. . . Real Estate Law Lecture Notes: Contracts . . . . ..
. . . . .
What Goes
Into a Real Estate Contract:
- Parties:
Identify husbands and wives separately by name. If a party is a business organization,
identify the type, as, "an Oregon corporation."
- Agreement
to buy and sell: without stating the agreement for purchase and sale, the
agreement is not effective, without regard to all the other language in the
contract. The purchase and sale are each consideration which is required.
- Price:
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Amount:
Either the exact dollar amount, or a means of calculating the exact amount.
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Cash
or Kind: Payment may be made part in cash, and part in valuable property,
but any property transferred must have an agreed value with respect to the
property purchase price.
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Method
of payment: Cash, certified check, execution of documents and notes, etc.
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Seller
Finance: The seller may be taking a note and mortgage from the buyer. If
so, the contract should so specify the finance terms, and make transfer
of the property on consideration of execution of all necessary documents
to evidence the seller's right to payment.
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Assumption
of Obligation: If the buyer is assuming seller's pre-existing obligations,
as for example, the mortgage the seller has, the contract needs to so state.
Watch that any assumption is, in fact, assumable, or is conditioned on the
creditor's consent.
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Exchange:
If real estate is being traded for real estate, even if some cash "boot"
is needed to make the trade even, the transaction needs to be well documented
in the contract, as there are possible beneficial tax consequences within
the contemplation of both parties.
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Earnest
money: How much. Who will hold the money. Who will get the earnest money
if the contract falls through, and for what reasons.
Property:
The better practice is to put a legal description of the property in the contract,
but some states will permit any certain description.
Quality
of Title: General warranty deed, quitclaim deed, etc.
Possession:
If the seller cannot leave the premises for a time until after the closing,
mention needs to made of the fact. Ordinarily, possession is delivered at time
of closing, but it could be earlier, or later, depending on the negotiation
between the parties. It isn't unusual for a seller to have to stay in possession
for a few days after the closing, in order to take possession of the seller's
new home.
Closing:
The closing is the date on which the parties agree all performance of the contract
must be complete. The general rule is that the contract date for closing is
not strictly enforceable. If closing takes place reasonably around the closing
date mentioned in the contract, the law will support that. If the date for closing
needs to be firm, the contract should include the expression, "time is
of the essence," after the date set for closing. It isn't always a good
idea to include "essence" language, as closing can depend on many
variables and not all of them are in the control of the parties.
Proration,
Costs, Adjustments: Usually insurance, operation expenses, rents, security
deposits, and taxes on the property are prorated between the parties effective
the actual date of closing.
Condition
of Property and Risk of Loss: The contract should call for the delivery
of the property in substantially the same condition as when the buyer viewed
the property, normal wear and tear excepted. The contract should specify which
party bears the risk of loss to the property between execution of the contract
and closing, and provide for insurance during that period, to support the risk
of loss.
Brokers:
If a broker is involved, the contract should specify who is obligated to pay
the broker. (If a broker is involved, they usually make sure this gets done.)
