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Understanding the 1-to-4 Residential Contract for Resale

Hi everyone! I’m Jay Lee Thompson, owner and broker of TechSell Real Estate. Today, I’m breaking down the 1-to-4 Residential Contract for Resale, essential for selling houses, not condos or multifamily units. Let’s get into all the details you need to fill out this contract correctly.

Who Are the Parties?

The first part is about the parties involved: the buyer and the seller. Make sure you use their full names as they appear on their driver’s licenses.

Property Details: Lot and Block

To find the lot and block, head to your county appraisal district’s website. They’ll have detailed info about the property you’re dealing with.

Is It An Improvement?

Improvements include any permanent additions like sheds or built-in grills. If it’s attached to the ground or the house, it’s an improvement. Make this clear in the contract to avoid later disputes.

Cash and Finance

Paragraph three is straightforward: list the cash portion of your price and the amount being financed. For example, if you’re using a VA loan, you might put down zero. Add the cash and financed amounts to get your sales price.

License Holder Disclosure

If you are a license holder or related to the owner, disclose it here. It’s better to over-disclose than to seem deceptive.

Earnest Money: Time-Sensitive

Earnest money is often expected within three days after the effective date of the contract. Timeliness matters. Missing this deadline can kill your contract.

Title Policy and Survey

Who pays for the title policy and survey is negotiable. You’ll need to specify whether the buyer or seller will cover these costs.

What If There Are Objections?

The buyer can state specific objections, like removing a dead tree or ensuring an RV fits in the driveway. The seller then has a period to address these.

Property Condition: “As Is” or With Repairs

Choose whether the buyer will accept the property as is or if specific repairs are required. Don’t just put “per inspection report”; be specific about repairs needed.

Seller’s Obligations

The seller must keep the utilities on for inspections. If lender-required repairs exceed 5% of the sale price, the buyer can terminate the contract.

Environmental Matters

Check for environmental issues like toxic dumping. This is especially important for properties with land that might have been used for industrial purposes.

Residential Service Contract

A residential service contract can give buyers peace of mind. It covers repair costs for appliances and systems for a period after they move in.

Important Dates

Specify an exact closing date and ensure all agreed-upon dates fit within transaction timelines. This should be a specific date, like April 15, 2021, not a range.

Moving In and Leasebacks

Decide when the buyer will move in: upon closing or later. Sometimes sellers need extra time to move out and might request a temporary leaseback.

Special Provisions

This section is for factual statements and specific business details, not for rewriting the contract or including complex legal terms.

Settlement and Prorations

Detail who pays for what at closing. Prorate taxes and other fees so that each party pays their fair share up until the closing date.

Casualty Loss

If there’s damage to the property before closing, the buyer has three options: terminate the contract, extend closing to allow for repairs, or accept the property and insurance proceeds.

Default and Mediation

If either party defaults, the other can seek specific performance or terminate the contract. It’s recommended to mediate disputes before taking legal action.

Earnest Money Escrow

If there’s a dispute about earnest money, the title company can disburse the funds unless an objection is received within 15 days.

Federal Tax Requirements

If the seller is a foreign person, taxes will be withheld from the sale proceeds to comply with IRS requirements.

Delivering Notices

Notices can be delivered by mail, hand, fax, or electronically. Make sure all notices are properly documented and delivered to the proper parties.

Necessary Addenda

Check off any additional documents included with the contract, like a seller’s temporary lease or a lead-based paint disclosure.

Termination Option

The option fee must be delivered within three days of the contract’s effective date. This grants you a window to inspect the property and renegotiate if needed.

Consult an Attorney

If you’re unsure about any part of the contract, consult an attorney before signing. This ensures you understand all terms and responsibilities.

Conclusion

In conclusion, the 1-to-4 Residential Contract for Resale is a crucial document in real estate transactions, covering every essential detail from identifying the parties involved to specifying financial arrangements and addressing property conditions. Understanding each section of the contract ensures that both buyers and sellers are well-protected and clear on their obligations, leading to a smoother and more transparent transaction. 

Always remember, when in doubt, consulting with a real estate attorney can provide the necessary clarity and safeguard your interests. Happy selling and buying!

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