The Ultimate Breakdown of Real Estate Agent Contracts for Buyers and Sellers
Navigating a real estate transaction is complex, and the real estate agent contract is crucial for anyone buying or selling property. This legally binding document lays out every term, protecting all parties involved while detailing each step of the process. Understanding each section of this contract brings clarity and peace of mind.
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A real estate contract, also known as the “offer,” is the agreement between a buyer and seller that outlines terms, conditions, and contingencies. If you're wondering, “Is it just about pricing?” think again! While price is significant, each contract spans pages of conditions, specifics, and contingencies designed to keep everyone on the same page—literally and figuratively.
Key Sections of a Real Estate Contract
Parties and Property Description
The contract opens with a simple yet important list of parties involved. Who’s making the offer? Are there co-buyers like family members, or is it a single entity? Afterward, property details like address, legal description, and type (single-family, duplex, etc.) are added. In Cherokee Village, AR, details on acreage or legal descriptions are also included to ensure clarity on what’s being sold.
Purchase Price and Financing
The purchase price paragraph is essential. It states the amount offered, type of loan, or if owner financing applies. Financing is often contingent on an appraisal aligning with the purchase price, meaning if an appraisal comes in lower than expected, the buyer might renegotiate or withdraw. For VA and FHA loans, specific protections ensure the buyer can’t pay above the appraised value, with earnest money safeguarded in case of discrepancies. Additionally, buyers are urged to get a home inspection for peace of mind. Appraisals benefit lenders, but inspections protect buyers by flagging repair needs before closing.
Agency Representation
A contract clarifies agency roles, listing who represents whom. Buyer representation, dual agency, and unrepresented offers are all outlined to establish clear roles, safeguarding transparency and avoiding conflicts of interest. Make sure you understand if your agent is representing you.
Closing Costs and Loan Conditions
In most cases, each party covers their share of closing costs. Buyers pay for appraisals and inspections, while sellers cover the listing commission, taxes due, and any remaining mortgage balance. With FHA or VA loans, the contract may allow sellers to assist with closing costs up to a certain percentage.
Earnest Money and Deposits
Earnest money demonstrates a buyer’s serious intent. It’s held in escrow until closing, showing commitment but not as an added seller fee. In some cases, sellers may require a non-refundable deposit, with strict contingencies around its return.
Title Requirements and Surveys
Title insurance, usually covered by the seller, secures the buyer’s ownership free from past liens. Buyers are encouraged to obtain surveys, especially on smaller lots where even an inch could affect property boundaries. While optional, a new survey ensures accuracy and peace of mind.
Prorations and Fixtures
Taxes, prorated to the sale day, keep both parties accountable. All prior year taxes will be paid or confirmed paid. Fixtures (e.g., appliances or furniture) are pre-listed in contracts, so it’s essential to specify any items included in the sale—don’t assume based on online listings! You'll want to add in other items like fridge, washer, dryer and more.
Contingencies
Common contingencies cover scenarios like pending property sales, securing cash, or obtaining necessary financing. A “No Escape Clause” binds the seller to the contract, while an “Escape Clause” allows them to accept other offers and move forward with an optional 2nd buyer. With no escape clause, only back up offers would be accepted.
Home Warranty
You can purchase a home warranty anytime, but they’re often added to an offer as a buyer request for the seller to cover. Home warranties may cover repairs or replacements, though local vendors may have limited participation in these plans. There are many companies available to choose from.
Inspection
Choose “as-is, where-is” to waive an inspection, but most buyers select “yes” for a 10-day inspection window. This period allows for vital checks, such as septic, termite, and mold inspections. You can do an inspection yourself or you can hire an inspector to do a very thorough inspection. FHA, VA, or USDA loans require appraisals that may have repair requests for health and safety standards. Paragraph 17 provides additional time for these requirements, beyond the 10-day inspection period.
Seller’s Property Disclosure
This 14-page document shares critical home information, such as past repairs and insurance claims. Investors who’ve never lived on-site may have limited knowledge, but full details from other sellers are valuable. A seller is not required to fill one out, but a buyer can request one.
Termite Control
Due to high humidity, termite contracts are advisable in Arkansas. You may request a letter of clearance, which an inspection will provide if no active termites or damages are found. Many times a contract is able to be transferred since the home has already been treated to prevent future problems.
Lead-Based Paint Disclosure
Homes built before 1978 require lead-based paint disclosures. Buyers should be aware that older properties may contain lead paint, per EPA regulations. If there is any question as to the year built, be prepared to sign an additional document making a buyer aware of potential problems.
Homeowners Insurance Verification
Buyers should confirm insurability within 10 days. Ask for a C.L.U.E. report to check past insurance claims on the property, which may affect eligibility or cost. You'll also want to verify if a home will require flood insurance or another additional coverage. Due to raising rates, this has caused some buyers not to be able to budget a house payment, so make sure to check on this early in the process.
Closing Date
A specific closing date is set in the contract. You can adjust this only by mutual agreement, and typically, possession transfers at closing. Usually this is 30 days from acceptance, but depending on the loan type could be 60 days.
Legal and Timing Provisions
Legal protections like “time is of the essence” and “risk of loss” safeguard buyers if damage occurs (e.g., fire or tornado) before closing. Real estate licensees involved in the sale must disclose their license. This is due to them having more knowledge of the real estate market, and put the other party at a disadvantage.
Wrapping Up
Understanding each contract component demystifies the process and makes negotiations smoother. The details in real estate contracts protect buyers and sellers, from earnest money clauses to contingencies for home sales. A thorough review ensures all terms are understood, with professional guidance when needed. There have been recent updates to the real estate contract and there are usually changes every year, but this does cover the important parts of an offer. Make sure you review any offers you sign thoroughly since they are legally binding agreements. For more details about who represents you, check out this video on buyer's agency. Thanks for stopping by and have Blessed day!
