Understanding Real Estate Contracts

real estate contractsFirst time home buyers, and sellers, can become overwhelmed with all the legal aspects of buying or selling a house. The paperwork can make anyone’s head swim. However, it is extremely easy to familiarize yourself with the real estate contracts with just a little research.

The first contract you may run into (on the selling side) is the listing agreement. This is the real estate contract you will sign with the agent who is going to put your house on the market. This agreement will state the name, address, and other important information about the seller and the property. It will also list the terms of the listing. For example, this contract will detail how much the brokerage is charging for their services, what price the house will be listed at, how long the house will stay with the broker, and what is included in the sale among other things.

You will also see a lead paint disclosure form if your home was built before 1978. This form simply states when the home was built and that the seller either does or does not have documentation or information pertaining to the lead paint. If there is documentation, the seller is required to turn it over for inspection. If there is no known documentation, the buyer has a certain amount of time to have a risk assessment done to see if a hazardous condition exists.

Along with the lead paint disclosure is the seller’s disclosure (also known as the real estate condition report). This is the form which allows the seller to disclose known defects on the property. For instance, if the property is in good repair this can be stated. The seller is also responsible for releasing information on any damage which may have occurred due to flooding, hail or other problems. If there was an infestation of any kind which had to be professionally treated, the seller will put it on this form.

The buyer has an entirely different set of real estate contracts on their side of the transaction. The mortgage contract will be used to determine the loan amount for purchasing the property. It will tell how much the buyer will put up and how much the lender will contribute. There will also be an appraisal done so the property can be properly assessed. The buyer may also be presented with a Buyer Agency Agreement between them and their agent. This contract will discuss what the agent will provide to the buyer as their Buyer’s Agent.

Lastly, the purchase agreement (as known as Offer to Purchase) is a contract both the buyer and seller will be using. This is the form the buyer will use to make an offer on the property. This will also include the amount the buyer is borrowing, any closing costs they are asking the seller to pay, and the amount of earnest money put down. The purchase agreement will also include details on other items buyer would like. For instance, the window treatments or appliances may be requested in the purchase of the home.

One of the last forms both parties will see is the title disclosure or housing and urban development(HUD) statement. This is the paperwork which states that the title is free and clear from all encumbrances. It also states the seller is the property holder and is allowed to sell the home.

One final contract is the mortgage paperwork at closing. This is where the title will change hands, the money will exchange hands, and the property now belongs to the new buyer.

This, of course, is only a snippet of the paperwork and contracts included in a typical real estate transaction. There may be other documents in your specific transaction and you’ll want to be sure your agent discusses them with you.

If you have any questions, comments or concerns about the various real estate contracts please feel free to contact me, Ron Reed, at ron@livinginmiddletonwi.com or 608-395-3005. I’d be happy to discuss those with you.

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