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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 Wisconsin, 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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Wisconsin Requirements for Real Estate Purchase Agreement

  • Statute of Frauds (Wis. Stat. § 706.02)

    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 (Wis. Stat. § 709.02)

    Sellers must provide a Real Estate Condition Report disclosing known defects and other property conditions to potential buyers before they submit an offer.

  • 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 lead-based paint inspection.

  • Earnest Money Requirements (Wis. Admin. Code REEB 18.09)

    Regulations governing the handling of earnest money deposits, including requirements for trust accounts and procedures for disbursement in case of disputes.

  • Real Estate Transfer Fee (Wis. Stat. § 77.22)

    Wisconsin imposes a real estate transfer fee on conveyances of real property, which must be addressed in the purchase agreement regarding responsibility for payment.

  • Financing Contingency (Wis. Stat. § 706.05(10))

    Provisions allowing buyers to make offers contingent on obtaining financing, with specific requirements for notice and timelines under Wisconsin law.

  • Inspection Contingency (Wis. Admin. Code REEB 24.07(1)(a))

    Provisions allowing buyers to conduct property inspections and potentially negotiate repairs or price adjustments based on inspection findings.

  • Title Evidence Requirements (Wis. Stat. § 706.09)

    Requirements for providing evidence of marketable title, including title insurance commitments and the process for addressing title defects.

  • Closing and Possession Provisions (Wis. Stat. § 706.05)

    Requirements for the closing process, transfer of possession, and prorating of expenses such as property taxes and utilities.

  • Fair Housing Compliance (42 U.S.C. § 3601-3619; Wis. Stat. § 106.50)

    Prohibition against discrimination in real estate transactions based on protected characteristics such as race, color, religion, sex, disability, familial status, or national origin.

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

    Requirements for withholding tax when the seller is a foreign person, with provisions for determining seller's status and potential exemptions.

  • Condominium Disclosure Requirements (Wis. Stat. § 703.33)

    Special disclosure requirements for condominium sales, including association documents, financial statements, and bylaws that must be provided to buyers.

  • Time is of the Essence (Wis. Stat. § 402.309)

    Wisconsin courts recognize and enforce 'time is of the essence' clauses, making contractual deadlines strictly enforceable when included in the agreement.

  • Remedies for Breach (Wis. Stat. § 706.05(9))

    Provisions outlining available remedies in case of breach by either party, including specific performance, liquidated damages, and earnest money forfeiture.

  • Radon Disclosure (EPA Guidelines; Wis. Admin. Code REEB 24.07(1)(a))

    While not specifically required by Wisconsin law, federal guidelines recommend disclosure of known radon hazards, and many Wisconsin purchase agreements include radon testing contingencies.

  • Tenant Rights in Property Sale (Wis. Stat. § 704.09)

    When selling tenant-occupied property, the agreement must address existing leases and tenant rights, which generally survive property transfers in Wisconsin.

  • Homestead Rights (Wis. Stat. § 706.02(1)(f))

    Provisions addressing homestead rights and requirements for spousal consent when selling property that constitutes a homestead.

  • Environmental Disclosure (Wis. Stat. § 709.03; CERCLA 42 U.S.C. § 9601)

    Disclosure requirements regarding known environmental hazards such as underground storage tanks, contaminated soil, or other environmental conditions.

  • Electronic Signature Compliance (15 U.S.C. § 7001 (E-SIGN Act); Wis. Stat. § 137.15)

    Provisions ensuring compliance with electronic signature laws if the agreement is executed electronically rather than with traditional signatures.

  • Arbitration and Dispute Resolution (9 U.S.C. § 2 (Federal Arbitration Act); Wis. Stat. § 788.01)

    Provisions for arbitration or alternative dispute resolution methods, which must comply with both Wisconsin and federal laws governing enforceability of such clauses.

Frequently Asked Questions

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