Characteristics of a Valid Real Estate Contract

Usually, transactions that involve buying and selling real estate properties are always expressed in writing. The most vital document in/part of any transaction is the sales contract which, in the real estate field, is also known as the purchase agreement. Although contracts can be oral instead of written, it is advisable to avoid going into oral contracts.

After investing time and finding a property that is in line with your investment dreams, you need to prepare a real estate contract that should have at least a minimum number of characteristics, features, or elements to make it valid enough for presentation to the seller (of the property).

A valid real estate contract is a written agreement between two or more individuals, entities, or corporations; it is legally binding between them in regard to an exchange of property and money or services of any kind.

Any valid real estate contract is no joke: it contains a legally enforceable set of assurances that must be executed because it (the contract) is anchored on the basics of contract law.

We’ve now known what a valid real estate contract is, but what makes a real estate contract valid? A legally binding real estate contract on any activity is valid because it has all the most important and necessary characteristics, features, or elements that empower it and make it legally enforceable on a certain activity (or activities).

The following are nine main characteristics you have to be familiar with and ensure that your valid, enforceable, or legally binding real estate contract possesses them:

1. It (valid real estate contract) consists of individuals or entities that are legally competent

Each individual who is involved in a real estate transaction must be legally competent or have some legal capacity: in most countries and states, the legal capacity is defined as being at least the legal age (usually, 18 years) and mentally matured enough to understand the consequences of taking actions.

Some of the people who are mentally ill and criminals may not be legally competent or have the required legal capacity to engage in a contract. It may even be wise to avoid dealing with people, especially older persons if they appear to have difficulty in communicating or understanding terms or things that a contract has to be founded on.

In some cases, it is important to inquire (from the person you are dealing with) whether they have a representative or someone who can act legally on their behalf.

2. It consists of an offer

The individual or entity who is interested in a property has to make an offer in writing or through written communication to the current owner or seller of the property. The offer has to clearly express the buyer’s interest and willingness to purchase the property according to specific terms.

Nearly all offers have an expiry date or time. Except an expiry date or time is included, the seller may accept an offer at any time before it is revoked or canceled officially by the interested individual (or potential buyer). On the other hand, the seller is at liberty to continue considering the offer or continue to wait or look for a better offer.

3. It consists of information that proves acceptance (of the offer)

Not all offers are accepted. If an offer is accepted, it is expressed as a positive written response that is in agreement with the exact terms stated by the buyer/potential buyer. In cases where the seller proposes changes to the terms or conditions, he may make a counteroffer and notify the buyer.

4. It may consist of a counteroffer

A counteroffer can also be referred to as a “legally new offer”; it only comes into existence when the original offer is rejected or becomes void. Sometimes, counteroffers can go back and forth between seller and buyer until both (seller and buyer) come to an agreement. At this point, the final accepted offer becomes the binding agreement between the individuals or entities.

5. It consists of an exchange

The exchange part of a real estate deal is very important to most individuals or entities; the exchange aspect of a deal involved the substitution or transfer of property and money or services of any kind, between seller and buyer.

Usually, buyers offer money, services, or something of great value to sellers who, in return, hand over ownership of property to buyers. A real estate contract would not be enforceable if each individual or entity doesn’t offer at least some form of exchange to the other individual or entity.

6. It consists of information that clearly identifies a property

All property must be clearly and unambiguously identified in order to leave no surface scratched. Usually, a legal description is used for each property. Clear identification is necessary so as to erase any uncertainty about a property that is being exchanged, sold, or transferred from seller to buyer.

7. It has a legal purpose

Most countries support legal acts and ban acts that are regarded as illegal. Your real estate contract must have a legal purpose and should not be used for illegal and immoral purposes that are against public policy. Some properties are used to carry out certain activities that violate the local prohibitions that are against operating businesses; for example, some people operate factories or similar types of businesses in residentially zoned areas that prohibit such actions.

8. Its information is stated in writing: it’s a written contract

A valid real estate contract has to be a written contract because that’s the requirement for all legally binding exchanges in real estate. All the conditions or terms surrounding the sales or purchase agreement must be done in writing, even if the contract contains minor items that don’t seem to be important.

