What is a Purchase Agreement in Real Estate?
The real estate purchase agreement (known in some states as a buy/sell agreement) is a significant part of any successful real estate transaction. The real estate purchase agreement is the document which functions as a legally binding contract between a buyer and a seller.
A real estate purchase contract typically includes:
Most real estate purchase agreements will include a legal description for the property, which is quite precise about the land being purchased. It will also include information about built-in amenities on the property such as air conditioning , heating systems, and other major appliances. An addendum might be required for certain property types, such as commercial properties, and to include options for certain types of financing if applicable.
It’s important to review your real estate purchase contract very carefully. Unless otherwise stated, the agreement is set to expire after a specific period of time, and it has to be signed by both parties to make it legally binding to each of them.
Key Provisions in Arizona Real Estate Purchase Agreements
In Arizona real estate purchase agreements, the purchaser is typically an individual or a limited liability company and the seller is a publicly traded company intended to be somewhat impersonal. As in most states, the buyer and seller must include their respective names and other identifying information such as physical addresses, mailing addresses, and telephone numbers. Whether the owners are individuals or entities, the buyer must identify the purchaser and the seller must identify the seller, except that in the case of publicly traded buyer, an identification paragraph is not necessary. The Arizona purchase agreement should also describe the property type being conveyed. Are they selling farmland, retail space, office space, warehousing or industrial space? The Arizona real estate purchase agreement requires a legal description if the property is titled in a corporation, a partnership, a limited liability company, or any other type of business entity. If the purchase is a leasehold interest, the site address, parcel or tax identification number may be sufficient. The Arizona real estate purchase agreement should identify the timing for closing. It is common to identify the date the parties hold the obligations until the closing date. There is also a customary timeline in Arizona for the completion of certain due diligence items by the purchaser and the completion of certain remedies that are granted to the seller under the purchase agreement. There are other contingencies that are permitted under an Arizona real estate purchase agreement. The standard is a three day due diligence period to allow the purchaser to complete its own due diligence. The benefit to the seller is the sales period is normally 30 to 120 days that allows the delays to be addressed. The down side to the seller is the deposit to be received is typically a lower percentage of the purchase price.
Commonly Used Contingencies and Clauses
Common contingencies and clauses in Arizona real estate purchase agreements include inspection clauses, financing contingencies, and appraisal requirements to name a few. These contingencies are designed to protect both buyers and sellers during the transaction process.
Inspection clauses allow the buyer to have the property inspected by a professional home inspector before committing to the purchase. This gives the buyer an opportunity to learn about any potential problems with the property and to either negotiate repairs with the seller or back out of the deal without penalty.
Financing contingencies protect the buyer’s deposit and allow them time to obtain a mortgage. Without a financing contingency, the buyer could lose their deposit if they are unable to secure the necessary financing for the purchase.
Appraisal requirements protect both the buyer and seller by ensuring that the property has been fairly appraised and valued. This protects the seller from selling their property for less than it is worth, and it protects the buyer from paying more than the property is worth.
These common contingencies and clauses in Arizona real estate purchase agreements are designed to help protect the interests of both buyer and seller and allow for a smooth transaction. However, it is always important to review the purchase agreement carefully and make sure you understand all of the terms and conditions before signing.
How to Draft an Arizona Purchase Agreement
The first step to creating a real estate purchase agreement is negotiating the terms. You and the other party must have agreed on the price, the date of possession, the details concerning as-is conditions, and other salient terms. Generally, the agent will draft and submit the purchase agreement on your behalf. However, if you are buying without an agent, it is essential to include all the details or the contract may be voided. Next, you must sign the purchase agreement. After this step , the seller must disclose all material defects in the property via a seller’s disclosure statement. You may also want to have an inspection conducted by a professional inspector. After the inspection report, you have the opportunity to negotiate repairs with the seller or walk away from the deal. Other negotiations may also arise regarding the closing costs or financing contingencies. After the negotiation steps are complete, it is time to sign a final offer. At this point a written contract should be in place, and the final step is for both parties to sign. Once the contract is signed, consult with a real estate attorney or agent regarding any questions or next steps such as closing.
Legal Considerations and Adherence
Complying with both federal and state regulations is essential to the creation of a valid and enforceable real estate purchase agreement. With a changing legal landscape that impacts this area, it is essential to have a strong understanding of the current laws and their implications for your business.
One major federal law that affects the purchase agreement process is the Interstate Land Sales Full Disclosure Act (ILSFDA), passed in 1968 to address the issue of misrepresentations in sales of land across state lines. The act attempts to prevent fraud by mandating that sellers make certain disclosures before completing a sale. It applies to properties being sold across state lines that are either unimproved, or "pyramided" and not suitable for use for at least two years.
The ILSFDA requirements include registration. The ILSFDA requires developers who sell land across state lines to register and file a statement of record with the Consumer Financial Protection Bureau. In addition, developers must submit the following:
Thanks to its similar standards, the "smaller" version of ILSFDA, the Arizona State Land Sales Act (ASLSA), also applies to many Arizona purchase agreements. Passed in 2011, the ASLSA regulates sales of undeveloped/"pyramided" land (land that has no roads, water, sewage or utilities and is not fit for building for at least two years) to residents of Arizona and elsewhere. Although ASLSA includes a broad exception for property sales by deed, the law also includes an exception for sales that do not cross state lines.
Even if the ASLSA provisions do not apply, almost all real estate purchases in Arizona must be in writing under the statute of frauds. This means that oral real estate sales contracts are not legally enforceable.
Commercial real estate transactions are also subject to other federal and state laws, such as the Truth in Lending Act, the Equal Credit Opportunity Act and the Fair Housing Act.
Real Estate Purchase Tips for Buyers and Sellers
For potential buyers and sellers in Arizona, preparation is the key. A seller should have expert advice on the value of the property undergoing purchase sale negotiations. A buyer should have their own real estate agent to represent them. This person will ensure that the buyer fully understands what they are getting before making a commitment. Further, it is important to have an experienced attorney involved to help throughout the transaction. An attorney who is knowledgeable in Arizona real estate transactions can explain the meaning of the terms in the purchase and sale contract to all parties involved, opening the door to helpful questions and discussions so that there are no surprises later . Buyers and sellers in need of financing should arrange for a pre-qualification letter from a licensed Arizona lender before they start making offers on properties. The letter will spell out the price range for the proposed sale or purchase and provide lenders with confidence that if the property is purchased, the buyer will be able to afford the monthly payments. A prospective seller will benefit from having their property appraised by a professional before entering into negotiations. The seller should be sure to ask for the time it will take to close the transaction as well as inspection times for surveys or appraisals. Finally, after the closing documents have been signed, it is recommended to have the property reviewed by a real estate attorney for any legal issues that may have been missed.