In this article, well discuss the basics of an Iowa real estate contract, cover some specific line items and what they mean, and review some of the more important stipulations of an Iowa real estate contract.
You’ve looked at over a hundred homes and all the bathroom tiles, wood floors, white kitchens, and open floor plans are starting to blend together. You finally find the perfect home, or as close as you’re going to get. You sit down with your real estate agent and talk about comps in the area and then decide on an initial offer. She sends you the real estate contract to sign and as you scan the first page, the second page, the third page, etc, you’re eyes glaze over and your anxiety kicks up. What does all this stuff mean? Thankfully, real estate purchase contracts are pretty standard from state to state and if you’re working with a reputable agent and attorney there’s not much to worry about. But if you still want to learn more about all those stipulations in the contract, this article is for you!
Once the purchase contract has been signed you’ll need to schedule an inspection and then you will enter into the attorney review period which, if you didn’t look over it in detail before, is a good time to review the contract. Below we’ll talk about seven clauses of particular importance when reviewing the contract.
- Description and Purchase Price: These items may be self-explanatory, but it’s important to note under “description” anything other than the address of the house. Also, you’ll want to make sure what is legally described in the title document matches up with the contract. Under purchase price, you will have the agreed-upon purchase price (this may be different from the original after negotiations) and the amount of earnest money that will be deposited upon agreement of the contract. The earnest money is the buyer’s way of showing they are serious about the decision to purchase the property and to give the seller some protection should the buyers get cold feet and try to terminate the contract outside of any contingencies. This section also lists whether or not the purchase of the property is contingent on the sale of the buyers and the method of payment for the property, usually a mortgage or cash, or some combination.
- Real Estate Taxes and Special Assessment: Normally, the sellers must pay the real estate taxes attributed to the property for the year it was sold in, prorated to the date of the closing. So if you sell your house in April, you’ll be paying less in real estate taxes then if you sold your house in August. However, be sure to check the contract as sometimes there is the option for the seller to pay no taxes on the house during the transaction and instead transfer that burden to the buyer.
The Special Assessment is a stipulation in the contract that is normally standard across all contracts and discusses items such as liens against the property and other bills for maintenance on the house. The critical importance here is liens against the property. It should always be required that the seller satisfy a line against the property before the sale or have legally worked out how the proceeds from the sale will satisfy any existing liens.
- Time is of the Essence and Fixtures Clause: It’s important to note if “Time is of the Essence” is indicated on a contract because if certain deadlines are not met on the buyers or sellers end it could be considered a breach of contract and a reason for either party to back out without repercussions. The Fixtures clause indicates anything other than the walls, doors, winders, floor, etc that are not part of the overall structure, that would be included in the sale of the house. This may include items like window treatments, a pool table, a piece of furniture, etc.
- Condition of the Property: This clause may include a number of sub-clauses, all centered around the condition of the property. The primary “condition of property” clause explains that—unless specified otherwise—the property will be kept in its current state until possession by the buyers and that all items will be in good working condition at the time of possession. It also includes sub-clauses such as “home warranty,” “home inspection,” and “response to inspection findings.” All of these are fairly standard and describe the legal terms around the home inspection and response and how much time is allowed for these things to take place. Typically, a buyer has 5 days after signing of the contract to perform a home inspection and then another 5 days for the attorney review process to get any negotiations hammered out. The “home warranty” clause may not be included in the main contract but can be asked for and later included in the modification letter. Other items such as radon and termite inspection, septic system and well test are usually found in this part of the contract.
- Remedies of the Parties: This clause usually contains stipulations explaining what happens in the case that the buyers or sellers fail to perform their contractual obligations in a timely manner and to what degree the opposite party can respond. In most cases, the contract will state that the opposite party can take up legal action at their discretion without limitation. However, during negotiations, a party may ask for different wording in the modification report, such as the seller only receiving the buyer’s earnest money as a form of remediation.
- Residential Property Discloser Statement: Iowa law requires the sellers to fill out a form disclosing the conditions of the various parts and systems of the house, such as HVAC, plumbing, previous water damage, etc to their best of their knowledge. This protects the buyers from coming into a house and suddenly finding something that the sellers most likely knew about, but didn’t disclose, and it wasn’t found on the inspection report.
- Optional Provisions: Most real estate contracts in Iowa contain a number of optional provisions, which only apply if initialed by both parties. These include items such as purchase contingent on the sale of another property, buying the property “as is,” the seller’s right to continue to show the property while under contract, etc.
Reviewing a real estate contract can be daunting without the right help. To learn more about why having a real estate attorney is important, check out our article Do I Need a Real Estate Attorney When Buying Or Selling a Home?