The Basics of Ohio Real Estate Contracts
Real estate purchase contracts are the foundational agreements in Ohio property transactions. A purchase contract is a legally binding agreement between a buyer and a seller wherein the parties agree to specific real estate terms in anticipation of an eventual conveyance. In the context of commercial real estate, a purchase contract is a real estate sales contract whereby a buyer agrees to pay an agreed price in consideration of a transfer of ownership of real property from the seller.
Technically speaking, and depending upon the property at issue, a real estate sales contract is not always required to complete a transfer of real property. For instance, a deed arguably suffices under Ohio law as a contract for the conveyance of real property to the purchaser. That said , it is rare that a transaction occurs without the other elements of a contract also being present, such as the offer, acceptance, and consideration.
In practice, purchase contracts are critical in the Ohio property market. Residential real estate contracts include widely accepted forms from the Ohio Association of Realtors. Commonly used commercial real estate purchase contracts come out of the Ohio Bar Association and are prepared and made available to the public by the Cleveland Bar Association, Columbus Bar Association, Cincinnati Bar Association, etc. As will be discussed throughout the next pages, these contracts are often modified from the standard forms to reflect the specific terms of a property deal and the respective expectations of the buyer and seller.
Components of a Purchase Contract in Ohio
In Ohio, a real estate purchase contract must include the essential items necessary to create a legally valid agreement. The statutorily mandated requirements for a real estate purchase contract in Ohio under Ohio Revised Code Section 5301.01 include: parties, description of the property being sold, agreements of the parties, and signatures.
The parties to the contract need to be identified in the body of the contract, including applicable obligations and contact information. It is also important that the party making the offer clearly identify that what is offered is a purchase contract for a specific parcel of real estate. The contract then needs to identify the property, with a full legal description. In most cases, the most recent tax duplicate is acceptable per the laws of Ohio.
After identifying the parties and the property, the next section of a Purchase Contract is the terms of the sale. Ohio law requires that the parties to a Purchase Contract agree to the purchase price, how it will be paid, and the terms of the Deed and Title. When a property is being purchased with a loan or mortgage the contract needs to set out when that loan will close and how it will be assigned to the buyer. Also included in the terms will be any special agreements between the parties, such as home warranty policies, appliances, fixtures, assessments, dues or other agreements unique to the purchase of the real estate.
There are specific times in which a Purchase Contract must include items—any sale over $100,000 must identify the manner of payment and how the funds are to be managed at closing; any sale for more than $500,000 must provide a legal description of the property; and all sales must clearly set out the agreed upon purchase price. The failure to include these might preclude performance.
Finally, a real estate Purchase Contract must be signed by the parties to be enforceable. If the contract is for a business sale of real estate then that signature would need to be by an officer of the business across from the signature of the buyer(s).
Legal Aspects of Ohio Real Estate Contracts
In all contracts, there are certain legal requirements that must be satisfied in order for the contract as a whole to be considered valid under the law. Ohio statutes regulate and enforce these provisions as they relate to real estate contracts. An essential legal requirement for any real estate purchase contract is that it must be in writing. In addition, the specific terms of a real estate transaction must be explicitly delineated in the contract to prevent any ambiguity. Under Ohio law, no terms that are material to the transaction can be left out. Without any of these terms, they are legally assumed to be absent from the contract. Any potential disputes that may arise from the imprecise specifications are basically avoided.
The Ohio Revised Code specifies specific requirements that must be met under Ohio law. One such legal requirement that must be satisfied is that the contracting parties give each other value. This value can be both monetary in nature or something more intangible, like a service, labor or even a promise to accomplish something. Consideration, the exchange of value necessary for a contract, does not necessarily need to be in the form of cash or another form of currency. The only caveat to this rule is that the consideration must be sufficient value, meaning that it cannot be anything nominal or simply an exchange for the sake of an exchange. If the consideration is insufficient, the party that gave the insufficient consideration cannot be forced to fulfill the terms of the contract.
Contingencies Found In Ohio Real Estate Contracts
Since contracts for the sale of real estate in Ohio are usually fully-negotiated agreements between the parties, it is not uncommon to find a variety of contingencies inserted into real estate purchase contracts. A real estate purchase contract is usually contingent upon a thorough inspection of the property by a qualified home inspector. This could include contingencies for a termite inspection or a home appraisal. This gives the buyer the right to terminate the transaction if the inspector finds defects that are unsatisfactory to the buyer, although typically the buyer has the option to proceed with the contract after addressing repair issues with the seller. Buyers should also be cautious in determining the scope of these inspections. For example, a housing appraisal usually contemplates a survey of the property, but if the buyer wants an appraisal to encompass the condition of the home and all tangible improvements, it should be noted within the contract.
A financing contingency in the real estate purchase contract is relatively common, and allows the buyer to terminate the purchase contract if the buyer cannot secure financing for the purchase of the property. Real estate agents have also created their own standard forms for lease-purchase agreements, which may contain different contingencies for the prospective buyer of the property.
