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9 Essential Clauses for Your Purchase Agreements

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In the previous blog article, Quick Start Guide to a Wholesale Business – Part III,  I discussed finding a title company or a closing attorney and touched on the basis of a real estate contract. Let’s expand more on the same…

Part I: Your Real Estate Purchase Agreement

I’m going to say it again… Keep it SHORT and SIMPLE. If the contract is too complicated, the seller may refuse your offer. People fear what they don’t understand. And if you throw a 10-page contract with tons of legal “gobbledygook” in it, your seller may get scared and “want to think about it.”

I found out from experience that if I don’t close the seller (get the agreement signed) at the first meeting, the chances of getting that deal are very small. That’s why it’s important to do everything possible to get that signature at that first meeting.

Here are some examples of some clauses you may want to incorporate into your real estate Purchase Agreement. You’ll need to get it reviewed by an attorney or title company in your area to see if it complies with your local laws and make modifications where necessary.

CONVEYANCE

Fee simple title to the property will be delivered to the Buyer, or the Buyer’s assigns, by a General Warranty Deed free from any liens, restrictions, encumbrances, easements or encroachments not specifically referenced in this contract.

DEFECTS

Seller warrants the property to be free from hazardous substances and from any violation of zoning, environmental, building, health or other governmental codes or ordinances and that there are no known facts regarding this property that could adversely affect its value.

PRORATIONS

Real Property taxes and rents will be prorated based on the current year’s tax without allowance for discounts or other exemptions. All taxes are current.

NO JUDGMENTS

Seller warrants that there are no judgments threatening the equity in subject property and there is no bankruptcy pending or contemplated by any title-holder.

POSSESSION

Possession of the property and occupancy (tenants excepted), with all keys and garage door openers, will be delivered to the Buyer when title transfers unless vacant. If vacant, possession and keys to the property will be given to Buyer upon execution of Contract. Leases, advance rents and security deposits will transfer to the Buyer with title.

You need to make sure that your contract has the following IMPORTANT CLAUSES, which are specific to your intention to wholesale/flip that contract:

RIGHT TO ASSIGN

Contract may be assigned by Buyer. If assigned, all rights, privileges and responsibilities under this contract will be assigned and Buyer will be relieved of same.

It is essential that your Purchase Agreement does NOT have any clauses that would prevent you from assigning the contract. You could add a simple clause like, “Buyer may assign contract” or in many cases, you could put after your name in the contract “and/or assigns” which pretty much says YOU or whomever you “assign” this contract to will agree to the purchase.

If for some reason you need to use a Realtor’s contract or any other contract on a particular deal, you need to make sure that contract doesn’t prohibit assignment. If it does, cross out that clause and insert the above.

Other necessary clauses are:

NO RECOURSE AGAINST BUYER

Upon default, seller’s sole and only remedy shall be to retain buyer’s earnest money.

CLOSING DATE

The closing date may be extended an additional fifteen (15) days if lender requires additional documentation, paperwork or actions from the buyer, and said delay is not due to the fault of the buyer.

“AS IS” and INSPECTIONS

This contract is contingent upon the Buyer’s inspection and approval of subject property prior to transfer of title. The seller agrees to provide access to the subject property to the Buyer’s representatives, with power and utilities on, prior to transfer of title. If accepted, property will convey in “AS IS” condition. If not accepted, Buyer will notify Seller by phone and in writing within 10 days from the date of this contract.

These are some of the basic clauses absolutely necessary in your Purchase Agreement. Print this and keep it handy when reviewing/creating your own.

Part II: Your Assignment Contract

The second part of the wholesaling business is actually “flipping” that contract. You need to have a legal document that governs that process. It’s called Assignment of Contract.

This is a simple document that says you are assigning your right as the buyer in the real estate Purchase Agreement to another party. That new party now steps in as the new buyer and closes on the original Purchase Agreement. The Assignment of Contract agreement needs to protect you from defaulting buyer and you losing that deal.

Most of the agreements I’ve seen over years are only one paragraph long, which in my opinion, is not enough. My Assignment of Contract is three pages long and not only protects me, but it also increases the chances that my buyer (investor) will actually deliver on his/her promise and actually close.

Here’s one clause that I’ve never seen in any Assignment Agreement that you will find very useful:

ASSIGNEE  must close title on the property subject to the AGREEMENT by ____________, 20____. If seller of property subject to said AGREEMENT is ready, willing and able to close title on the above date but ASSIGNEE  fails to close title on or before said date, ASSIGNEE  will pay ASSIGNOR a per diem of $____________ until and including date of closing.

This clause penalizes your buyer for any delays in closing. If your buyer has a problem by signing $300-500 penalty per day, then he/she may not be as serious about closing (on time). It is very powerful.

Other Things to Consider in Dealing With the Seller

Depending on the situation, there may be other things you want to work out with your seller – some of these things SHOULD be included in your contract…

For instance:
If the property is vacant, I always ask the Seller to provide a key or a combination to the lock box along with permission to enter the premises for estimating repairs and completing inspections.

You can use the SPECIAL PROVISIONS area of the contract to add anything unusual. If the Seller has any special requests, this is the place to put it in the contract. If you don’t have any Special Provisions, then write N/A in that space. Both you and the Seller should put your initials next to any Special Provisions.

The point here is … leave NOTHING to chance, and NEVER ASSUME anything in the deal. If the seller wants to take the plants from the property, write it down. If the ceiling fans are to stay in the property after closing, write it down.

This really is NOT rocket science. It is common sense, and you don’t have to get bogged down. It’s simply making sure that all of the major points are agreed upon and WRITTEN into the contract!

ALWAYS REMEMBER: Whatever you agree to, put it in the contract.

OK… you’re almost there… In the next blog post, we’ll start the fun part:

How to FIND houses to flip and how to determine if a seller is motivated enough to sell at a price that will make you a LOT OF CASH!

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About the Author...

Marko Rubel is a leading authority on creative real estate investing, specializing in pre-foreclosures. He is known for creating automated systems that enable investors to skyrocket their profitability quickly.

He is an active, full-time investor who has bought and sold more than 300 properties. Using his proprietary automated systems, he earned profits exceeding $1,000,000 in a single year, while working only a few hours per deal.

His web site is MarkoRubel.com, and he is also the host of the Real Estate Investing Forum at CREonline.com.

Comments

  1. Wheres the rest of tge 6 part series

  2. Jeanne says:

    Hi Alefa,

    They’re all here on this Blog. Here are all of Marko’s articles: http://www.creonline.com/blog/author/marko-rubel/

    Jeanne E.

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