Written contracts help to prevent or erase confusion surrounding the content that is used to describe its components or constituents. It is crucial that all relevant and consequential details be written or clearly specified in writing, and whatever is not for exchange or sale must be clearly written as well. In fact, if anything is not in writing, don’t regard it as part of the contract.

9. It is signed

A valid real estate contract must be signed by the individuals involved and have statements that describe all dates and times which are important and should not be ignored by any involved individual or entity without the written consent of the (individual or entity).

Whenever one individual’s consent is ignored or overlooked by the other individual, then the latter has breached the contract or contract terms. Once a breach of contract has occurred, the other individual or entity may be entitled to sue, claim monetary damages, or use the law to force the seller to agree to the contract terms.

Advice

Ensure that all agreements (for real estate sales) made between you and other individuals or entities are done in writing. Unless they are done in writing, do not regard them as being valid, legally binding, or enforceable real estate contracts. Without being written, they aren’t!

No matter how reasonable or convenient it may seem at the moment, never make an oral agreement of any kind on any real estate property. Most countries and laws require all exchanges in real estate to be in writing and enforceable in a court of law. They must include purchase agreements or sales contracts, and leases, and may include loans secured by mortgages or notes, commission agreements with agents, listing contracts, etc.

A contract can be declared invalid or void if it fails to possess the essential elements of a valid real estate contract. An invalid contract has no legal power and is thus unenforceable in a court of law.

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Major Sources of Real Estate Property Valuation Information

Adequate and dependable real estate property and market information is crucial in the practice of professional and ethical real estate property valuation.

On the other hand, inadequate and flaky property market data or info has a high tendency to carry its users astray and produce inaccurate property valuations that can instigate worrying trends.

Incorrect or improper valuations can have a negative impact on investor confidence, property market performance, the economy, and generally derail investments in real properties.

For this reason, the availability of correct and reliable property market information should be taken seriously and consistently used to maintain or improve property valuation practices in:

• the purchase, sale, and letting of properties
• real estate insurance and taxation and insurance
• real estate investment and management
• real estate inheritance and settlement
• asset allocation, re-allocation, and sharing, and
• government privatization and divestiture programs

As an interested individual, investor, or prospective buyer, you may find that the following sources or practitioners have the kind of property market information that can be used to conduct proper property valuation and evaluate the worth of various kinds of properties:

1. Property sellers               

Sellers may have their own property market database, or they may represent property owners, public institutions, estate agents, estate developers, or even their own professional colleagues.

Many sellers actually go the extra mile to conduct their own “informal” research and obtain information concerning recent sales of properties that they are personally aware of in a locality or an area.

Good sellers are knowledgeable enough to evaluate properties and make critical decisions concerning the asking prices for properties. It’s important to point out that because property valuation has many variables, the pricing of income properties might not always be as highly precise or accurate as it could be.

2. Real estate brokers and agents

Brokers and agents can also have their own database. On the other hand, they may represent property owners, public institutions, or their professional colleagues.

Good brokers and agents have access to highly valuable competitive market analysis (CMA) or the “broker price opinion” (BPO) which is more in-depth; both represent estimates of market value for properties that exist in local areas.

Because brokers and agents periodically monitor the listing and sale of corresponding properties, they provide information about CMA and BPO to property owners with the aim of acquiring listings on various properties.

Based on property valuation information, brokers’ and agents’ property valuations can be reasonable or fair; however, it’s important for a buyer to note that valuations can rise higher if an agent or broker is aware that they would personally be given higher compensation if their valuation attracts a higher sales price.

3. Professional property appraisers

Like sellers, brokers, and agents, professional property appraisers can also have their own database, or they may represent property owners, public institutions, or their professional colleagues during property valuations.

In many instances, lenders and property owners hire professional property appraisers or valuation specialists to estimate the value of properties at/around a particular time.

Appraisers are rarely consulted by sellers who may only establish contact when the sale of a property is caused by litigation or probate will, or when the government is either the buyer or seller of a property.

