Which Real Estate Contract Should You Use?

Posted on July 6, 2013 by

Austin Boston Berry (aka Austin Boston) bought his first investment property about two weeks ago.  It’s a nice four-bedroom, two-bath, all-brick home on Grassdale Road in Cartersville, Georgia.  And here’s the best part – Austin Boston is only twenty-four years old!

The key to Austin getting this deal was his tenaciousness.  He stayed after this deal.  He met with the seller on a regular basis.  Kim described Austin as being a little bulldog – and because he’s a Georgia Tech grad, he didn’t like this moniker one bit!

But what if, because he didn’t have a contract to use, he didn’t give the seller a written offer?  It’s likely he would have lost this deal.    

Most folks think the scariest part of real estate investing is meeting with sellers.  It’s not.  It’s when you make an offer to a seller and the seller says…YES!

What’s so terrifying about the seller saying yes?  It leads to the all-important question: What do I do next?  So what DO you do next?  You document what you and the seller just agreed to: You write up a contract.

Contract?  What kind of contract?  Where do I get a contract?  What needs to be in the contract? These are common questions we’re regularly asked.  Here’s another: “What if I sign a contract with a seller but then change my mind because there’s something wrong with the house, or I can’t get financing, or I find a better deal…how do I get out of the contract AND get ALL of my earnest money back?”

A few years ago, an investor said, “A realtor told me that the only legally binding contract I can use to buy or sell real estate is the official contract realtors use.  Is this true?”  Nope.  And to prove the point, that afternoon I made a written offer on a…banana!  The contract was legally binding – though it can be argued that it was a bit…slippery!  Oh, and where do you go to celebrate a banana-contract closing?  Dairy Queen, of course – for a banana split!

So which contract do Kim and I normally use?  It’s a short, easy-to-read, one-page agreement that I wrote years ago and have tweaked ever since.  But there have been times my “contract” was written on notebook paper and had several bullet points that outline my agreement with the seller.  The point is, to be legally binding, contracts don’t have to be overly complicated, confusing, multi-page documents.

Basically, to be legally binding, a real estate contract needs: 1) An offer and acceptance between buyer and seller.  2) Consideration – among other things, this can be a ten-dollar bill or some sort of action.  3) All terms and conditions must be in writing.  (Oral agreements are not legally enforceable when it comes to real estate transactions.)

I’m not an attorney, nor do I play one on TV.  But based on years of experience, my favorite contracts are short, simple and easy to understand.  A great way to learn about real estate contracts is by hanging around been-there-and-done-that real estate investors on a regular basis.

Bill & Kim CookBill & Kim Cook are a husband and wife real estate investing team. They live in Adairsville, Georgia and have been investing in real estate since 1995. They specialize in buying single-family homes, mobile homes and mobile home parks. They also run North Georgia REIA and teach folks how to successfully invest in real estate.

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