How to Prepare A Real Estate Contract In Ohio
Once you have found a property that you are interested in purchasing in Ohio, you should hire an experienced real estate attorney. I don’t suggest that you draft the purchase contract on your own or use a form contract you find online. The seller’s copy of the realtor form will always favor the seller. You want the offer you make to be drafted by someone looking out for your interest; this person is your real estate lawyer. Don’t assume that the real estate agent will do this for you. I’ve seen many instances in Ohio where the real estate agent for the purchaser failed to draft and submit the offer and the buyer loses the transaction to another purchaser.
Keep in mind that the attorney you hire for your real estate contract will be the person doing your title work. You need to find an experienced real estate and probate attorney to assist you in your real estate purchase contract. When drafting the purchase contract, the first step is to obtain a copy of the legal description from the seller’s realtor or it may be available on selling agent’s website or another realtor’s website. The house’s address is not the legal description, it’s just the street address. In order to file a deed and transfer ownership of the property , it must be legally described in the deed with what’s called a continuous metes and bounds description—a pin or survey must be done to obtain exact measurements for a surveyor to describe the bounds of the land. Otherwise, the legal description will be from the tax assessor’s office and can be found online. The next step is to obtain a copy of the Title Commitment, typically done by the seller, to review for any encumbrances on the property. You will also want a County Tax Map and a property overview so you understand the location of the home and the land parcel. After the legal description is obtained and reviewed, the sales price can be agreed upon along with how the purchaser will pay for the property. It is always best to pay cash for real estate but sometimes a purchaser will seek out creative financing options like seller financing, where the seller extends credit to the buyer of the business to purchase the property. This is not as common in commercial transactions but can be done. Be aware for non-continuing encumbrances, a lien search will be performed after the offer is accepted by both the buyer and seller so you don’t incur the expense prior to knowing if your offer is accepted.
Negotiation Strategies For Ohio Real Estate Contracts
While specific pricing, closing timeframes, and the closing location will be addressed specifically in the purchase contract, there are additional negotiation tips for the seller and buyer alike. What are the repairs that the seller must make prior to closing? Are there any seller disclosures that the seller must provide? Finally, what inspection rights will the buyer have in the proposed purchase contract?
In Ohio, irrespective of condition of the property, a seller has the obligation to make a disclosure of any known defects in systems such as plumbing, electrical, and HVAC systems. A seller also has a duty to disclose any known issues with lead paint or other environmental hazards if the property was constructed prior to 1978.
Regarding inspection rights, it is not uncommon for the seller and buyer to negotiate a limited right to a pre-closing inspection in addition to a general home inspection in the event an issue is discovered that must be addressed prior to closing. It is custom in Ohio for the buyer to conduct home inspections generally within 7-10 days following the acceptance of the full and final offer.
With these tips in mind, we can take a look at the negotiation process in the next section.
Contract Enforcement And Dispute Resolution
Enforcement and dispute resolution following execution of a real estate purchase contract
As noted above, a contract is a legally enforceable agreement. If all of the requirements of a valid contract, express and implied, are met, you have a binding contract. But what happens if the buyer or seller does not live up to their half of the deal?
In Ohio, multiple remedies are available: The buyer can sue for specific performance, for breach of contract, or for fraud. Likewise, the seller can sue the buyer for specific performance, for breach, or for fraud. Specific performance is an equitable remedy. It is the award of the actual property to the non-breaching party. As an example, the seller may sue to compel the buyer to close on the transaction as promised. If a court grants this type of relief, the buyer is required to fulfill his/her contractual obligations.
Breach of contract is the most common remedy and is available where a valid contract is formed but one of the parties fails to perform. For example, the buyer breaches when he/she refuses to follow through with buying the property after agreeing to do so. Breach by the seller occurs when the seller refuses to sell even though he/she agreed to do so.
Where induced defendant errors in not completing the transaction due to fraud, the aggrieved party may be awarded money damages. Fraud can be difficult to prove in contract cases because in Ohio, generally, the parties have no affirmative duty to disclose material facts during negotiations. The buyer must be able to show that the seller made a statement that was false and material to the purchase and sale, and that the statement concerned a simple, easily known fact, such as the state of a title. As a seller, if you have intentionally failed to disclose defects in the property you are selling, you can suffer severe consequences.
Signing and Completing the Contract
Upon acceptance of the offer, the parties generally have opened escrow and the purchase contract will be finalized in a matter of weeks and/or months, depending on whether there is any new construction involved with the sale and other contingencies requiring inspection and/or investigation. Closing the transaction of buying real estate generally requires that the buyer investigate and/or inspect the home (if new construction, the city or county building department or appropriate division of Building Regulation would be involved to ensure that all permits are completed) until they are satisfied with the inspection and/or investigation and are ready to pay the seller agreed consideration in exchange for good and marketable title to the property , generally evidenced by and transferred via a current and up-to-date title insurance policy issued by a title underwriter via a title insurance agent at the closing. In addition, there would be the seller’s transfer of deed to the buyer (a quit claim deed or warranty deed) and/or transfer of personal and real property that would be considered included in the real estate sale transaction via a Bill of Sale and/or addendum and/or catch-all provision in the real estate purchase contract that includes personal and real property in exchange for additional consideration thereof.