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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 South Dakota, 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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South Dakota Requirements for Real Estate Purchase Agreement

  • Statute of Frauds (SDCL § 53-8-2)

    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 (SDCL § 43-4-38 through 43-4-44)

    Sellers must provide a property condition disclosure statement to buyers, disclosing known material defects that could affect the property's value.

  • 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.

  • Fair Housing Act Compliance (42 U.S.C. § 3601-3619)

    Prohibits discrimination in the sale of housing based on race, color, religion, sex, disability, familial status, or national origin.

  • Earnest Money Requirements (SDCL § 36-21A-79 through 36-21A-82)

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

  • Title Transfer Requirements (SDCL § 43-25-1 through 43-25-12)

    Outlines requirements for valid transfer of property title, including proper execution of warranty deeds and recording requirements.

  • Closing and Settlement Procedures (SDCL § 43-28-23; 12 U.S.C. § 2601 (RESPA))

    Governs the closing process, including disclosure of settlement costs and procedures for finalizing the transaction.

  • Real Estate Transfer Fee (SDCL § 43-4-21 through 43-4-22)

    Requires payment of a transfer fee when real property is transferred, with certain exemptions available.

  • Marketable Title Requirements (SDCL § 43-30-1 through 43-30-17)

    Defines what constitutes marketable title in South Dakota and the seller's obligation to provide clear title to the buyer.

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

    Requires withholding of a portion of the sale price when the seller is a foreign person, to ensure payment of taxes on the sale.

  • Homestead Exemption Considerations (SDCL § 43-31-1 through 43-31-4)

    Addresses homestead rights and protections that may affect the sale of property used as a primary residence.

  • Environmental Disclosure Requirements (SDCL § 34A-12-1 through 34A-12-15)

    Requires disclosure of known environmental hazards or contamination that could affect the property's value or use.

  • Water Rights Disclosure (SDCL § 46-5-1 through 46-5-34)

    Requires disclosure of water rights associated with the property, particularly important for agricultural properties.

  • Methamphetamine Lab Disclosure (SDCL § 34-44-1 through 34-44-4)

    Requires disclosure if the property was used as a methamphetamine manufacturing site and has not been decontaminated.

  • Contract Rescission Rights (SDCL § 53-11-1 through 53-11-5)

    Outlines circumstances under which either party may legally rescind the purchase agreement, including material misrepresentations.

  • Landlord-Tenant Provisions (SDCL § 43-32-1 through 43-32-30)

    Addresses rights of existing tenants when rental property is sold, including notice requirements and lease continuation obligations.

  • Real Estate Licensing Requirements (SDCL § 36-21A-1 through 36-21A-147)

    Governs the involvement of real estate agents in the transaction, including disclosure of agency relationships and commission arrangements.

  • Flood Zone Disclosure (42 U.S.C. § 4104a)

    Requires disclosure if the property is located in a designated flood zone, which may affect insurance requirements and property use.

  • Property Tax Proration (SDCL § 10-21-1 through 10-21-39)

    Governs how property taxes are to be prorated between buyer and seller at closing.

  • Electronic Signatures (15 U.S.C. § 7001 (E-SIGN Act); SDCL § 53-12-1 through 53-12-50 (UETA))

    Recognizes the validity of electronic signatures on real estate contracts, allowing for remote transactions.

Frequently Asked Questions

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