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Key Sections of a Real Estate Purchase Contract for Rental Property Investors

Young woman shaking hands after agreeing to purchase a home.
If you invest in rental properties in Lynnwood, you know that acquiring property is key to growing your portfolio. For confident buying, it’s important to deeply understand the real estate purchase contract. A real estate purchase contract is a standard document outlining the terms and conditions of the sale between the buyer and seller. This blog post will explain the most important parts of a real estate purchase contract that every investor must know!

Earnest Money Deposit

Earnest money deposits usually fall between 1% and 3% or 4% of the purchase price. You put this amount in escrow with your offer to demonstrate to the seller that you are serious about buying the property. When the sale closes, the earnest money deposit is applied to the purchase price.

Offer to Purchase

The Offer to Purchase section initiates with an in-depth property description. Examine this description closely to verify it contains the correct property details you are bidding for.

It will probably also list items included in and excluded from the sale. Close attention to these lists is vital, as the seller can exclude nearly anything from the sale.

Purchase Price

One of the most critical parts of the real estate purchase contract is the purchase price section. This section outlines the amount you agree to pay to obtain ownership of the property.

It’s important to recognize any additional fees or costs associated with the sale, such as the seller paying for closing costs. Additionally, this section explains your payment method for the property, whether through financing or cash, and the cash amount expected at settlement.

Seller Disclosures

Any known issues, physical or legal, are covered in the seller disclosures section. This section includes any pending lawsuits, environmental issues, or the need for a new roof.

Typically, you should take this information into account when making an offer. If the seller doesn’t disclose known issues and you discover them after closing, the seller could be held liable for damages.

Contingencies

The contingency section is another essential part of a real estate purchase contract. It details all the conditions that must be satisfied before closing, including securing financing, getting an inspection, and having a clear title.

Typically, these contingencies are automatically waived if the buyer does not act. It’s crucial to review these contingencies to know what to expect and the time frame for meeting the requirements.

Inspection Period

The inspection period is the time after you submit the offer when you can cancel the purchase contract for various reasons. For example, you could discover a significant issue with the property and decide against purchasing it, or you might feel buyer’s remorse.

The inspection period permits you to cancel the contract without repercussions if you discover something missed in the initial inspection.

Assessments and Financial Obligations

This section specifies any current or upcoming assessments and their financial responsibilities. If a major project is proposed in the property’s area, this section will outline the project and any related costs.

This section may also include any unpaid fees you’ll be responsible for at closing, like property taxes, HOA fees, special assessments, or utility bills. It’s essential to carefully review this information to grasp any financial obligations you may face due to the purchase.

Closing and Settlement

This section of the contract details the timing and location of the sale settlement. It usually outlines an anticipated date for the transfer of the property. While buyers often assume possession happens at closing, this isn’t always the case. Therefore, it’s crucial to carefully review the closing section of your contract to avoid any unexpected timing issues.

Offer and Time for Acceptance

The final sections of a real estate contract often contain key dates to watch, including the offer’s expiration and contract deadlines. A real estate purchase contract is valid only upon the seller’s acceptance of your offer. The offer and time for acceptance section specifies the duration for submitting your offer, the time the seller has to accept it, and when the buyer needs to provide a deposit. Additionally, this section may specify when the contingencies begin and how long you have to meet these terms.

Acceptance/Counteroffer/Rejection

When you have reviewed the real estate purchase contract and are ready to submit your offer, you need to sign at the bottom to show acceptance or rejection. If the seller accepts your offer, the purchase agreement becomes binding, and you must proceed with the transaction as per the contract terms.

However, if the seller opts to make a counteroffer, responding to your initial offer, this paragraph will be included in your purchase agreement. The seller’s counteroffer could contain different terms or suggest a new purchase price. If you agree to the counteroffer, you must sign and return it to show your acceptance.

An expert in the rental market can be very useful for guiding you through the more complex aspects of buying an investment property. Real Property Management North Puget Sound can assist you throughout the process, from the initial purchase to ongoing property management in LynnwoodGet in touch online or call 425-527-6562 to learn more about what we offer investors.

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