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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 Montana, 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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Montana Requirements for Real Estate Purchase Agreement

  • Statute of Frauds (Montana Code Annotated § 28-2-903)

    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 party against whom enforcement is sought.

  • Property Disclosure Requirements (Montana Code Annotated § 70-23-613)

    Sellers must disclose known material defects that could affect the value or desirability of the property, including any adverse material facts.

  • 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 lead-based paint inspections.

  • Legal Description of Property (Montana Code Annotated § 70-20-201)

    The agreement must contain an accurate legal description of the property being transferred as recorded in county land records.

  • Purchase Price and Financing Terms (Montana Code Annotated § 28-2-102)

    The contract must clearly state the purchase price, earnest money amount, and financing terms including loan contingencies.

  • Closing and Possession Dates (Montana Code Annotated § 70-20-101)

    The agreement must specify the closing date when title transfers and the possession date when the buyer takes physical possession of the property.

  • Title Insurance Requirements (Montana Code Annotated § 33-25-201)

    The agreement should address title insurance requirements, who pays for the policy, and provisions for clearing title defects.

  • Inspection Contingencies (Montana Code Annotated § 28-2-102)

    The contract should include provisions for property inspections, timelines for completing inspections, and procedures for requesting repairs or credits.

  • Water Rights Transfer (Montana Code Annotated § 85-2-403)

    If applicable, the agreement must address the transfer of water rights, which are separate from land ownership in Montana.

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

    If the seller is a foreign person, the buyer must withhold a percentage of the sale price for federal tax purposes unless an exemption applies.

  • Homestead Exemption (Montana Code Annotated § 70-32-104)

    The agreement should acknowledge Montana's homestead exemption laws which protect a portion of home equity from creditors.

  • Real Estate Transfer Disclosure Statement (Montana Code Annotated § 70-23-613)

    Sellers must provide a disclosure statement covering property conditions, known defects, and other material facts affecting the property.

  • Radon Disclosure (EPA Guidelines; Montana Department of Environmental Quality recommendations)

    While not specifically required by Montana law, federal guidelines recommend disclosure of known radon hazards in residential real estate transactions.

  • Property Tax Proration (Montana Code Annotated § 15-16-102)

    The agreement must address how property taxes will be prorated between buyer and seller at closing.

  • Earnest Money Handling (Montana Code Annotated § 37-51-321)

    The contract must specify how earnest money will be handled, including deposit location, conditions for return, and forfeiture provisions.

  • Agency Disclosure (Montana Code Annotated § 37-51-313)

    Real estate agents must disclose whom they represent in the transaction (buyer, seller, or dual agency).

  • Landlord-Tenant Provisions (Montana Code Annotated § 70-24-101 et seq.)

    If the property is tenant-occupied, the agreement must address existing lease agreements and tenant rights under Montana law.

  • Mineral Rights (Montana Code Annotated § 82-1-111)

    The agreement should specify whether mineral rights are included in the sale, as these can be severed from surface rights in Montana.

  • Environmental Hazards Disclosure (Montana Code Annotated § 75-10-701 et seq.; Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA))

    Sellers must disclose known environmental hazards such as underground storage tanks, contaminated soil, or other environmental issues.

  • Dispute Resolution (Montana Code Annotated § 27-5-114)

    The agreement should include provisions for resolving disputes, such as mediation or arbitration clauses, consistent with Montana law.

Frequently Asked Questions

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