If you are planning to invest in real estate, you must not know about the types of real estate contracts. As a real estate investor, you have to negotiate and sign contracts when you strike any deal. Therefore, it is important to understand the types of real estate contracts that you might use throughout your real estate career. This write-up will give you detailed insights into real estate contracts.

You should know the three main types of real estate contracts:

REAL ESTATE CONTRACT TYPES

Purchase agreement

When you purchase a home from a seller, you will definitely use the purchase agreement. The purchase agreement is a widely used type of real estate contract. The purchases agreement includes all the contract elements outlined above and can fall into one of three main categories:

• State/association purchase agreement: It is a standard agreement in which the buyer or seller involve real estate agent.You have to draft the agreement accoding a local Realtor association guidelines.
• General purchase agreement: This is a simplified, mini version of the state/association agreement, usually used when a buyer deals directly with a seller without involving a real estate agent.
• Property-specific purchase agreement: You will use this contract for non-traditional properties, such as mobile homes and vacant land.

Real estate assignment contract

You will use this contract when you want to buy property rights. The algorithm behind it is you will sell the rights to another buyer offering a higher price.

This wholesaling properties market is very large and competitive. You will use real estate assignment contract here. Generally, a fixer-upper is sold as-is in a wholesale situation. The benefit you can reap from the assignment contract is you can generate profit without doing any work from home.

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Lease agreement

You may decide to rent your home or lease land to earn extra income. A lease agreement is what you can use to make those arrangements. You will use a lease agreement to specify the conditions between the lessor (landlord or property owner) and the lessee (tenant). Make sure to includes important provisions, such as rent amount and the security deposit. There are many standard lease agreements on the Internet that you can find and adapt for your use.

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Power of Attorney

A power of attorney is a legal document that allows your legal advisor to decide your financial matters on your behalf. You might exercise the power of attorney if you’re:

• Mentally challenged
• Hospitalized or have any other sicknness that prevents you from signing the contract
• Not present in the country at the time of the signing of the contract
• The owner of several investment properties
• An elderly person unable to sign the contract

TAKEAWAYs:

Now that you know the ins and outs of a real estate contract, you can proceed with full confidence. Your offer is surely strong and you’ll have all your bases covered for a seamless transaction.

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Also Read: Essentials of Real Estate Contract

Every real estate transaction, whether residential, commercial, or industrial requires a contract. Yet it can be verbal too. However, a valid real estate contract should have some specific factors. On the contrary, the contract can get voided by law. Let’s take a look at those required factors.

PRICE & TIMING IN A REAL ESTATE CONTRACT

The two most basic essentials of a real estate contract are the final buying price and the transaction timeline. The contract should surely mention the contingencies implementation dates and when the transfer of title will take place.

Both parties need to clearly understand this information for the transaction to be successful. This is the first requirement of a valid real estate contract.

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CONTINGENCIES

You have to complete the contingencies of a contract. Every contingency has its own conditions and timeline.

For example, the seller may need to make certain repairs to the property before the closing period. If you don’t meet any of the contingencies, both parties have the right to walk away without closing the deal.

INSPECTION DETAILS

The most used contingencies are those link with the home inspection. Indeed, every contract should include a contingency. The contingency should allow buyers to close the deal if the property inspection does not go as planned.

You have to specify which, if any, repairs the sellers need to make before closing. Inspection details will clear expectations for both parties. It will also protect buyers from entering into unwanted transactions.

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FINANCING CLAUSE

You have to include a contingency that allows buyers to back out of the transaction. The buyer can back out if there is any financial constraint. In some cases, it is also a good-to-go idea to add a clause protecting the buyer’s rights.

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CLOSING COST IN A REAL ESTATE CONTRACT

Always make sure to mention who is responsible for closing costs to avoid any confusion later on. You should always keep an eye out for this piece of information. Furthermore mostly sellers are responsible for closing the costs. Although the seller contingency can be buried within the contract.

SUMMARY:

A real estate contract surely doesn’t need to be overwhelming or confusing. Undoubtedly, a good first step is to understand the essential factors of a contract. How the factors will benefit you as an investor, and the best situations for using them. Understanding this will put you one step closer to real estate contracts mastery.

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