As the term suggests, the purchase contract is by far the most essential element of your home buying process. The reason for this is that it lays down all the terms and conditions decided between the parties during the sale of the property. It is a legal document that binds both the buyer and the seller together. The contract is in written form and is signed by both parties to ensure that it is legally enforceable.
Scams are a part of every industry. Real estate is no exception. The primary importance of the purchase contract is to act as proof that the purchase and transaction of the property have taken place. As a home buyer, it not only assures you but also gives you the peace of mind that you are in good hands and everything has been taken care of.
Either the buyer or the seller can create the purchase document. The best way to create the contract is for both parties to brainstorm and explain to one another their conditions and expectations. If need be, they can hold several meetings to negotiate and include terms that are mutually beneficial to both the seller and the buyer. The contract is not set in stone before it has been signed by both parties. In case any new terms need to be included, it can be done at any point in time.
As discussed above, the creation and use of a purchase agreement are quite simple. The tricky part comes when you have to make sure that it has all the necessary elements to make it legally binding. Note that a purchase contract does not only consist of various elements. It also includes the process for clearing out disputes within the involved parties and defines terms that govern the deal made between them. However, if the contract does not include all the necessary elements then it is not of much use to either the buyer or the seller.
A good purchase agreement includes everything that there is to include, related to the sale of the property. This ensures a smooth and hassle-free translation and purchase. Mentioned below are all the major elements that are a must to consider the agreement as a legit and legally binding purchase contract.
What are the Essential Elements of a Purchase Contract?
Identities of the Buyer and Seller
Any information noted here needs to be verified and made sure that it is original. False information can lead to delays in proceeding or even worse, termination of the contract. Put in the name, address, and contact number of both the buyer and the seller.
Description of Property
This is of utmost importance. Note down the type, nature, and address of the property. Every property has official records, make sure you include that in the purchase contract under the heading of legal description. Mention the name of the current owner and the details of the to-be owner. If a home inspection has taken place, consider including a detailed report of the same too. Before conducting a home inspection, be well aware of things you should pay attention to so that you do not end up missing out on anything that needs to be repaired or replaced.
Earnest Money Deposit
In the initial days of finalizing the property, buyers are required to pay some amount to show that they are serious about the deal and the purchase. This money is known as an earnest money deposit and it is held in escrow till the time the purchase contract is not signed by both parties. Mention all details about the amount submitted in the contract. Also, include if this money is part of the total purchase price of the property or if it is an extra amount.
Items Included and Not Included in the Sale
These are items apart from the land or property that the seller is willing to provide you with. They are primarily the structures and fixtures that come attached to the property. Unless and until the purchase contract clearly states that no fixtures or structures are to be included in the transaction, it will be assumed that all these structures are already attached to the property.
For your convenience, here are the most common fixtures that are included in the sale of a property:
- Kitchen Appliances (inbuilt)
- Bathroom Fixtures
- Equipment for heating/cooling
- Light Fixtures
Include the purchase price of the property and how the buyer plans to pay it. Include all timelines and deadlines for the payment process. Also, mention the sources of where the money is coming from and the form in which the buyer plans to pay it. It can be in the form of cash, installment, or mortgage.
Mentioning the closing date is important if you do not want any delay in the proceedings of transfer of property. The closing date is the day when the seller transfers the rights and ownership of the property to the buyer. This is when the purchase becomes official. Mention closing costs (if any) and who is required to pay them. Closing costs can include several payments. They can include:
- Title Insurance
- Recording Costs
- Prepayment of Insurance Premiums
- Taxes on Property and Transfer
- Loan Origination Fees
It is ideal to include a deadline for the completion of the contract. Timelines will help both parties to hold their part of the contract. Mention the length of time that both the seller and buyer will take to complete their duties and meet expectations. Also mention if there is a scope for extending the contract after the end date has passed.
Even though in most cases it is unlikely for either of the parties to want to terminate the agreement, there are always exceptions. Termination implies that either both or one of the parties wants to end the contract and dissociate themselves with the agreement. The reasons for this situation can either be mutually agreed upon, due to breach of the contract by the opposite party or because the tenure of the contract has come to an end. The termination clause should be created in a way that it is not too difficult to get out of the agreement if needed. The terms post-termination should be in favor of not just one, but both parties.
This is the final step of validating the purchase contract. Signatures of both parties are mandatory to make the purchase contract legit and legally binding under the property laws in India. Make sure that you sign the contract only when you are sure of all the terms and conditions mentioned in it.
Even if you do not conduct any additional research related to the aspects of a purchase contract, you are good to go if you have thoroughly understood and made a list of all the elements mentioned above. A purchase contract is not something that can be created in a hurry or be completed just in one sitting of both parties.
Patience is the key here and there is no scope for realizing later that you have missed out on an important element or information.
If you include all these elements, you are sorted for the future. Including them will imply that the agreement is now valid and successful, legally making you (the buyer!) the owner of the desired property.
How does it feel to know that finalizing a detailed purchase agreement implies that you will be now safeguarded legally for as long as the contract exists? Take it from us and all existing home buyers, it surely feels liberating!