Image 01 Image 02 Image 03 Image 04 Image 06 Image 07 Image 07 Image 07 Image 07
Buildings By Owner | Buy, Sell & Lease Commercial Real Estate. Privately.
Home Blog Selling Commercial Property Post

Commercial Real Estate Blog

Writing the Commercial Real Estate Sales Agreement

This is part two of my six part series to help guide commercial real estate investors through all of the steps of selling their commercial property privately.



No matter what type of real estate contract you are writing, purchase and sale, option contract, lease option, etc., there are required legal terms that must be included in order for the contract to be valid. In this article we will go over those terms and their effects on both parties to the transaction.

Identify the parties.

This might seem like a clear enough concept but you would be surprised how many real estate contracts I have seen because one or both of the parties were not properly identified. For example, if the buyer of a property is a trustee, then you must list the name of the trust. Just putting BUYER, John Doe, Trustee, does not create a valid contract. It must state BUYER, John Doe, Trustee of the Doe Family Estate established July 11, 2012. The same is true for partnerships and corporations. Just writing Jane Doe, President, does not create a binding contract. It must state Jane Doe, President of Doe Industries, Inc.

Identify the real property being transferred.

Many contracts will just state 123 Main St., Anytown, US, 12345. Now while that would be enough to create a contract it really does leave too much interpretation. What if the post office has the legal address as 147 Maple Street because that is the cross street and was the original way the property was going to face according to the building plans? The mailman may know the difference, but I have seen contracts and appraisals voided for having the wrong technical address on the contract. To be safe you always want to use the legal description of the property. You can find out the legal description by looking up the last deed that was recorded on the property or contacting a local title company.

Identify the purchase price.

Again this seems pretty straightforward. But the price must be specific. It cannot be based on something variable. For instance you cannot say I will sell my property in exchange for all of the shares of stock in XYZ company owned by the seller. Well first off, all of the shares of stock owned on what date? For what value? Is it all of the shares of stock he owns on the day of closing? What if he sells all his stock the day before? The purchase price must be something with a concrete value.

Include signatures of all parties.

Signatures must state the person's legal status as buyer or seller. For example if a corporation is buying the property then the contract must be signed BUYER, John Doe as President of Doe Industries, Inc. and not personally. The actual signature can just be John Doe, President, but the other language must be typed underneath the signature to avoid any misinterpretations of who is actually buying the property. The same is true for Sellers. Also you will want to record a Shareholder's Agreement Document signed by the appropriate party that states John Doe has the authority to sign on behalf of the corporation.

Contract must have a legal purpose.

You cannot create a contract for an illegal act. So for instance if the contract states the parties are going to engage in buying short sales and flipping them at the table using funds obtained from third party buyers, it would not be a valid contract.

All parties to the contract must be legally competent.

If a person is mentally impaired, drunk or drugged then they do not have the proper mental capacity to enter into a contract and anything they sign would be declared null and void by a court of law. Also a minor does not have the legal standing to enter into a contract without the added signature of their legal guardian.

Reflect a meeting of the minds.

Both parties must have the same understanding of what is being bought and sold. If one party thinks they are buying all of the vacant lots in a development and the other party thinks they are selling all of the lots that are still under construction, then you do not have a meeting of the minds and the contract is not valid.

Include consideration.

There must be valid consideration (money/property/etc.) listed on the contract or it is not valid. If you notice most deeds state “In consideration of ten ($10.00) Dollars and other valuable consideration....” This is to comply with the consideration requirement. Consideration just has to be something tangible; it does not have to reflect the actual value of the property being exchanged.

Final Points

All real estate contracts must be in writing as determined by the legal principles of the Statute of Frauds and Common Law. If someone says I will sell you my property for $10 and you say yes, that is not a legally binding contract. Also, the contract should state the type of deed to be used to transfer title. Whether it is a warranty deed, special warranty deed, trustee's deed, quit claim deed or other vehicle. This is because each of these deeds grant certain protections to the buyer and limits certain liabilities to the seller so it should be expressly stated. You should also include a paragraph on default. What the consequences are to each party if they default. This can be anything from loss of their deposit to a lawsuit to enforce specific performance (the court determines they must comply with the contract.) One final point is the contract should state the condition of the property at the time of transfer. Either in “As is” condition or “broom swept” clean, etc. You want to leave as little room for interpretation as possible. If you're not sure what documents you should be using then I would suggest starting your search here. You’ll find some of the most detailed, State by State, forms online.

Don’t miss part three of this series to learn about all of the disclosures that must be given according to state and federal law in order to make the contract enforceable. Please leave your questions or comments!

Disclaimer: Nothing stated in this article should be taken as the giving of legal advice. As always, you should check with a licensed, competent real estate attorney who specializes in your field when unsure of how to proceed.

Daniel Doran About the author: Dan has over 20 years of experience as a real estate attorney, title closer and mortgage lender. Dan is now working with BuildingsByOwner to help educate commercial real estate investors on how to sell and lease their properties privately.


No comments made yet. Be the first to submit a comment
Post a comment