The Real Estate Purchasing Process

An agreement whereby a seller promises to sell an interest in realty by conveying a deed to the designated estate for which a buyer promises to pay a specified purchase price is known as a real estate purchase contract. The interest the seller conveys in the deed may not be a full interest, otherwise known as a fee simple absolute. If the seller is a tenant in common, meaning they own a percentage of the estate, they can sell or will that percentage of the estate to a third party.
The purchasing agreement will have to explicitly state what kind of estate the buyer is purchasing. The purchasing agreement must also convey the extent of the land being sold. If a seller has sold the rights to the subsurface of their land, to an oil company for example, then they no longer have the rights to the subsurface and must convey this when they sell the remainder of their property.
In this case, a buyer would have a fee simple absolute to the real property, house, trees, anything attached to the land, and the air rights; they would not own the rights to the subsurface of the property, though. Failure to convey the full extent of the seller’s estate, or any previously sold portions of the land would violate the statute of frauds.
Another fraud issue is whether there are back taxes on the property. The seller must convey any outstanding taxes on the property before the buyer actually purchases it. The purchase contract must meet all the requirements of the memorandum, which fully and explicitly states what would violate the statute of frauds.
In many counties, brokers use purchase agreements that have been preapproved by the local bar association and the local real estate brokers association. There are various contracts for various estates. However, a broker must often make lengthy additions to each contract to meet the memorandum requirements for each specific property. These additions are also specific to whether the buyer is pre-approved or has a loan in place.
Additions to the contracts also state from which institution the buyer is borrowing. The contract also specifically states which fixtures or pieces of equipment the buyer is purchasing in addition to the land or house. Typically, these refer to built-in appliances, like central air, but it also refers to anything that is mounted to the wall. One of the most important elements of the contract is that it specifically addresses any concerns about inspection.
While it is not legally required in all states, home inspections help determine the value of the home beyond what a person can visually determine. If a home was acceptable for purchase from what the buyer could tell, but the housing inspection determined there were termites in the walls and black mold in the basement, for example, the buyer has the right to remedy.
During this remedy period, the buyer may walk away from the purchase or renegotiate a better price to include any work that must be done to make the house habitable, or simply make standard improvements. The buyer’s amount of leverage depends on the issue found with the home and the seller’s ability to find another buyer.
During a real estate purchase, the buyer is often required to give the broker what is known as earnest money. Earnest money is simply a percentage of the sale price, which demonstrates that buyer is ready, willing, and able to go through with the purchase. This also motivates the buyer to ensure the transaction is completed. If the transaction is not completed, the buyer loses this earnest money. Typically, a buyer is further along in the purchasing process before earnest money is required.