Property Contracts: Everything You Need to Know
Property contracts are agreements made during the sale or lease of real estate and other items. Among the many types of property contracts are land contracts, real estate contracts, intellectual property contracts, lease agreements, bills of sale, and loan agreements. 3 min read
Property contracts are agreements made during the sale or lease of real estate and other items. Among the many types of property contracts are land contracts, real estate contracts, intellectual property contracts, lease agreements, bills of sale, and loan agreements.
A land contract is an agreement made by a real estate seller and buyer when buying on loan. The contract stipulates how a buyer will make payments until the full price is completed. When a land contract is signed, the title of the property is kept by the seller and is only handed over to the buyer after satisfaction of all terms of the contract, including payments.
Land contracts offer several benefits. A buyer who cannot get a mortgage because of poor credit history is able to buy real estate by making direct monthly payments.
Land contracts also benefit sellers in the following ways:
- Access to more buyers
- Potential to earn more by asking for a higher purchase price
- Ability to keep both the property and money already paid if the buyer fails to complete payments
After the land contract is signed, the seller retains the legal title of the property until all payments have been made. The buyer, however, is considered to have an “equitable title” to the property, and the seller is prohibited from selling off the property to a third party.
Contracts for Sale of Real Estate
A real estate sale contract is signed when real estate is being sold to another party. Real estate transfers fall under the Statute of Frauds, a law that requires some contracts to be in writing.
The sale of real property follows these steps:
- Signing of the contract of sale
It is after closing that the deed is transferred to the buyer. An ideal real estate purchase contract should have the following details:
- The buyer's and the seller's names
- The property details
- The pricing and financing details
- Closing and possession dates
- Insurance details
- Conflict resolution procedures
- Termination options
The buyer normally deposits an amount called “earnest money” with a third party to show his intention to buy. This amount is refunded if the deal falls through.
The Role of Brokers
Many property sellers hire brokers to find buyers. The broker is paid a flat fee or a commission, typically 6 percent of the sale price. The law in some states requires hired brokers to be paid even if the seller changes his mind or sells through other avenues.
The Seller's Obligation to Present Marketable Title
The seller has an obligation to give the buyer “marketable” title. Such a title is free from contention and doubt. A title that is unmarketable, on the other hand, has a chance of causing financial loss to the buyer. A seller conveys a marketable title by either showing the complete history of transfer of the title or demonstrating that he got the right to own the property through court action.
Breach of Real Estate Contracts
In some states, the law requires a seller to complete a disclosure form before the sale. The sale contract can be voided if the seller deliberately withholds details about the property.
Unlike most other breach-of-contract situations, which courts settle by awarding monetary damages, courts consider pieces of land unique and can force a seller who breached the contract to hand over the land to the aggrieved buyer.
Intellectual Property Contracts
There are two major types of intellectual property: licenses and assignments.
- Assignment: An assignment of intellectual property involves the transfer of ownership of intellectual property.
- License: A license of intellectual property rights gives another party rights to do specific things with the property.
Intellectual property contracts are always done in writing and must have the following details:
- The definition of the property
- Any warranties and indemnities given by the owner
- Any circumstances under which the license may be canceled or the rights reverted
- How moral rights will be treated
Other Types of Property Contracts
- Residential lease agreements: These are contracts made between a residential tenant and the landlord. They state the terms of the tenancy.
- Commercial lease agreements: These are similar to residential lease agreements but are made by landlords and tenants of commercial properties.
- Loan agreements: A loan agreement is signed by a lender and borrower. It records the terms and conditions of the loan, including the repayment plan.
- Bill of sale: A bill of sale records a transaction between a seller and buyer. It is signed by a buyer and a seller when the seller transfers property to another party.
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