The real estate purchase contract (REPC) is the basis of just about every deal you do. Yet, very few investors really understand it fully. This blog will teach you some key aspects of the REPC that can make a big difference in your next deal.

The REPC is a binding contract between a buyer and seller of real property. They are the only “parties” to the contract. Your agent, title officer, lender and etc. are not bound by this document. Only the parties may sue to enforce it or for breach of it.

You’ve heard that “everything” in real estate needs to be in writing. While there are other ways to buy and sell real estate without a written document, don’t rely on those! Always put it in writing!! This means not just the REPC, but all addenda. It does NOT matter what someone promises, only what is in writing AND signed.

In the event of lawsuit, texts and emails, in certain limited circumstances, can be evidence to substantiate your position. BUT DO NOT RELY ON THIS! If you want it to happen, put it in writing and get it signed! And a title company cannot go off texts or emails to change terms of the REPC. Don’t trust other agents or investors when they say, “Yeah, I’ll sign it and get it to you.” That is meaningless and you don’t have an agreement until it’s actually signed. They can be running out the clock. (If you’re an agent, you can lose your license if this pushes the limits of honesty.)

Signatures do not have to be notarized and electronic signatures are acceptable. Remember, that ALL titled owners of a property MUST sign the REPC as sellers. In the event even one owner doesn’t sign the REPC, the contract is voidable by the seller. That means the seller can back out of the contract and there’s nothing you can do to force the sale of the property. (You may have a case of fraudulent inducement against the one who did sign, but don’t rely on that either!). You should absolutely check county land records and your title property report to confirm this before it’s too late.

Putting up the earnest money is not a material condition of the REPC. That means failing to deposit it doesn’t “automatically” invalidate it (many people think it does). But, in the event of litigation for buyer breach, it would become one factor to determine if you did breach the contract. So, don’t even open that door and deposit the earnest money. Some investors write in an addendum that earnest money will be deposited “at or before closing.” This can make things easier with quick purchases, so you don’t have to run to your title company to make the deposit. (Note, this doesn’t change any rules that agents have to follow for depositing earnest money. That is a separate issue regarding your license.)

The biggest issue in contracting comes with making changes—the Addendum. This becomes even more problematic when there are numerous addenda. It can quickly get muddy what terms have changed, which haven’t, and what the current terms are. I could go on for hours explaining how to do this. Suffice it to say, that you need to 1) be very careful about the language (take your time to make it correct and clear!), 2) remember ALL deadlines (meaning both the deadline to make changes and deadlines to respond to an addendum), and 3) remember that it’s not binding until ALL have signed it.

In the event of a breach, both the buyer and seller have the same options: 1) take an amount equal to the earnest money as liquidated damages, 2) sue for actual damages (you will have to prove the costs you incurred because of the breach), or 3) sue to force the sale of the property (although it’s rare for a seller to force a buyer to buy the house).

If you ever have any questions about terms in a REPC or making addenda, you’re best advised to run the term or language by your broker or an attorney.

Jeffrey S. Breglio, Esq.
Breglio Law Office and REI Mastery U
www.reimasteryu.com
jeff@bregliolaw.com
(801) 560-2180