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Real Estate Purchase Agreement: Essential Guide for Landlords, Investors, and Tenants

Comprehensive guide to understanding real estate purchase agreements for tenants living in properties being sold, real estate investors with multiple rentals, and individual landlords selling rental properties.

Introduction

A Real Estate Purchase Agreement is a legally binding contract that outlines the terms and conditions of a property sale between a buyer and seller. Whether you're a tenant concerned about your living situation when your landlord decides to sell, a real estate investor expanding your portfolio, or a landlord looking to sell your rental property, understanding this document is crucial to protecting your interests and ensuring a smooth transaction. This guide breaks down the key components of a Real Estate Purchase Agreement and provides specific insights for tenants, investors, and landlords navigating property sales.

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Key Things to Know

  1. 1

    A Real Estate Purchase Agreement is legally binding once signed by all parties, so review it carefully or have an attorney review it before signing.

  2. 2

    Tenants generally maintain their rights under existing leases when a property is sold, as the new owner must honor the terms until the lease expires.

  3. 3

    Contingencies protect buyers by allowing them to back out of the deal under specific circumstances without losing their earnest money.

  4. 4

    Landlords selling rental properties must disclose existing leases, security deposits, and any known property defects to potential buyers.

  5. 5

    Real estate investors should include contingencies for reviewing tenant payment histories, lease agreements, and property financial records.

  6. 6

    The purchase agreement should clearly state whether the property will be delivered vacant or with tenants in place at closing.

  7. 7

    Security deposits must be transferred from the seller to the buyer at closing, with proper accounting and notification to tenants.

  8. 8

    Financing for investment properties typically requires larger down payments and carries higher interest rates than primary residence loans.

  9. 9

    Local landlord-tenant laws may impact how a property sale can proceed, including requirements for tenant notification and rights of first refusal.

  10. 10

    Tax implications of selling rental property differ significantly from selling a primary residence, including potential capital gains tax and depreciation recapture.

Key decisions before you file

Before you file a Real Estate Purchase Agreement in Maryland, a few decisions shape the document: which option to choose and what each one means. The Real Estate Purchase Agreement guide walks through them.

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Maryland Requirements for Real Estate Purchase Agreement

  • Statute of Frauds (Maryland Real Property Code § 5-104)

    Real estate contracts must be in writing to be enforceable under the Statute of Frauds, which requires certain contracts to be written and signed by the parties to be bound.

  • Property Disclosure Requirements (Maryland Real Property Code § 10-702)

    Sellers must provide buyers with a property disclosure or disclaimer statement detailing known material defects in the property.

  • Lead-Based Paint Disclosure (42 U.S.C. § 4852d; 40 CFR Part 745)

    For properties built before 1978, sellers must disclose known lead-based paint hazards and provide buyers with a 10-day period to conduct a risk assessment or inspection.

  • Maryland Residential Property Condition Disclosure Act (Maryland Real Property Code § 10-702)

    Requires sellers to complete a standardized disclosure form or provide a disclaimer statement to buyers before the contract is executed.

  • Financing Contingency (Maryland common law; no specific statute)

    Allows buyers to make the purchase contingent upon obtaining financing under specified terms, with provisions for what happens if financing cannot be secured.

  • Inspection Contingency (Maryland common law; no specific statute)

    Provides buyers with the right to have the property professionally inspected and to negotiate repairs or terminate the contract based on inspection findings.

  • Title Examination and Insurance (Maryland Real Property Code § 14-117)

    Requires clear title to be conveyed and specifies who is responsible for title search costs and title insurance premiums.

  • Maryland Forest Conservation Act (Maryland Natural Resources Code § 5-1601 et seq.)

    For properties with significant forest areas, compliance with the Forest Conservation Act may be required, affecting development rights.

  • Critical Area Compliance (Maryland Natural Resources Code § 8-1801 et seq.)

    Properties within the Chesapeake Bay Critical Area are subject to special development restrictions that must be disclosed and addressed in the purchase agreement.

  • Real Estate Settlement Procedures Act (RESPA) (12 U.S.C. § 2601 et seq.)

    Governs the settlement process, requiring specific disclosures about closing costs and prohibiting certain practices in the settlement process.

  • Truth in Lending Act (TILA) (15 U.S.C. § 1601 et seq.)

    Requires lenders to provide borrowers with clear information about loan terms and costs, affecting the financing aspects of the purchase agreement.

  • Maryland Homeowners Association Act (Maryland Real Property Code § 11B-101 et seq.)

    Requires sellers to provide buyers with HOA documents, including bylaws, rules, and financial information before contract ratification.

  • Maryland Condominium Act (Maryland Real Property Code § 11-101 et seq.)

    For condominium sales, requires specific disclosures about the condominium regime, including resale certificates with financial information.

  • Fair Housing Act (42 U.S.C. § 3601 et seq.)

    Prohibits discrimination in real estate transactions based on race, color, religion, sex, disability, familial status, or national origin.

  • Maryland Equal Rights in Housing (Maryland State Government Code § 20-702)

    Maryland's state-level fair housing law, which includes additional protected classes beyond the federal Fair Housing Act.

  • Foreign Investment in Real Property Tax Act (FIRPTA) (26 U.S.C. § 1445)

    Requires withholding of a portion of the sales price when the seller is a foreign person, with specific disclosure requirements.

  • Maryland Recordation and Transfer Taxes (Maryland Tax-Property Code § 12-101 et seq.; § 13-101 et seq.)

    Specifies the taxes due upon transfer of property and who is responsible for payment, which must be addressed in the purchase agreement.

  • Earnest Money Deposit Requirements (Maryland Real Estate Commission Regulations (COMAR 09.11.02))

    Governs how earnest money deposits must be handled, including escrow requirements and conditions for forfeiture or return.

  • Maryland Real Estate Broker Licensing Law (Maryland Business Occupations and Professions Code § 17-101 et seq.)

    Requires disclosure of agency relationships and licensing status of any brokers involved in the transaction.

  • Environmental Disclosure Requirements (Maryland Environment Code § 6-801 et seq.)

    Requires disclosure of known environmental hazards, including underground storage tanks, asbestos, and other contaminants.

Frequently Asked Questions

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