Planning to invest in real estate? Anyone who’s ever had to purchase or sell a property in the Philippines has had to learn about the real estate contract–their different types, definitions, related terms, power of attorney, and the list goes on.
Although you’ll probably handle your real estate transaction with the help of a lawyer or broker or agent, a real estate contract must make sense to you. If you’re determined to buy or sell a property, make sure everything is clear. This article explains what a real estate contract in the Philippines is all about.
What Is a Real Estate Contract?
A real estate contract is a legally binding document between two or more parties who have decided to participate in the purchase, sale, transfer, or exchange of real estate. While there are available real estate contract templates online, the actual contract must specifically tailor to the specifications of each party.
These needs could involve factors such as the price of the real estate property, the state of the property, home inspection, the type of real estate contract, and all details that have to do with the property’s ownership, among others.
How Do Real Estate Contracts Work?
Real estate contracts typically work in three ways:
1. The purchasing party submits an official offer form to the selling party. The official offer form must contain key details of the potential transaction, including the price the purchasing party is willing to pay for the property and the target closing date.
2. The selling party evaluates the purchasing party’s offer form. If the price and other details are acceptable, the seller can decide to push through with the transaction. Otherwise, they may reject the offer or propose ways to modify it.
3. The purchasing party and selling party agree and sign the real estate contract, making it a legally binding transaction.
Requirements for a Real Estate Contract
A real estate contract must be clear about several aspects of the transaction. This includes the type of contract being entered into, the property to be exchanged, the parties involved, and the other terms of the deal.
You also need to do the following actions:
First, figure out whether your transaction will be a Deed of Absolute Sale or a Deed of Conditional Sale. The former involves the immediate transfer of ownership after full payment by the buyer. The latter involves the conditional transfer of ownership as the payment is made through installments.
Second, identify the parties involved: the seller (and spousal consent if the seller is married) and the buyer. And both parties must be at least 18 years old. They must also be of sound mind and not laboring under any restrictions. The contract must state the parties’ names and other details, such as their addresses and Tax Identification Numbers.
Third, detail the specifics of the real estate involved. This would include not only the address of the property but other technical details as well such as boundaries.
Last, state the terms of the transaction. This would include the price of the property, the capital gains tax (which the seller often pays), and the buyer’s transfer taxes usually settled via the local government unit. If the contract is conditional, the document must state the details of the required down payment and installment fees that the buyer must pay. This document is the Contract to Sell.
Who Creates the Real Estate Contract?
The purchasing party’s real estate agent or real estate lawyer is typically the person that prepares the real estate contract. As previously mentioned, while there are online templates you can use, you’d best consult an expert on real estate before entering into any legally binding agreement.
According to the Real Estate Service Act, homebuyers must purchase properties only from licensed real estate brokers or estate sales agents registered with the Professional Regulatory Board of Real Estate Service.
Conditions You Should Have in Your Real Estate Contract
If you intend to purchase real estate but don’t have the cash to make a full payment, detail how you plan to pay the remaining balance. How much was the down payment? Will you be paying the balance with interest?
2. Who Pays Which Costs
People often forget that they need to pay other fees when buying a property. This includes Real Estate Tax, Capital Gains Tax, notarization fees, transfer fees, and other miscellaneous fees and taxes. Determine if the buyer or seller will pay these fees.
3. Additional Terms and Conditions
This would include everything not covered earlier in the contract, such as personal belongings and effects or even tenants. Will the refrigerator come with the property? What about the toilets? Put it all in writing so there aren’t any misunderstandings once it’s time to move in.
Ready to Move?
To anyone interested in real estate, there’s nothing more exciting than buying or selling a property for the first time. Make sure you do it right by consulting an expert and practicing due diligence. Real estate contracts must, more than anything, reflect what the buyer and seller can fulfill in real life.
If you feel this article was able to explain what a real estate contract is clearly, bookmark our page for more news and information on real estate in the Philippines. Check out our real estate marketplace too; you might just find your first property among our listings.