Understanding Real Estate Contract Clauses For Investment Properties


Many people would agree with me when I say that investing in real estate is one of the most interesting and enjoyable ways to save for the future and create a solid income for yourself today. There are many intricate pieces that fit into the real estate puzzle before you can have a profitable investment portfolio.

One of the pieces of the puzzle has to deal with the different clauses in the contract that you sign whenever you purchase a real estate investment, or any real estate for that matter. Today I want to talk about several common clauses in any real estate contract so that you have a working understanding of what to expect going in so that you aren't blindsided and don't have to keep asking your attorney or broker questions.

Of course this is not legal advice and you should always consult a lawyer before signing any kind of contract of any kind not just a real estate contract. There are a potentially infinite number of clauses that can be in a real estate contract. Really it just depends on the person selling the property and what they want to put in there. Some of them can be negotiated away, others can be added by you, it really all just depends. It's a dance. So here are several clauses that you may come up against...

Certificate of occupancy clause. This says that the buyer may ask for a current certificate of occupancy that will usually ensure that a building is in compliance with specific local laws. Obviously this is a nice clause for the buyer to have had a hassle for the seller.

Flood area clause. If there's any sort of murkiness or doubt about whether the property is in a flood zone or not this clause may clear that up and states that the seller declares that it is or isn't in a flood zone


Inspection clause. This just says basically that the buyer, you, has the right to inspect the property at certain times. Obviously you're going to inspect the property but sometimes you want it stated that you will be allowed to inspect the property 24 hours or even 48 hours before the close.

Authorization clause. If you run your business as a corporation or limited liability company or even as a partnership then you have to give proof to the seller that you have the authority to purchase their property in the name of that corporation.

Survey clause. The fact of the matter is, surveys can be very expensive and nobody really wants to pay for it so the survey clause may state that either the buyer or the seller or a combination of the two must pay for any surveys done, and the specific surveys available will be spelled out in the clause.

"As is" clause. This is a great clause for the seller because it basically says that you, the buyer, are agreeing to purchase the property as it is and that the seller doesn't have to do anything to fix it up in any way. Many times you will have inspected the property and you very likely will have a list of things that you want fixed which makes an as is clause a point of negotiation.

Obviously these are only a few specific clauses that are common in many real estate contracts. There could be literally hundreds more depending on the specific deal and obviously we don't have time to go into all of them but these few give you a taste of what you can expect and a point of reference for you to do more research if you like.

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