Between the buyer and the seller of a property, a real estate contract is a legally binding agreement. It outlines the terms and conditions of the sale and helps to protect both parties from potential disputes or misunderstandings.
A well-drafted contract can save you from a lot of trouble in the future, while a poorly drafted one can lead to headaches and financial loss. In this blog, we will discuss what real estate investor terms are and the conditions you must have in your real estate contract to ensure a smooth and successful transaction.
What are the Real Estate Investor Terms?
Real estate investor terms refer to the specific provisions, clauses, and conditions included in a real estate contract when the buyer is an investor rather than an individual purchasing a home for personal use. These terms are designed to protect the investor’s interests and help them achieve their investment goals.
Real estate investor terms can include provisions related to financing, contingencies, due diligence periods, closing costs, repairs and renovations, and rental income. For example, an investor may require a longer due diligence period to conduct market research and determine the potential return on investment, or they may negotiate for the seller to pay for some or all related closing costs.
Seven Conditions You Must Have in Real Estate Contract
When selling a property, it is important to include certain conditions in the contract to protect the seller’s interests and ensure a smooth transaction. Here are the seven real estate investor terms to watch out for. Read to know all.
Purchase Price and Payment Terms
The purchase price is the amount the buyer will pay for the property, which is the most crucial real estate investor term. The contract should clearly state the purchase price, the payment terms, and the closing date. It should also specify the form of payment, such as cash, certified funds, or a mortgage. According to the National Association of Realtors, the median home price in the United States was $353,500 in March 2021, an increase of 17.2% from the previous year.
Contingencies
Contingencies are prerequisites that must be satisfied for the deal to go through. They protect the buyer from purchasing a property with issues like a faulty roof or foundation. Some common contingencies include a home inspection, a pest inspection, and a financing contingency. The home inspection contingency allows the buyer to inspect the property by a professional and negotiate repairs or a lower purchase price if necessary.
The pest inspection contingency ensures that the property is free of any infestations that may damage the structure or pose health hazards to the occupants. The financing contingency ensures that the buyer can obtain financing for the purchase and that the sale is contingent upon obtaining the necessary loan approval.
Closing Costs
Closing costs are the expenses that both the buyer and the seller incur during the property sale. The contract should specify who will pay for which closing costs, such as title insurance, appraisal fees, attorney fees, and transfer taxes. According to Bankrate, the average closing costs for a $200,000 home in the United States were $6,087 in 2020.
Disclosure Requirements
It is important that the seller discloses any known flaws or issues with the property. This covers risks like lead-based paint, structural issues, and water damage. Before buying the property, the buyer has a right to be informed of these problems. And the seller must give a written disclosure statement. Legal action against the seller is possible if known problems are not disclosed.
Title and Deed
The title is the legal document that proves ownership of the property. The deed is the document that transfers ownership from the seller to the buyer. This is one of the significant real estate investor terms because it specifies who will pay for the title search and insurance and who will prepare the deed. The contract should also include provisions for resolving any title issues that may arise, such as liens or encumbrances.
Possession and Occupancy
The contract should specify when the buyer will take possession of the property and when the seller will vacate it. It should also include provisions for prorating rent, utilities, and other expenses. If the closing date falls in the middle of a billing cycle. In some cases, the seller may need to remain in the property for a short time after the closing date, such as to complete repairs or to find a new home. In these cases, the contract should specify the terms of Occupancy and any rent or other expenses that the seller will pay during this period.
Dispute Resolution
In the event of a dispute between the buyer and the seller. The contract should include provisions for resolving the issue. This may include mediation or arbitration rather than going to court. Mediation and arbitration are typically faster and less.
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