Essential Terms in Real Estate Purchase Agreements
Buying or selling a home is one of the most significant financial transactions most people will ever make. Real estate purchase agreements play a crucial role in this process, outlining the rights and responsibilities of both buyers and sellers. These legally binding contracts contain important terms that impact the sale and protect all parties involved.
Understanding the essential terms in a real estate purchase agreement helps buyers and sellers avoid disputes and unexpected obligations.
Our experienced attorneys at Alexander | Grossman Attorneys at Law in Skokie, Illinois, can help you understand these terms and why they matter. We’re a family-owned firm that can give you the personalized service you need.
Purchase Price and Earnest Money
One of the first and most important terms in any real estate purchase agreement is the purchase price. This is the amount the buyer agrees to pay for the property, and it sets the foundation for the entire transaction. Other financial terms related to the purchase price include:
Earnest money deposit: This is a sum of money the buyer provides upfront to show they’re serious about purchasing the property. The deposit is typically held in escrow and may be applied to the final purchase price or forfeited if the buyer backs out without a valid reason.
Financing terms: If the buyer is taking out a loan, the agreement may specify details such as the loan amount, interest rate, and financing contingencies.
Seller concessions: In some cases, the seller may agree to cover certain costs, such as closing fees or home repairs, to help the buyer complete the purchase.
The purchase price and earnest money deposit set the tone for the financial aspects of the deal. But the contract doesn’t end there—many buyers and sellers include contingencies that protect them if certain conditions aren’t met.
Contingencies in the Agreement
Contingencies protect both buyers and sellers by allowing the deal to be canceled under certain conditions. Buyers should pay close attention to contingency clauses, as they can impact their ability to back out of the contract without penalties. Common contingencies include:
Financing contingency: This clause states that the purchase is contingent on the buyer securing a mortgage loan. If the buyer can't obtain financing, they may be able to exit the agreement without losing their earnest money.
Inspection contingency: Buyers typically have the right to inspect the property before finalizing the purchase. If significant issues are discovered, the buyer can negotiate repairs, request a price reduction, or walk away.
Appraisal contingency: If the home appraises for less than the agreed-upon price, this contingency allows the buyer to renegotiate or cancel the contract.
Title contingency: This makes sure that the seller has a clear title to the property, free of liens or legal disputes. If issues arise, the buyer may have the option to terminate the agreement.
Contingencies provide a safety net for buyers, but there are also other financial considerations when it comes time to close the deal, such as how closing costs will be handled. Let’s look at these next.
Closing Costs and Responsibilities
Both buyers and sellers have financial obligations when it comes to closing the deal. The purchase agreement should outline who’s responsible for specific costs. Key terms related to closing costs include:
Title insurance: Protects the buyer and lender from future claims against the property’s title.
Property taxes and prorations: Specifies how property taxes, homeowner association fees, and utility bills will be divided between the buyer and seller.
Attorney fees: Our Illinois real estate attorneys often assist with the transaction, and their fees should be detailed in the agreement.
Recording fees: Covers the cost of officially recording the deed with the county.
Once closing costs and responsibilities are clear, both parties can move forward with confidence. But before the deal is finalized, sellers have an obligation to disclose any important details about the property that could affect the buyer’s decision. Let’s discuss those required disclosures next.
Property Disclosures and Seller Obligations
Sellers have a legal duty to disclose known defects and other relevant details about the property. Buyers should carefully review all disclosure documents before finalizing the purchase. Failing to disclose material defects can lead to legal disputes and financial liabilities for the seller. Important disclosures include:
Structural or mechanical issues: Any known defects related to the home’s foundation, roof, plumbing, or electrical system. Buyers should review these disclosures carefully and consider hiring a home inspector to verify the information.
Environmental hazards: Information about lead-based paint, radon, asbestos, or other hazards that could impact health and safety. Federal law requires sellers of homes built before 1978 to disclose lead-based paint hazards, according to the Environmental Protection Agency.
Past repairs and renovations: Details about any major repairs or additions to the home. Buyers should ask for permits and documentation for completed work to confirm that any changes meet local building codes.
Zoning and property use restrictions: Information about any restrictions on how the property can be used. Buyers should check whether any easements, homeowner association rules, or local zoning laws affect their intended use of the property.
Water damage or mold: Sellers must disclose past flooding, leaks, or mold issues that could pose health risks or indicate deeper structural problems.
Pest infestations: Any history of termite or other pest problems should be disclosed, especially if past infestations require extensive treatment or repairs.
Disclosures allow for transparency and give buyers the information they need to make an informed decision. Once these details are clear, the deal moves closer to closing.
Deadlines and Closing Timeline
Real estate transactions follow a timeline, and missing key deadlines can lead to penalties or even contract termination. The purchase agreement should outline specific dates and obligations for both parties. Important dates include:
Offer acceptance deadline: The time frame in which the seller must accept or reject the buyer’s offer.
Earnest money deposit deadline: When the buyer must provide the initial deposit.
Inspection and due diligence period: The time allowed for home inspections, title searches, and other evaluations.
Loan approval and appraisal deadline: The period in which the buyer must secure financing and obtain an appraisal.
Closing date: The final date when ownership of the property is officially transferred.
Once both parties have met all deadlines, the transaction is nearly complete. But what happens if one party fails to meet their obligations? This is where the default and termination clauses come into play.
Default and Termination Clauses
While buyers and sellers enter purchase agreements with the intention of completing the sale, unexpected circumstances may arise. Default and termination clauses outline what happens if one party fails to meet their obligations. Key considerations include:
Buyer default: If the buyer fails to secure financing or backs out without a valid contingency, they may lose their earnest money deposit.
Seller default: If the seller refuses to complete the sale, the buyer may have the right to seek legal remedies or force the sale.
Mutual termination: Some agreements include clauses that allow both parties to walk away without penalties under certain conditions.
These clauses offer both buyers and sellers a sense of security in case the transaction doesn't proceed as planned. With these terms in mind, the parties can feel confident about their respective rights and obligations.
Contact Us Today
Real estate purchase agreements contain crucial terms you need to understand. Having our experienced real estate attorney at Alexander | Grossman Attorneys at Law review your contract can help you avoid potential pitfalls.
We serve clients in Cook County, Lake County, Lincolnwood, Morton Grove, Evanston, Glenview, Wilmette, Niles, and Skokie, Illinois. Call today for a free consultation.