Contract 101
At its core, a contract for purchasing real estate is an agreement between people—mostly about the real estate. Our contracts include a description of the parties—the Buyer and Seller (and any third-party buyers or sellers)—as well as a property description (like in the Contract for Sale of Unimproved Property). It will usually be broken down into paragraphs and provided in a format that can be easily referenced.
Here’s an example of parties identified in a Contract: Dates and prices are also included. A section called "Property" will generally describe the parcel of vacant land as well as any building on it, if there is one: It will also include a legal description , which can be confusing at times. Sometimes, you may need to expand on the legal description, and that’s where a survey will come in handy: A section of the Contract called "Title Evidence", usually about halfway down the page, will address who is responsible for the various fees associated with the sale, such as surveys, taxes, real estate commissions, etc.
A Contract will also identify the Title Company responsible for issuing the Title Policy: We’ll cover Title Policy in more detail in a later section. Contracts typically have additional sections that will address other issues. We typically see the following in contracts:
Relevance of a Purchase Contract
A purchase agreement for the sale of vacant land is important because it outlines in writing the agreed upon terms of the deal, serves as evidence that the contract was approved by and signed by all parties, guarantees that the seller of the property has the legal authority to sell the property to the buyer, addresses questions and answers about the transaction, and makes the transfer of property official with the signatures of the parties. The real estate purchase agreement should be the foundation of the sales deal, and should contain all the legal terms and conditions of the deal to protect both buyers and sellers from potential risks.
Terms to Include in a Vacant Land Purchase Agreement
Beyond these basic requirements, a vacant land purchase contract should address the following:
Purchase Price
The purchase price in a vacant land purchase contract depends on the appraisal value of the land, its development potential and the current market for vacant land. By including the purchase price in the vacant land purchase contract, the buyer and seller are more likely to stick to the contract.
Deposits
In a real estate transaction that involves the purchase of land, buyers are typically required to pay deposits to the seller in return for exclusive rights to purchase the land. The terms of the deposits and exactly how they will be applied at closing is particularly important.
Contingencies
When purchasing land, buyers should consider a number of contingencies. A few common examples of mortgage contingencies, home sale contingencies and other contingencies include:
Closing Process
Purchasing vacant land through a vacant land purchase contract should have the same closing process as purchasing property in general. However, purchases of vacant land contracts may be subject to additional due diligence because the property to be purchased has no existing structure. The purchaser may want to conduct an appraisal of the land to determine whether the purchase price seems reasonable.
Lawyers and Due Diligence
Before a contract to purchase vacant land is signed, there should be a title search of the property, and all issues should be resolved to the buyer’s satisfaction. If title insurance is being purchased (and it usually is), the insurance company will order a title search and provide you with a commitment for title insurance that should, ideally, be gone through with your lawyer. Also, the zoning laws may restrict the way that the property can be used (e.g., if a buyer wants to build a commercial building on vacant land, the land should be in a zone that permits such use). A buyer should speak to their municipal planning department as well and consider applying for any necessary zoning changes (and related permits) before reviewing the contract. Or, in the alternative, ask the seller to extend the due diligence period or length of the conditional period (if any) to allow time for such applications to be made. The environmental assessments or condition that are of most concern to a buyer are phase 1 and phase 2 environmental site assessments. A phase 1 ESA will typically include historical uses of the property, past and current zoning by-laws, and existing environmental liens and legislation. A phase 1 ESA can only be relied on for so long (about 6 months or 5 years, depending on whom you ask), and, after that time runs out, the buyer must conduct an updated phase 1 ESA or a phase 2 ESA. Depending on the results of the phase 1 ESA, a buyer may also be required to have a phase 2 ESA before purchasing the property. These assessments are very expensive and time consuming, but can become critical and costly to a buyer later on if they are not done early on. After the title search is completed, the due diligence period can, and should, be used for closing the remaining matters. This would include, amongst other things, undertaking any title searches of neighbouring properties, reviewing the zoning around the property, servicing the property if necessary, arranging or re-arranging any easements, assessing the civil and architectural plans if required, etc. Even if none of those matters apply, a buyer should always check the zoning of neighbouring properties to ensure that there are no land use restrictions that will hinder the use intended on the property. For instance, if the neighbouring property is a landfill, a landfill use (or other high polluting use) on the property slated to be purchased could cause serious contamination problems and disturb neighbouring land owners.
