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The High Stakes of Real Estate Purchase Agreements

The High Stakes of Real Estate Purchase Agreements

In Monopoly, prospective properties on Park Place and Illinois Avenue are purchased “as is.” The money used to purchase them isn’t real. There are no negotiated purchase agreements. The highest negative stake is losing face to fellow competitors by going belly-up in debt and forfeiting conquered properties.

“But here in the real world,” to borrow a line from Country-Western singer Alan Jackson, buying real estate is “not that easy at all.” Buyers, when making what in most cases will be the single most important purchase of their lives, need to have a solid handle on the ins-and-outs of the transaction to avoid headaches down the road. The terms of a real estate deal are set forth in a written purchase agreement.

If you plan on buying residential real estate, here are three key things that you should understand about purchase agreements: 

(1) Property Condition Disclosure

Sellers of residential property are required under Minnesota law to disclose all material facts of which they are aware that could adversely and significantly affect an ordinary buyer’s use or enjoyment of the property or any intended use of the property. A buyer can waive this requirement, but it would be foolhardy in most cases to do so given the risk of exposure from potentially serious defects. Buyers should understand that sellers are only required to disclose defects of which they have personal knowledge, so if mold is discovered in the attic after the purchase, a seller isn’t on the hook financially unless he/she knew about the fungal infestation and chose not to disclose it. Therefore, it is still critical to have an independent professional inspection performed, in conjunction with seller disclosure, to catch these hidden condition.

 

(2) Earnest Money

Earnest money is a deposit made by the buyer to show a good-faith intention to purchase the property. Most purchase agreements will spell-out what happens to this money should the transaction not go through. For example, the agreement may contain a financing contingency where the agreement is automatically cancelled, and the earnest money fully refunded, if the buyer cannot secure adequate financing to make the purchase. It is very important to understand this contingency and others, as well as what happens in the event of default under the purchase agreement, because this will impact who ultimately walks with the earnest money.

 

(3) Arbitration Provision

The majority of purchase agreements will give the buyer the option of resolving any disputes that might arise from the sale exclusively through arbitration. Both seller and buyer have to agree to this provision. Arbitration is a form of alternative dispute resolution where the conflict is conclusively resolved by a third-party neutral. Although arbitration has some advantages (i.e. sometimes cheaper and quicker than litigation), buyers need to understand that by binding themselves to this process they forfeit certain benefits of having the dispute heard in open court by a judge or jury. Every situation is unique and needs to be thoroughly thought through before signing on the dotted line.

Purchasing real property isn’t a game. Knowing the legal lay-of-the-land when it comes to the obligations of buyers and sellers under a purchase agreement is of paramount importance because an oversight or mistake can have long-lasting consequences. Whereas a “Get Out of Jail Free” card will get you out of a pinch in Monopoly, they will be of no use should your real estate transaction fall apart.

 

If you're looking for qualified and trusted Minneapolis/St. Paul real estate attorneys, please call our Golden Valley office at 763-398-1676 or fill out this quick form to schedule a consultation.

This website features educational information based on general legal principles in Minnesota.  Specific legal advice is contingent upon the unique facts of each case.  Therefore, you should not rely only on this information for your particular legal issue.  Contact an attorney to obtain advice specific to your legal situation.  Read our full disclaimer.
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Comments 6

 
Guest - Robin Masshole Mommy on Monday, 04 May 2015 17:17

I remember being SO stressed out when I bought my house. There was so much paperwork and no one wanted to take the time to explain it to me.

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I remember being SO stressed out when I bought my house. There was so much paperwork and no one wanted to take the time to explain it to me.
Guest - Michelle F. on Monday, 04 May 2015 19:35

This is great information for my husband and I. We are in the first steps of purchasing our first home and there really is a lot that goes into it.

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This is great information for my husband and I. We are in the first steps of purchasing our first home and there really is a lot that goes into it.
Guest - Julie on Monday, 04 May 2015 20:30

We've only ever purchased one house, but it was definitely a lot to think about! These are some great tips for new and returning buyers!

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We've only ever purchased one house, but it was definitely a lot to think about! These are some great tips for new and returning buyers!
Guest - Crystal on Monday, 04 May 2015 23:50

Thinking about how little I know about the real estate purchase process, it's amazing I was able to buy a home. This is great information.

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Thinking about how little I know about the real estate purchase process, it's amazing I was able to buy a home. This is great information.
Guest - Heather on Tuesday, 05 May 2015 05:32

This is good information. My husband and I held out buying a home for a long time because I wasn't employed, we soon found out it didn't matter as long as we were showing we could afford the home with 3% down and could continue to pay the mortgage. I'm glad we didn't wait.

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This is good information. My husband and I held out buying a home for a long time because I wasn't employed, we soon found out it didn't matter as long as we were showing we could afford the home with 3% down and could continue to pay the mortgage. I'm glad we didn't wait.
Guest - Caitlin on Tuesday, 05 May 2015 13:39

This is definitely interesting information for sure! Thank you for sharing!

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This is definitely interesting information for sure! Thank you for sharing!

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