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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 Tennessee, 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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Tennessee Requirements for Real Estate Purchase Agreement

  • Statute of Frauds (Tenn. Code Ann. § 29-2-101)

    Real estate contracts must be in writing to be enforceable under the Statute of Frauds. In Tennessee, contracts for the sale of land must be written and signed by the party to be charged.

  • Property Disclosure Requirements (Tenn. Code Ann. § 66-5-201 et seq.)

    Tennessee law requires sellers to provide a residential property disclosure statement to buyers, disclosing known material defects. This disclosure must be provided before an offer is accepted.

  • Lead-Based Paint Disclosure (42 U.S.C. § 4852d; 24 CFR Part 35)

    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.

  • Real Estate License Law (Tenn. Code Ann. § 62-13-101 et seq.)

    Real estate transactions involving licensed agents must comply with Tennessee's real estate license laws, including proper representation disclosures and commission agreements.

  • Earnest Money Requirements (Tenn. Code Ann. § 62-13-321)

    Earnest money deposits must be handled according to Tennessee law, including proper escrow account maintenance and disbursement procedures.

  • Title Examination and Insurance (Tenn. Code Ann. § 56-35-101 et seq.)

    Tennessee law governs title examination procedures and title insurance requirements to ensure clear title transfers in real estate transactions.

  • Closing and Settlement Procedures (Tenn. Code Ann. § 47-32-101 et seq.)

    Real estate closings in Tennessee must comply with state-specific settlement procedures, including proper document preparation and recording requirements.

  • RESPA Compliance (12 U.S.C. § 2601 et seq.)

    The Real Estate Settlement Procedures Act requires specific disclosures regarding closing costs and prohibits kickbacks or referral fees in real estate transactions.

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

    Real estate transactions must comply with the Fair Housing Act, which prohibits discrimination based on race, color, religion, sex, disability, familial status, or national origin.

  • Property Tax Prorations (Tenn. Code Ann. § 67-5-2101 et seq.)

    Tennessee law requires proper proration of property taxes between buyer and seller at closing, with specific calculation methods based on the fiscal year.

  • Homeowner Association Disclosure (Tenn. Code Ann. § 66-5-212)

    Sellers must disclose information about homeowner associations, including fees, restrictions, and governing documents before the sale is completed.

  • Termite Inspection Requirements (Tenn. Comp. R. & Regs. 0780-05-12-.07)

    Tennessee law requires a wood-destroying insect inspection report for most residential real estate transactions, particularly those involving mortgage financing.

  • Deed Preparation and Recording (Tenn. Code Ann. § 66-24-101 et seq.)

    Deeds in Tennessee must meet specific legal requirements for validity and must be properly recorded with the county register of deeds to perfect title transfer.

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

    FIRPTA requires withholding of a portion of the sales price when property is acquired from a foreign person, with specific compliance procedures.

  • Flood Hazard Area Disclosure (42 U.S.C. § 4104a; Tenn. Code Ann. § 66-5-210)

    Properties in designated flood hazard areas require specific disclosures and may have additional insurance requirements under federal law.

  • Mechanic's and Materialmen's Liens (Tenn. Code Ann. § 66-11-101 et seq.)

    Tennessee law provides specific protections regarding potential mechanic's liens, which must be addressed in the purchase agreement to ensure clear title.

  • Contract Rescission Rights (Tenn. Code Ann. § 66-5-208)

    Tennessee law provides specific circumstances under which buyers may rescind real estate contracts, including material misrepresentations or failure to provide required disclosures.

  • Electronic Signatures (15 U.S.C. § 7001 et seq.; Tenn. Code Ann. § 47-10-101 et seq.)

    Electronic signatures are valid for real estate transactions under both federal and Tennessee law, provided they comply with specific requirements.

  • Broker Lien Rights (Tenn. Code Ann. § 66-22-101 et seq.)

    Tennessee law provides real estate brokers with lien rights for unpaid commissions, which must be considered in the purchase agreement.

  • Landlord-Tenant Provisions (Tenn. Code Ann. § 66-28-101 et seq.)

    When selling tenant-occupied property, Tennessee's Uniform Residential Landlord and Tenant Act governs the rights of existing tenants and must be addressed in the purchase agreement.

Frequently Asked Questions

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