Buying and investing in real estate, whether it’s a first home purchase or a third rental property, is a major financial transaction. It’s a purchase that also comes with a fair amount of risks and as such it’s important for investors to draft a comprehensive real estate contract to mitigate those risks and protect their investment. The following is a look at a few important contract provisions you should include before you finalize your upcoming real estate deal:
Must-Have Real Estate Contract Provisions
- Finance Terms. A mortgage is necessary for home buyers, but it is also one of the things that can make or break a real estate deal. Work with a financial advisor to determine what the highest interest rate you can comfortably make and stipulate that percentage as a financial contingency to the contract. If you are unable to obtain financing at that specified interest rate, then you will be able to more easily walk away from an offer.
- Seller Assist. Never trust a handshake deal. If the seller has agreed to pay a portion or all of the closing costs, be sure to include that in the real estate contract. Specify either the dollar amount or percentage of the property’s purchase. Likewise, ensure the real estate contract details in full which of the closing costs — escrow fees, title insurance, notary fees, transfer tax, etc. — you and/or the seller will be responsible for.
- Home Inspection. Even in tear-downs, a home and ground inspection is vital to ensure you are not walking into a property that needs more of a fix-up investment than you can afford. A standard home and property inspection will test for things like soil stability, working status of the sewer or septic system, roof leaks, lead-based paint, and much more. Stipulating a home inspecting contingency in your real estate contract will give you options should the inspector find a major problem like high radon levels in the basement or a water damaged roof.
- Home Insurance. A home inspection often is also a prerequisite for home insurance. Depending on where your home is and what is revealed during a home inspection, it may be harder than you expect to secure fair terms on a homeowner’s insurance plan. Add this provision to your real estate contract for the option to walk should you be unable to secure insurance before closing.
For more information, talk to the professionals at All Property Title.