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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 Minnesota, 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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Minnesota Requirements for Real Estate Purchase Agreement

  • Statute of Frauds (Minnesota Statutes § 513.05)

    Real estate purchase agreements 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 (Minnesota Statutes § 513.55)

    Sellers must provide written disclosure of all material facts of which they are aware that could adversely affect the use or enjoyment of the property, including environmental hazards, water intrusion, and structural defects.

  • 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 lead-based paint inspection.

  • Earnest Money Requirements (Minnesota Statutes § 82.75)

    Regulations governing how earnest money must be handled, including requirements for deposit into trust or escrow accounts by brokers or title companies.

  • Closing Costs and Fees Disclosure (Real Estate Settlement Procedures Act (RESPA), 12 U.S.C. § 2601)

    Requirements for disclosure of all closing costs, fees, and other expenses associated with the real estate transaction.

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

    Provisions allowing the buyer to make the purchase contingent upon obtaining financing under specified terms, with clear deadlines and conditions for waiver or satisfaction.

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

    Provisions allowing the buyer to conduct property inspections and potentially negotiate repairs or price adjustments based on inspection findings.

  • Title Examination and Insurance (Minnesota Statutes § 508.02 (Torrens system); § 507.01 (Abstract system))

    Requirements for examination of title and provisions for title insurance to protect against defects in title.

  • Well Disclosure Requirements (Minnesota Statutes § 103I.235)

    Sellers must disclose the location and status of all wells on the property, including whether they are in use, not in use, or sealed.

  • Sewage Treatment System Disclosure (Minnesota Statutes § 115.55)

    Sellers must disclose information about private sewage treatment systems, including their location, type, and compliance status.

  • Methamphetamine Production Disclosure (Minnesota Statutes § 152.0275)

    Sellers must disclose if they have knowledge that methamphetamine production has occurred on the property.

  • Radon Disclosure (Minnesota Statutes § 144.496)

    Sellers must disclose any knowledge of radon concentrations in the dwelling, including providing any previous test results.

  • Fair Housing Compliance (Fair Housing Act, 42 U.S.C. § 3601; Minnesota Human Rights Act, Minnesota Statutes § 363A.09)

    The agreement must comply with federal and state fair housing laws, prohibiting discrimination based on race, color, religion, sex, disability, familial status, national origin, marital status, sexual orientation, or receipt of public assistance.

  • Arbitration Provisions (Federal Arbitration Act, 9 U.S.C. § 1; Minnesota Statutes § 572B.01)

    Any arbitration clauses must comply with the Federal Arbitration Act and Minnesota law regarding enforceability of alternative dispute resolution provisions.

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

    Requirements for withholding tax on sales by foreign persons of U.S. real property interests.

  • Homestead Exemption Considerations (Minnesota Statutes § 510.01)

    Provisions addressing Minnesota's homestead exemption laws, which may affect the seller's ability to convey clear title if the property is a homestead.

  • Deed Requirements (Minnesota Statutes § 507.07)

    Requirements for the form and content of the deed to be used in the transaction (warranty deed, special warranty deed, etc.).

  • Property Tax Proration (Minnesota common law; no specific statute)

    Requirements for the proration of property taxes between buyer and seller at closing.

  • Recording Requirements (Minnesota Statutes § 507.24)

    Requirements for recording the deed and other documents with the county recorder or registrar of titles.

  • Electronic Signatures (Electronic Signatures in Global and National Commerce Act (E-SIGN), 15 U.S.C. § 7001; Minnesota Uniform Electronic Transactions Act, Minnesota Statutes § 325L.01)

    Provisions for the use of electronic signatures in real estate transactions, ensuring compliance with both federal and state laws.

Frequently Asked Questions