Our Guide to Real Estate Contracts

As a real estate investor, when there is a deal at hand, there is going to be a contract involved as you just can’t sell a house with a handshake and a nod. While real estate contracts may seem intimidating, taking the time to familiarize yourself with the terminology you’ll encounter is well worth the effort. You’ll want to have a full grasp of contracts or a trusted advisor to review everything on your behalf before you enter into any agreements. This knowledge will help you feel confident and assist in making wise choices as navigate the sale of your home.  Understanding the different purposes of these styles of real estate contracts will be very beneficial to you in the long run. Here is our guide to KC Metro real estate contracts.

Contract Assignments

While it may sound complicated, real estate contracts are often assigned to another buyer. This is how a few real estate investors facilitate their purchase of your home and then sell it to a new buyer. Here’s how it works:

The Investor Buyer contracts with you the Home Seller to Purchase your house on a certain date at a certain price and with specific terms. Next, this Investor Buyer goes to a group of other Cash Buyers who are looking to purchase a home and will buy the contract you as the Home Seller just created with the Investor Buyer. The Cash buyer will pay the Investor Buyer a Fee and then take his or her place in the contract with you and complete the transaction.

This is great for the Cash Buyers who don’t have the time, knowledge, or expertise to spend time hunting down houses to buy. It is great for the Investor Buyer as he or she can earn a small profit from the transaction. And it can be great for you as you get your home sold. Where the problems come in are when the Investor Buyer is new and does not quite know what they are doing and possibly over promises on price or time frame and can’t find a Cash Buyer willing to take over. More often than not when this happens, the Investor Buyer will either leave you hanging and just not ever call you back or they might call and ask you to renegotiate.

A good question to ask your Investor Buyer is if they are going to actually closing on the property or if they are assigning their interest. And if they are assigning the contract, how many deals like this have they done and what happens if the end Cash Buyer can’t be found?

“Subject To” 

Selling property as “subject to” an existing loan is yet another way that KC real estate contracts may be written. This clause in a real estate contract allows a distressed seller, who may otherwise lose the property, to sell their property to a new owner who will then step in and start making the mortgage payments. The ownership of the property is taken over by the Subject To Buyer, the Mortgage Payments will be made by the Subject To Buyer, but the mortgage will remain in YOUR Name.

The Subject To Buyer is under no obligation to the lender, so should the worst happen and they fail to make the payments, regrettably, it is possible for the property to end up in foreclosure and the late payments and foreclosure would go against your credit as the mortgage is still in your name.

This is a great option for a seller who also has credit issues and might be in danger of losing the home to foreclosure anyway. Quite possibly, selling your home subject to and letting the buyer take over your payments could result in an improvement in your overall credit score over time, especially should they sell the house at some point, and pay off the mortgage.

Purchase and / or Sale Agreements

A Purchase and Sale Agreement or Purchase or a Sale Agreement is what may be considered the most common style of real estate contract. This is a fairly simple and straightforward sale between the seller and buyer and contains all the elements of a legally binding contract. If you are working with an agent, it will likely be a state or association contract. If the sale is directly between the seller and the buyer, then the general purchase agreement is typically used. The purchase agreement might also be used with an assignment contract and could be a part of the subject to contracts.

What should you look for in a Purchase or Sale Agreement?

Inspection Period: Most will have a clause or a paragraph that addresses what the buyer may inspect and how long the buyer has to do this. Here in the Kansas City Metro, the standard real estate contract defaults to a 10-day time frame for any and all inspections.

Closing Costs: Here in Kansas City it is customary that the buyer pays all costs associated with the buyer’s side of the closing and the seller pays all the costs associated with the seller’s side of the closing including paying for a title policy for the new buyer. Some Investor Buyers may say they pay all of these closing costs. But because what is and is not a closing cost is very subjective, here at kcmoHomeBuyer don’t usually pay closing costs. We can negotiate with you if these might cause an issue, but only after we have a good idea of what exactly these costs are and all parties agree.

There are often a lot more components to a real estate contract, but these are the two areas that come up the most often in our negotiations. We advise our sellers to read the contract and if they would like some time to have a trusted friend or an attorney look over them, we have no problem with that.

Lease Agreements

Lease means rental. Some investor buyers may want to lease your property from you for a short period of time and then buy it at a set price at some point in the future. Lease with Purchase. Some might want to lease from you and have the opportunity to buy or not buy in the future. Lease with the Option to Purchase. And some may just want to lease indefinitely and be able to rent it out to someone else – Lease with a Sub Lease Clause.

Lease Agreements are also important if you are selling a rental property that you own. Your buyer is obligated to honor the current lease you have in place with your renter and you will assign your interest in that rental agreement to the Investor Buyer.

Power of Attorney

While not commonly thought of, the power of attorney can be extremely useful in real estate contracts. Through the use of the power of attorney, you can convey your rights to conduct business to someone who is entrusted with your finances, an attorney, or an agent. They come into play when the owner is either not available to conduct business or is incapacitated, has had an accident, or is in seriously declining health and unable to conduct business any longer.

We see these come into play in a couple of scenarios.

Inherited Property: Often a group of siblings inherits a property from mom or dad. But it is cumbersome to have all siblings and their spouses sign off on all the documents needing to be signed. Some heirs in this case elect one person in their group to represent everyone and provide a power of attorney from themselves to this person for the purposes of selling the house.

Failing Health: We also see elderly people who may be in a nursing home or the hospital who provide a child with power of attorney over their affairs. It is important to note that should the person granting the power of attorney pass away, the power of attorney is no longer valid.

Foreclosure Property: In some instances, a homeowner might be in financial distress and want to leave town, but still get their home sold and the sale process may take several months in the case of a short sale for example. Sometimes sellers in this situation might grant a power of attorney to their buyer only in the matters of the home so that the home buyer can complete negotiations and buy the house.

Before granting a power of attorney in any situation, please consult with a real lawyer.

Lease to Own

s the seller, you collect monthly rent along with additional monies. The buyer has the ability to try the house out for a specified time period. There are two types of these contracts, the option to buy or the agreement to buy. The agreement to buy tends to be much more desirable to sellers, in general, given that the home must be purchased at the end of the agreement period by the renter. This strategy allows buyers time to build savings towards a deposit on a conventional loan and find financing. Should your buyers have chosen the option contract, they are not obligated as in the agreement to buy. Should they be unable to qualify for a mortgage loan the renter can simply walk away at the end of the agreement. 

Seller’s Disclosure

When selling your home in Kansas City or anywhere in the US, you are obligated to disclose problems that could affect the property’s value or desirability. In all states, it is illegal to actively, and fraudulently conceal major physical defects in your property. If you are working with a Realtor to sell your house, they will most likely ask you to fill out a written seller’s disclosure that asks you a bunch of questions about your knowledge of things. This form is not required by law, but it is a good idea to make sure you disclose everything you know or should have known about the property to your buyer.

Beyond this, if you have written inspections or written repair bids these are also disclosable and should be included with the Seller’s Disclosure form.

Don’t Get Intimidated.

Do not let intimidating contracts stop you from selling your property. You can talk to a local title company or reach out to a local attorney.

The Tuckers here at kcmoHomeBuyer are happy to help you figure things out and we are always happy to have you review things with your attorney. We will take the time to listen to your dreams and help you make plans, and update plans as your life and goals change over time. When you are ready to sell your home or investment property, we can help you get it done.

When you are ready just contact us with one of the forms here on our site or give us a call.


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