Real Estate Transaction

A real estate transaction occurs when a property owner offers the property for sale, and the purchaser agrees to buy it. Purchasing a property involves several stages that differ based on state laws and the nature of the transaction. These tasks primarily fall under the responsibility of the real estate agents concerned. However, throughout the process, both the seller and the purchaser must fulfill obligations.

In this transaction, the purchaser usually pays the seller money in exchange for the ownership rights. However, payment can be made through several methods. A cash payment option is offered when the purchaser uses their bank account to pay the entire purchase amount. On the other hand, the buyer may also choose to take out a mortgage or a loan, in which the purchased property usually functions as security for future payments. Sometimes, there can also be an owner-funded transaction, where the seller consents to provide a loan to the purchaser so they can acquire the real estate.

The parties involved in a real estate transaction process are:

• Purchasers and Sellers: The two primary parties in the transaction are the purchasers and the sellers. They must agree on the terms, conditions, and pricing.
• Real Estate Brokers and Agents: In the real estate industry, brokers and agents are specialists who represent purchasers and sellers in the buying, advertising, and sale of real estate.
• Legal professionals: Legal professionals have the authority to review contracts, provide legal advice, and ensure that laws and regulations are followed.
• Creditors and Financial Institutions: These parties must evaluate the deal's financial feasibility and provide possible sources of financing.
• Inspectors and Appraisers: These professionals are responsible for assessing the condition and value of the property.
• Governmental Organizations: They are responsible for authorizing and granting permits and ensuring adherence to construction codes and standards.

The regulatory requirements in real estate transactions are as follows:

• Real estate ownership verification: This process requires performing title searches to verify that the asset does not have debts or additional claims.
• Contracts and Agreements: This area encompasses creating and revising agreements and contracts, including rental agreements, contracts of purchase, and contracts for sales.
• Zoning and Land Utilization: Zoning and land usage regulations set restrictions on the development and utilization of a piece of land. The concerned parties must adhere to these laws.
• Requirements for Disclosure: This process involves revealing all known defects or concerns with the property, including any risks to the environment or problems with construction

The real estate transaction process steps have been discussed below:

#1 - Performing Due Diligence

Any real estate deal starts with due diligence. It encompasses carefully examining and confirming the financial, legal, and physical elements of the property. This stage usually involves the following:

• Title Search: It ensures that the seller is the only owner of the property and is free of any obligations.
• Property Examination: It is essential to inspect the property to determine its current condition and any issues or defects that can lower its usability or market value.
• Survey and Zoning: This process involves verifying the real estate's boundaries, permits, and zoning conformity to ensure its buildability and compliance in the locality.
• Environmental Evaluation: The fourth phase includes evaluating the environment to avoid legal concerns. It involves examining possible risks on the premises, such as contamination.

#2 - Drafting and Negotiating Contracts

Effective negotiating and appropriate binding agreements are crucial for real estate deals to be effective. This process consists of:

• Price Negotiation: It is the discussion about a reasonable and equitable pricing or lease structure between two or more participants.
• Purchase Contract: The concerned parties must create a legally enforceable purchase agreement that contains the terms of the transaction. It may include the purchase price, the closing date, and any applicable conditions.
• Lease Contract: In leasing deals, the participants must draft an extensive lease agreement that includes the leasing terms and conditions, tenant obligations, and other significant provisions.

Some real estate transaction types include the following:

• Purchasing: This type of real estate transaction involves the act of a person or organization purchasing real estate for investment or for private use.
• Selling: When a property is sold, the ownership rights are transferred from the seller to the customer who purchases it in exchange for monetary compensation.
• Leasing: It is the process that offers a tenant a short-term rental of a property, usually specified in a rental contract.

Let us have a look at the following real estate transaction examples to understand this concept:

Example #1 

Let us assume that Jenny wants to sell a real estate property, and Max is the prospective buyer. They enter into an extensive process to transfer the ownership rights of the real estate property from Jenny to Max. Max conducts the necessary due diligence on the property and negotiates with Jenny on the terms and conditions of purchasing it. After they reach an agreement, they draft the contract and sign it. They make the necessary payments and close the deal. This is a real estate transaction example.

Example #2

In the third month in a row in May 2024, the United States witnessed a decline in the number of previously occupied real estate sales. This shift is because the record-high prices and increasing mortgage rates have scared off many potential buyers during the real estate sector's peak transaction season. The sale of existing properties decreased 0.7% in May compared to April. In May 2023, sales had declined by 2.8% as well. Despite this, the most recent transactions were a little higher than the 4.07 million rate that economists had predicted. This is another real estate transaction example.