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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 Washington, 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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Washington Requirements for Real Estate Purchase Agreement

  • Statute of Frauds (RCW 64.04.010)

    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 (RCW 64.06.020)

    Sellers must provide a completed seller disclosure statement (Form 17) to buyers, disclosing known material defects in the property. The buyer has the right to rescind the agreement within a specified timeframe after receiving the disclosure.

  • 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 an EPA-approved lead hazard information pamphlet.

  • Legal Description Requirement (RCW 64.04.020)

    The agreement must contain a legally sufficient description of the property being conveyed, including the correct legal description as recorded in county records.

  • Earnest Money Provisions (RCW 18.85.285)

    The agreement must specify the handling of earnest money deposits, including the amount, who holds it in trust, and conditions for forfeiture or return.

  • Closing and Possession Dates (RCW 64.04.010)

    The agreement must clearly state the closing date and when the buyer will take possession of the property, with provisions for extensions if needed.

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

    If the seller is a foreign person, the buyer may be required to withhold a percentage of the sale price for federal tax purposes.

  • Financing Contingency (RCW 64.04.005)

    If the purchase depends on the buyer obtaining financing, the agreement must include specific terms regarding the type of financing, timeline for securing it, and rights if financing fails.

  • Inspection Contingency (RCW 64.06.030)

    The agreement should detail the buyer's right to inspect the property, the timeframe for inspections, and options if defects are discovered.

  • Title Insurance Provisions (RCW 48.29.010)

    The agreement must address who provides title insurance, what type of policy will be issued, and procedures for addressing title defects.

  • Excise Tax Responsibility (RCW 82.45.060)

    Washington imposes a real estate excise tax on property sales, and the agreement must specify which party is responsible for paying this tax.

  • Agency Disclosure (RCW 18.86.030)

    Real estate agents must provide written disclosure of their agency relationships to all parties in the transaction.

  • Homeowners' Association Disclosures (RCW 64.38.025)

    If the property is subject to a homeowners' association, the seller must provide the buyer with the association's governing documents, financial statements, and other required information.

  • Environmental Disclosures (RCW 64.06.020)

    The agreement should address known environmental issues such as wetlands, critical areas, or contamination that may affect the property.

  • Equal Housing Opportunity Compliance (42 U.S.C. § 3601-3619)

    The agreement must comply with federal Fair Housing Act prohibitions against discrimination based on race, color, religion, sex, handicap, familial status, or national origin.

  • Dispute Resolution (RCW 7.04A.010)

    The agreement should include provisions for how disputes will be resolved, such as mediation or arbitration requirements before litigation.

  • Attorney Review Period (RCW 64.04.010)

    The agreement may include a provision allowing parties a specified period to have an attorney review the contract before it becomes binding.

  • Tenant Rights in Sale of Rental Property (RCW 59.18.080)

    If the property is tenant-occupied, the agreement must address existing lease agreements and tenant rights, including proper notice requirements.

  • Condominium Act Compliance (RCW 64.34.425)

    For condominium sales, the agreement must comply with Washington's Condominium Act, including required disclosures and right of rescission periods.

  • Electronic Signatures (15 U.S.C. § 7001; RCW 19.34.010)

    The agreement may be executed using electronic signatures, which are legally valid under both federal and state law.

Frequently Asked Questions

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