Concluding remarks

Accurate property market information is not always easy to come by. As a result, over the years, countries—especially Western developed ones—have been assembling relevant information, formulating institutions, and creating and improving access to reliable property market information.

Quite a lot has been achieved because of the interest, concern, and care that some practitioners have shown towards property information/data collection and the administration of a property market databank to help provide reliable property market data.

Their unwavering dedication could suggest a need for property valuers or evaluators and estate agents to undergo regular and applicable training which can develop and enhance their valuation knowledge, capabilities, and skills.

The Benefits of Real Estate as an Investment

Real estate is a great form of investment that has high growth and income-generating potential. Most people who invest in real estate, but don’t make money from it, are those who make easy mistakes that could have been easily avoided.

In life, it’s never too early or too late to devise a comprehensive plan to build wealth by investing in real estate. A good plan or strategy can help many people live a comfortable life and take care of many priorities.

Although one of the major challenges of real estate indeed is that it could take arduous planning to get started, acquiring your first rental property and buying general property isn’t all that difficult.

When compared with other investments, it can be concluded that real estate has a high potential to excel at attracting periodic, monthly, or yearly cash flow to its owners. In addition to any real estate’s long-term appreciation potential, a real estate owner can also earn income or profits, year in and year out.

All you need to benefit immensely from real estate investment is a good financial/real estate investment plan, a lot of forbearances, and willingness to do the necessary hard work required for you to succeed.

When a good real estate plan or strategy is put in place, the following are the major benefits that result from real estate as an investment:

1. Real Estate Investment can Attract Regular Cash Flow, High Returns on Investment, Financial Freedom, Wealth, and Security

If you rent out your real estate property—all things being equal—you will attract income every month. Certain properties, like big multi-unit complexes, have characteristics that can make them attract more dividends than smaller properties. The more property a real estate owner acquires and rents, the more cash flow, return on investment, wealth, security, and financial freedom they would acquire, and be more capable of preserving their increasing capital and making profit.

Although the owners of real estate investments should expect to incur expenses—which could include insurance, maintenance, mortgage payment, property taxes—how they handle the income coming in, and expenses that make money leave their pockets, will inform them whether they are realizing good profit or running at a loss.

2. Real Estate Investment can lead to Socio-economic Development and Enhancement of Social Status

Depending on the services or benefits offered, residential properties or buildings may be regarded as goods or services that help people meet their social and economic needs. Generally, the use of various types of properties actually helps people meet their primary needs and achieve their goals at homes, in workplaces, in industries, etc. The more a real estate owner can help people meet their needs, the more they enhance their social status.

Many investors are often looked upon in high regard if they are capable of providing homes for people to rent or buy, especially at fairly good prices or rates. Although every person needs a roof over their head, not everyone has the money to buy a home, and so they may need to rent one. Meeting these needs enhances a real estate investor’s social status in society.

3. Real Estate Investment can Attract Reduced Income Tax Bills

When it comes to income tax, in many cases real estate investors have many advantages that could help them make claims for their expenses, or costs called “depreciation”. It’s very likely that every real estate investor will make an expense, or spend money in one way or another: there will be an expenditure or a form of cost or depreciation. This depreciation helps the owners of real estate investments make claims and reduce their income tax bill, thereby increasing the cash flow they make from their properties.

4. Real Estate Investment can Appreciate Property

All things being equal, the value of any real estate property will be worth much more in many years from now; this is the reason why many real estate investors are in real estate investment for the long run. If a real estate investor goes into real estate investment with a long-term picture, they will experience an appreciation of their capital assets—such as land and property—over time.

Appreciation of properties also ensures that people with real estate investments won’t pay for the profits gained from appreciation until they sell their property. This implies that people with investments can continue to use their profits to invest in new/other properties, and avoid paying taxes.

5. Real Estate Investment can Minimize or Eliminate Inflation

Real estate investors help minimize or eliminate inflation because, as the cost of living and prices associated with properties price goes up, so does the income investors get from their property and its value. This implies that real estate investments protect real estate investors from the effects of inflation, regardless of whether the effects are current or long-term.