Types of Real Estate Contracts
- March 26, 2020
- by John Yu
What are the types of real estate contracts?
- Purchase Agreement
- Property description
- Condition of the property
- Purchasing price
- Terms of ownership
- Real Estate Assignment Contract
- Lease Agreements
- Power of Attorney
When it comes to real estate investment in the Philippines, you have many considerations before purchasing a property or selling a property. Whichever side of the coin you belong to, it’s important to learn about the types of real estate contracts properly. Know how to delineate and define each one to avoid misunderstandings and potential lawsuits.
As with many types of legal agreements, real estate contracts are binding between the two parties who have decided to enter into an agreement regarding a real estate property. Though the contract may serve to stipulate many other factors of the agreement, some of these would include the price of the property, condition of the property, type of contract, as well as terms of ownership — just to name a few.
Simply put, a real estate contract is defined to be a legally-binding document between a party and two or more parties, regarding any sort of real estate-related transaction. Continue reading to learn more about the different types of real estate contracts.
When it comes to real estate investments, a purchase agreement (sometimes also referred to as a sales contract) is the most frequently used type of real estate contract. It is typically understood to be an agreement that defines the terms of an agreement between the property investor and the seller.
Like any legal document, you should always ensure that your purchase agreement has specifically defined all the terms which will form the basis of the agreement. This practice not only clarifies the entire contract as a whole but also explicitly states that all the parties’ interests have been taken into consideration.
Though not exhaustively, purchase agreements in real estate investments contain the following elements: property description, condition of the property, purchasing price, and terms of ownership.
Based on the name itself, the property description simply details the kind of property that is the focus of the transaction. This is a form of legal description that offers the investor a well-written, clear, and lawful definition of the boundaries of the property.
Aside from the location, the property description should also define what kind of property is being put up for sale — whether it be a bungalow or a two-story house, and the like.
Condition of the property
A legal description of the property’s condition typically contains a description of the property’s physical appearance and whether there are any notable findings regarding it. Furthermore, this may also contain a report on the capital resources needed, for the purposes of maintaining the property for a longer time period.
This part of the agreement considers the property’s building systems, such as electrical wiring, piping, water, and lighting utilities, to name a few. It also states how old the property is.
The purchasing price covers the property’s total selling price, as well as, the down payment, and the principal on the loan.
In the Philippines, the description of the purchasing price should not only contain the ones stated above, but it should also contain relevant information regarding other real estate taxes and fees. These taxes may include the following: capital gains tax, business tax, documentary stamps tax, transfer tax, and real estate taxes.
Terms of ownership
Again, based on the name, terms of ownership simply states that the buyer exercises the right to exclude other people from taking possession of the property. This states that they are the sole owner of the land or property unless otherwise defined.
Real Estate Assignment Contract
Generally, real estate assignment contracts are used in a broader-encompassing or more wholesale strategy to guide the sale of a property between an end-buyer and a homeowner.
While similar to a regular purchase agreement, the most distinct feature about this type of contract is that it gives you the opportunity to secure a property with a purchase contract and assign this contract to someone else, if you want to.
Lease agreements are typically common in real estate transactions that involve renting, as opposed to buying.
For example, if you’re looking to rent a condominium unit in the Philippines, you would most likely consider the unit’s terms of sale. This contract contains legally-binding information regarding payment terms, utility handling, and terms on repair on maintenance.
This contract is agreed upon between the landlord who is leasing the property to an investor, or the tenant.
Power of Attorney
This type of agreement is not exclusively used in real estate transactions, but they’re especially useful in extreme circumstances.
For example, if you’re out of town and are unable to physically sign the real estate contract yourself, the power of attorney gives another party the legal right to make the necessary signatures in your stead, provided that you are the principal party in this agreement.
On another note, a principal party may be someone who is incapacitated due to sickness, mental disability, or other related conditions which hinders them from performing what is required.
Well-formulated real estate contracts are needed in order for a smooth transaction with regards to the purchase and the sale of a property. Because these documents are legally-binding, you should ensure that you’re acquiring assistance from qualified professionals in the practice of real estate law.
Aside from this, it would also be in your best interest to consult with your licensed real estate brokers to help you with getting the requirements needed for the real estate contracts.
If you want to learn more about the types of real estate contracts, click the button below to get in touch with your favorite real estate brokers!