because of financing. Although a buyer can’t simply back out of a purchase because he or she changes his mind, there are remedies in case the buyer fails to secure financing within the specified number of days allotted in the purchase agreement. The most delicate time in the sale of property is often the financing process where the buyer must gain final approval for a mortgage.
What Legal Problems May Occur During a Real Estate Sale
Beyond the problems a buyer might experience in gaining approval for a mortgage loan, there are several rather serious issues that may occur during or after the process that may result in an invalidation of the sale or a lengthy legal battle with the city, the seller, or a previous owner.
Here are some of those potential real estate legal problems:
- The seller doesn’t have the legal authorization to sell the property.
- A zoning issue prevents the buyer from using the property as he or she intended.
- Someone fails to sign the contract before or on the closing date.
- A verbal agreement isn’t included in the purchasing agreement and leads to a legal challenge.
- The purchase agreement contains language inconsistent with the law.
- One or both parties fail to make timely payments or adhere to the agreement’s provisions.
Because all real estate transactions risk having one or more of these issues occur during the purchasing process, it’s important for buyers and sellers to consult with individuals who are experienced in the nuances of real estate law.
Are You Thinking About Buying or Selling a Home?
If you are thinking about buying or selling a home or commercial property, you may wish to contact Suburban Legal Group for legal advice. If your home ownership has led to financial problems, you may also find it beneficial to download our free guide: 12 Things You Should Know Before Filing for Bankruptcy. While bankruptcy isn’t the answer to every financial problem, it may help you decide your financial future. If you have questions about legal issues surrounding a real estate transaction, contact us for a free consultation.
DISCLAIMER: All information on this website are provided for informational purposes only and are not intended to be construed as legal advice. Suburban Legal Group PC shall not be liable for any errors or inaccuracies contained herein, or any actions taken in reliance thereon.