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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 Virginia, 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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Virginia Requirements for Real Estate Purchase Agreement

  • Statute of Frauds (Virginia Code § 11-2)

    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 Statement (Virginia Code § 55.1-700 et seq.)

    Sellers must provide a residential property disclosure statement to buyers, informing them that they are purchasing the property 'as is' and that it is the buyer's responsibility to determine the condition of the property.

  • 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 risk assessment or inspection for lead-based paint hazards.

  • Fair Housing Act Compliance (42 U.S.C. § 3601-3619; Virginia Code § 36-96.1 et seq.)

    The agreement must comply with federal and state fair housing laws, which prohibit discrimination based on race, color, religion, national origin, sex, familial status, or disability.

  • Earnest Money Deposit (Virginia Code § 54.1-2108.1)

    The agreement must specify the amount of earnest money deposit, who will hold it in escrow, and the conditions under which it may be forfeited or returned.

  • Real Estate Settlement Agents Act (Virginia Code § 55.1-900 et seq.)

    The agreement should acknowledge compliance with the Virginia Real Estate Settlement Agents Act, which regulates the conduct of settlement agents in real estate transactions.

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

    If the seller is a foreign person, the agreement must address FIRPTA withholding requirements, which may require the buyer to withhold a percentage of the sale price for federal tax purposes.

  • Condominium or Property Owners' Association Disclosure (Virginia Code § 55.1-1808 and § 55.1-1900 et seq.)

    Sellers of properties subject to a condominium or property owners' association must provide buyers with certain disclosures regarding the association, including fees, restrictions, and financial information.

  • Mechanics' Lien Disclosure (Virginia Code § 43-1 et seq.)

    The agreement should address potential mechanics' liens and provide for title insurance or other protections against such liens.

  • Flood Hazard Disclosure (42 U.S.C. § 4104a; Virginia Code § 55.1-708)

    Sellers must disclose if the property is located in a FEMA-designated flood zone or has experienced flood damage, and the agreement should address flood insurance requirements if applicable.

  • Real Estate Transfer Taxes (Virginia Code § 58.1-800 et seq.)

    The agreement must specify which party is responsible for paying state and local recordation taxes and transfer taxes associated with the property transfer.

  • Closing and Settlement Procedures (Virginia Code § 55.1-900 et seq.; RESPA (12 U.S.C. § 2601 et seq.))

    The agreement must specify the closing date, location, and procedures, including which documents will be delivered and which closing costs will be paid by each party.

  • Title Examination and Insurance (Virginia Code § 38.2-4600 et seq.)

    The agreement should address title examination requirements, who will pay for title insurance, and what constitutes acceptable title for the purposes of the transaction.

  • Termite Inspection (Virginia Code § 3.2-6500 et seq.)

    The agreement should specify whether a termite inspection is required, who will pay for it, and what happens if termite damage or infestation is discovered.

  • Home Warranty (Virginia Code § 59.1-435 et seq.)

    If a home warranty is to be provided, the agreement should specify the terms, coverage, and who will pay for it.

  • Contingencies (Virginia common law; Virginia Code § 54.1-2131 et seq. (regarding agent duties))

    The agreement must clearly state any contingencies, such as financing, appraisal, home inspection, or sale of buyer's existing home, and the timeframes and procedures for satisfying or waiving these contingencies.

  • Default and Remedies (Virginia common law; Virginia Code § 8.01-670 et seq.)

    The agreement must specify what constitutes default by either party and the remedies available to the non-defaulting party, including retention of earnest money, specific performance, or other damages.

  • Risk of Loss (Virginia Code § 55.1-708; Uniform Vendor and Purchaser Risk Act)

    The agreement should address who bears the risk of loss if the property is damaged between contract signing and closing, and what happens to the contract in such event.

  • Electronic Signatures (15 U.S.C. § 7001 et seq. (ESIGN Act); Virginia Code § 59.1-479 et seq. (UETA))

    The agreement may provide for electronic signatures in accordance with federal and state law, which recognize the validity of electronic signatures for real estate transactions.

  • Attorney Review Clause (Virginia common law; Virginia Code § 54.1-2131 et seq. (regarding agent duties))

    The agreement may include a provision allowing each party a specified period of time to have the contract reviewed by an attorney and potentially request modifications.

Frequently Asked Questions

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