PROPERTY MANAGEMENT BASICS: Reviewing Your Purchase and Sale Contract
As the Property Management Authority®️ in Southern New England, we at Nexus Property Management® want to ensure that all who invest in real estate are comfortable and at their best when it comes to maintaining and understanding the responsibilities that come with owning and managing a property. We take the most pride and enjoyment in sharing time-tested best practices but it’s also important that we cover the basics. So let’s dive into one of the most important documents you’ll need to be comfortable with: The Purchase and Sale Agreement.
To begin, our best advice is to have an attorney assist you in your review of your contract. However, there are some tips and pointers to keep in mind as you read through the contract yourself.
First off, a Purchase and Sale Agreement is important to set boundaries and expectations for the sale or the property or properties you’re interested in buying. It is a legally binding document that you need to check, double-check, and check again to ensure accuracy. Be sure that the two parties are listed (AND SPELLED) correctly. If you, or the other entity, are using an LLC rather than your own name, make sure it says so here.
Other important details to keep an eye out for: the date, THE PURCHASE PRICE, the address and spelling of the property or properties being exchanged, all spelling and all math. A simple mistake like the wrong vowel or a 1 that didn’t get carried is all it takes to delay and add friction to what we want to see as a smooth process. Here are some other common mistakes made due to inability to carefully check over the details in your contract.
DEEDS AND TITLES:
There are three main deed options but in most cases you’re only interested in a Warranty Deed. This is the safest and provides the most protection for you as the buyer. From time to time, we do see Quitclaim Deeds, but it can be risky if the seller is not (or even if he/she is) someone you know well and trust, such as a sibling. You’d typically only use a Quitclaim Deed if you were doing a property transfer, but even then, keep in mind you’re getting the least protection possible.
When it comes to titles, the big question is, “Do I need to buy title insurance?” At Nexus, we strongly recommend that buyers purchase title insurance. There are even many lenders who require it. The fact of the matter is that it is well worth $500 (or so) to avoid any disputes or needless conflicts down the road should anyone question your ownership or the history of the property.
CLOSING DATE:
It is important to realize that your closing date is not set in stone and that you can ask for an extension if need be. 45-60 days (from the date of this contract) is the typical period before your closing date. Sellers or lenders may need to adjust this and be aware that this is totally normal.
TAXES, BUYERS’ RIGHTS, AND ADJUSTMENTS:
Be sure that all taxes on the property are paid by the seller prior to the closing (again, this may be 45-60 days beyond the date of contract). This expectation should be specified. There may also be the need for some ADJUSTMENTS under that section heading. Adjustments are standard changes and fees incurred before the date of the sale. For example, you may be buying the property in mid-September but the seller has already paid the sewer bill through January 1. Because these payments have already been made, they will be debited to you at the time of closing.
When we talk about BUYERS’ RIGHTS we’re talking about your right to having the property(ies) inspected prior to purchase. At your own expense, you may have mechanical, lead, general home inspections, etc. to create comfort and full understanding of the property you are buying. You’ll need to list the options you want in the Buyers’ Rights section or indicate which rights you wish to waive.
The intelligent followup question is whether or not you should have these inspections done? The short answer is that you should have the property inspected if it is essential to your comfort in the purchase. That being said, as experienced investors who are well-versed in property management and repair, we don’t recommend it or see the value provided by a $1000 general inspection if you’re buying a typical investment property.
There are of course some exceptions. If you’re buying an industrial or commercial space you may opt to get a better understanding of the property first. In New England and some of the Midwest, we’re seeing more and more old factories repurposed as residential living space. Properties such as these, that may have a long history of use that may have been riskier to the building are likely worth inspecting to avoid any surprising major issues down the line.
FIRE SAFETY AND RADON:
It is the seller’s responsibility to get the property up to fire code. Be sure that is specified in your Purchase and Sale Contract. There’s zero reason you would want to do this yourself after buying the property.
Radon is a serious health risk and the second leading cause of lung cancer in America. It is colorless, odorless, and occurs naturally and is not an issue outdoors, but when trapped inside it can be a problem that needs fixing. Because of this, radon levels always have to be disclosed to property purchasers. Any history of elevated levels and/or remediation will also be disclosed to you.
SELLER CREDITS, ADDITIONS, AND EXCEPTIONS:
This is where you’ll want to make sure any variables that are unique to your purchase and the deal you’ve agreed to are included. Without listing these items here, they are not part of your contract.
TO SUMMARIZE:
The most important step when it comes to your Purchase and Sale Contract is to ensure you have an attorney that you trust. Working with an industry leader like Nexus Property Management® will not only connect you with a reputable attorney for your purchasing needs, but it will also help support you throughout the life of your investment. Nexus’ rapid growth is rooted in providing leasing, maintenance, and management services, all under one roof, which helps keep costs down for their clients. The other key to their rise above local competitors is their NVest®️ Buyer Agency program. Nexus will actually work to find a property that fits your needs, provide realty services, and then manage the property for a low, transparent, and consistent rate. For more information on how to take advantage of this opportunity and what is needed to get started in Real Estate Investing, visit this page or contact us at Nexus Property Management®.
Mick Lefort is the Vice President of Operations for Nexus Property Management®. A National Property Management Franchise that manages all types of rental property from single family homes or condos to large apartment buildings and complexes.
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