Real estate transactions do not always go as planned. You may find yourself in a situation where the deal falls through after months of work. As a buyer or seller, you stand to lose significant time and money if you do not have the proper legal protections in place.
Guard your investment with a down payment
As a buyer, your down payment, also called a contract deposit, is more than just a portion of the purchase price—it is your stake in the property that shows the seller you are serious. A down payment or contract deposit is earnest money, and it demonstrates your commitment to the transaction, making it less likely for the seller to consider other offers. Down payments call also refer to the total amount which a buyer pay for a deal, which would be the contract deposit plus any funds over what is to be financed. Here is how you can use these tools to your advantage:
- Set clear terms and conditions: Always specify the conditions under which the seller should return a deposit or the buyer should forfeit their deposit. Clear terms help prevent misunderstandings and disputes.
- Use escrow accounts: Deposit your funds into an escrow account managed by a neutral third party to protect your money until the transaction is complete or a dispute is resolved.
- Almost all contracts used by attorneys in New York have standard and generally acceptable provisions for holding and disbursing contract deposits.
A down payment protects the seller. If a buyer backs out for reasons not covered by contingencies in the contract, the seller keeps the deposit. Earnest money on contract is not mandatory in New York, but it is almost universal. Most sellers will not consider a contract without a contract deposit.
Solidify your agreement with contracts
A well-drafted sales agreement outlines every step of the real estate transaction process, including the responsibilities of each party and the timeline for the sale. To create a solid and effective sales contract, you should do the following:
- Detail the property: Include a complete description of the property.
- Specify contingencies: Clearly state any conditions before the sale can proceed, such as securing a mortgage or passing a home inspection.
- Outline the terms: Define the rights and obligations of both buyer and seller and state the consequences for breach of contract.
Clear contract terms governing timelines, contingencies and deposit handling are necessary when conducting a real estate transaction. By understanding potential pitfalls and taking preventative measures, you can protect your investment of time and money when buying or selling real estate.