Common Pitfalls and Solutions
While the process of purchasing vacant land may appear straightforward on the surface, it can be fraught with potential challenges. Some of these challenges include not being able to access financing for your purchase, boundary disputes, and restrictions on land use. The good news is that there are often solutions: One potential challenge is not being able to secure the necessary financing for your purchase. If you find yourself in this situation, it can be a good idea to try to work with a local bank or credit union to see if they are able to offer you a loan. While a larger lending institution may not be as keen to work with you, a locally-based bank or credit union may have a little more flexibility and be willing to work with you to secure financing for your real estate purchase. Another potential challenge we encounter is boundary disputes. These disputes, which may arise between you and your neighbor (or between the current owner of the property or the seller and their neighbor), can lead to costly legal fees, headaches, and delays in the development process. Essentially, the most successful way to avoid boundary dispute is to always review the survey of the property that you are purchasing before you purchase it. This is also important because it prevents you from purchasing a property with an encroachment – when some part of the property you are buying encroaches on to the neighbor’s property or when the neighbor’s structure has encroached on to the property you are buying. These types of issues could lead to further legal action in the future to transfer ownership of that land back to its respective owner. If you do purchase a property with an encroachment , there are few solutions available. First, you can simply allow the encroachment to remain on your land since it is already there and paid for. In exchange, the other party can pay you an easement fee on an annual basis. Note that this fee is negotiable and should be documented in the purchase and sale agreement. You could also file the easement with the registry of deeds to formally document the encroachment. Second, you could demolish or move the encroachment so that your land is free and clear. Lastly, you could sue the neighboring party to force them to be the one who purchases the land you own that was encroached upon in exchange for their structure. The most common example of this solution are fences that have been placed on the incorrect property by mistake. In these instances, it would be most efficient for the structure (in this case the fence) to be redesigned so that it is properly on the property that it belongs to. Finally, it is common for buyers to discover after the fact that their use of the property they purchased is limited after the signing of the purchase and sale agreement. When engaging in the due diligence of your vacant land purchase, check with each and every one of the jurisdictions that might have authority to regulate the use of water, air, soil, animals and plants in the area of your property. These jurisdiction include, but are not limited to municipalities, regional planning agencies, conservation commissions, and so on.
Hints for Negotiating a Vacant Land Agreement
The art of negotiation is often what separates successful commercial transactions from those that fall short. Rather than "going to their bottom line" at the outset of negotiations, many sellers and their brokers times overvalue their properties. Accordingly, a buyer’s initial offer often serves simply as the opening volley in a back-and-forth dance, with the parties’ final agreement falling somewhere close to the buyer’s starting point.
As a rule of thumb when negotiating a commercial contract, don’t offer more than you are willing to pay – even if you know there is a good chance your initial bid will be countered. The seller may be expecting a counter-offer and responding with a counter of its own. With each price change back and forth, even a small difference in negotiating positions can inflate the contract price, so don’t be afraid to overreach at first – especially with a property where the seller is overvaluing the land.
At a minimum, negotiate the following provisions:
In commercial transactions, time is money – not only in the sense that each passing moment adds a day to the due diligence period, but in the fact that uncertainty about start and end times is money lost to developers. Rather than leaving timelines and contingencies up to interpretation down the road, negotiate clear and unambiguous language that dictates start and end dates, as well as the closing date.
Essential to most commercial deal-making, a purchase contract for vacant land typically includes contingencies to help protect the purchaser’s investment. The purchaser can include a number of these contingencies, including:
An experienced team of Dallas real estate attorneys will understand the ins and outs of commercial contractual requirements and how best to navigate the various complexities of your transaction.
Addressing Professionals Involved in a Purchase
In addition to drafting your own contract, it is a good idea to involve a professional such as your real estate attorney, a land surveyor or other relevant professionals based upon your understanding of your vacant land purchase. Your attorney can assist with the preparation of the contract, review any subdivision maps provided by the seller and confirm that they are accurate. He or she can also ensure that any applicable restrictions such as zoning or environmental issues are properly accounted for in the contract. Your attorney should also draft the deed so it is clear what you are purchasing. If there is an association, your real estate attorney would assist with confirming the association fees and monitoring the firm’s compliance with the proposed contract and their governing documents. Once you have a draft of the contract from a real estate attorney, it is essential to have a land survey done before you sign the contract and make a deposit. A land survey will help you confirm that the property you are looking at is what you are getting. It will also give you a copy of the deed, which may help you understand restrictions which apply to the property. For example, if the property was part of a subdivision, a survey will show you how your property was subdivided and give you a copy of the subdivision plan . Even if you are getting a deed, sometimes the property has been transferred many times and the subdivision may not be shown anywhere in the recorded documents. A land survey will also show you your property’s corners, which may have been marked years ago but hard to find today. If the property you are buying is a new subdivision, knowing the approximate boundaries will allow you to cut and clear trees near the edges for a boundary survey before you finalize and close on the contract. A survey is also important if you are planning to build a house on the lot after closing. They will also show you where other structures on your property are located. If you know someone who has experience with the property you are interested in, you should consult them. There may be issues with access to your property that they know about, but you do not. Even if you do not know someone else with experience with the property, the seller’s agent may have this knowledge. However, the seller’s agents primary legal responsibility is to the seller, so you may want to consult with your agent or a local professional more familiar with the area. Land surveys, geotechnical reports, soil tests, percolation tests, impact studies, building plans, architectural studies, engineering studies other tests and studies may also be needed depending on your plans for the property.