The Experts In Real Estate And Mortgages

Do you know what a contract to purchase is and what is essential to include in it to make it legal and binding?

Why should you try to create your own contracts?

When should you use a standard contract?

There are several elements you should include in a contract such as:

A. the offer (price, terms time for closing)

B. you must give something of value with the contract (typically a deposit, referred to as an earnest money deposit)

C. signatures

D. in must be for a legal purpose

E. must be written, not oral

F. both parties must be of sound mind and legal age

G. needs to include the legal address or legal description

H. terms, conditions, how the property rights will be transferred.

I know that a contract can look intimidating and that is why you need to know the basic clauses and elements of a contract.

I highly recommend you create your own contracts in order to add valuable clauses if you need to get out of the contract and to slant it slightly to your favor. For instance, you may want to always add “and or assigns” after your name in case you decide to flip the contract to another investor , for a fee, and have them close on the property rather than you.

You may also want to include “escape clauses” such as ” subject to attorneys approval”.

There are contracts that are already created called Standard Contracts such as those used by real estate agents that are already approved by the Realtor Association for that state.

You can use these standard contracts in your real estate investing business and just add an addendum on a separate sheet that include your escape clauses and any other necessary items to be added to the contract.

In order for a contract to be legally binding there must be what us called consideration, typically some sort of deposit or a promissory note. A promissory note is just that, a promise to pay a certain amount within a certain time period. This is definitely a safer type of deposit than cash but more difficult to negotiate.

It can be due upon acceptance of the offer so you can afford to make more offers at the same time, or even due at the closing. It also makes it easier if you cancel the contract, you have not deposit to wait to be returned to you.

Even though the promissory note is less risky there are much less opportunities to use it as sometimes you can risk losing a fantastic deal because the seller will not even consider taking anything but cash as an earnest money deposit and cause them not to accept your offer.

Try to use a promissory note in these circumstances only; listed properties, pre-foreclosures and for sale by owners.

Use a deposit on HUD , VA and bank owned properties because these types of institutions typically only look at standard, typical types of contracts and deposits.

Also, if you are using EMD put in the contract that they must use your escrow or title company to hold the funds. Always note on the contract that the deposit shall be used as full liquidation damage and settlement in full and is the sellers only recourse for default, this way they are limiting the damages they can get from you if you default on the purchase.

Tips:

Do not give a seller too much time to think about your offer as that gives time for another offer to come in

Ask for a 15 day inspection period at minimum allowing you the time to submit the contract without the need for a prior inspection.

Always make the offer subject to inspection and appraisal.

Include a financing contingency stating that if you cannot get financing you are not required to complete the purchase. Also limit the interest rate that is acceptable so that if you are approved but at a much higher rate you do not have to accept it.

If the seller is willing to hold paper (seller financing) spell out the terms in the contract.

Do not personally guarantee any seller held financing, only the property should be at risk. make the seller financing transferable in case of future sale of the property the new buyer can take it over.

Ask for the seller to pay some or all of your closing cost, include on the contract.

Make sure there is a clause allowing you an extension on the closing date if the reasons are out of your control.

Ask to be allowed to show the property to potential buyers, or tradesmen for estimates, etc.

Try to get a decorating allowance from the seller as a way to get cash back at closing.

Try to get the seller to include any personal property such as t v’s, cars boats etc and identify them on the contract using serial numbers. Sellers have been known to switch items if you only put a name such as T.V.

DO NOT make any verbal agreements, put everything in writing.

The next post will include examples of clause for the addendum, escape clauses, etc. in the form of an 8×11 checklist so don’t miss it.

Subscribe to this series in the right sidebar where it says “subscriber to feedburner feed” so you won’t miss any part of the series.

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Links to previous post: HERE

Suggested reading:

The Ultimate Real Estate System-Learn to buy foreclosures and short sales with little to no money down-This system was created by a well known real estate investor and is very inexpensive but is a complete training.

Massive Profits In Foreclosure– Earn $10,000 in 30 days in foreclosure investing

Fix your credit– I personally used this inexpensive service to raise my credit scores 60 points in 3–4 months

Free Nationwide Foreclosure Lists-find foreclosures across the nation

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