A Must-Know Guide to Real Estate Purchase Agreements in Kentucky

Overview of the Kentucky Real Estate Purchase Agreement

At its core, a real estate purchase agreement is a legally binding contract between a seller and a buyer of property, in this case a home. Such an agreement establishes the terms under which the buyer and seller agree to enter into a sale. In this capacity, the real estate purchase agreement is the essential contract that serves as the launching point for virtually every real estate transaction in Kentucky, whether it’s a residential or commercial sale and whether it’s being purchased by a home buyer, institutional investor or someone else.
Any deed of land may be passed by the act of parties, observed by witnesses, words of passing the grantor’s property to the grantee; but there must be agreement of the two parties bringing them all together, must be signed , must be acknowledged by and before two attesting witnesses, and the grantor must be a person to whom an estate may be given. (KRS 381.050)
Given that real estate is the largest financial purchase that most individuals will make in their lifetimes, the Kentucky real estate purchase agreement serves not only as a written introduction to the terms of the contract but also as a legally formalized version of the agreement between parties. Without such a document, a contract between a home seller and buyer would not possess standing in any court. Beyond offering the opportunity for a legal framework for the contract, this documentation allows the contract to be clear and concise, legally binding the parties to each of the elements contained within the document.

Key Provisions of a Real Estate Purchase Agreement

Essential Guide to Real Estate Purchase Agreements in Kentucky
The key components typically included in a Kentucky real estate purchase agreement include:
Parties’ Details- This includes the names and signatures of all parties involved in the transaction. In Kentucky, it’s important to use the full legal names of all parties to avoid any possible future legal issues.
Property Description- The agreement should provide a detailed description of the property being sold. This includes not just the address but also the parcel number and a description of the land itself. The property description must be specific enough to uniquely identify the property, in order to avoid any confusion during the transfer.
Purchase Price- The parties should agree upon the purchase price of the property and state it clearly in the contract. Any deposits made by the buyer toward the purchase price should also be documented.
Contingencies- Contingencies are clauses in the agreement that make the sale dependant on certain factors. For example, a buyer may make an offer contingent on the sale of their previous home. In Kentucky, it’s common to have contingencies in real estate purchase agreements for financing and inspections.
State-Specific Requirements- Kentucky has a couple of state-specific requirements that must be included in each real estate purchase agreement. Firstly, the agreement must include a statement regarding radon gas. The statement should provide information on radon levels and the risks associated with high levels. Secondly, Kentucky law requires that all real estate purchase agreements have a specific notation about lead-based paint. This notation should indicate whether or not the home was built before 1978, when it was illegal to use lead paint in residences.

Requirements for Legality and Compliance

Legal requirements are a critical aspect of creating a real estate purchase agreement in Kentucky. For example, the Statute of Frauds requires that any purchase contract worth more than $500 be in writing to be enforceable. As a result, any agreement orally made between a buyer and seller for $500 or more is unenforceable, unless there was a written agreement intended to confirm the contract. Additionally, real estate purchase contracts must comply with the Statute of Conveyances, which details who can make a purchase contract and what fees they are able to collect. In addition to statutes, local laws and ordinances can significantly impact a real estate purchase contract. Local ordinances typically take precedence over state statutes. These ordinances may define specific terminology used in the contract, such as "party", "property", "purchase price" and "seller." Therefore, it is extremely important to understand the local laws and local definitions of these terms prior to using a real estate purchase contract template. Inadequate knowledge of local laws and statutes can lead to the invalidation of a purchase contract and result in costly litigation.

Contingencies: What to Include

Contingencies and clauses are common in Kentucky residential real estate purchase and sale agreements. They are basically promises or agreements between the buyer and seller with certain conditions attached. Inspection period. The inspection period is a contingency. Within the period, which is generally 7 to 10 days after acceptance, the buyer has the right to perform inspections. If the inspections reveal any problems, repairs may be negotiated between the parties or the buyer may have the right to terminate the contract pursuant to the contract terms. Finance. A finance contingency is an agreement subject to the buyer being able to obtain a loan. If the buyer is not credit-worthy to receive a loan to purchase the property, either the parties may terminate the contract or the loan may be contingent upon additional money being paid by the seller toward the loan. For example, the buyer may be qualified at a loan of $200,000. If the sale price is $250,000, the additional $50,000 will have to be provided by the seller in order for the sale to go forward.

Amendments, Addendums and Renewals

Amendments and addendums are terms that are used interchangeably. An amendment is a formal change to the original contract, while an addendum is any addition or change to the contract, whether it be simple clarifications, clarifying language, or sections added or deleted from the original document. In Kentucky, an addendum is frequently called an attachment. It must be attached to the original real estate purchase agreement, just as a separate document to the original contract.
Amendments and addendums are necessary when a party negotiates any changes to the purchase agreement itself, and are necessary to affect the change. This could include an increase in the purchase price of the property itself, a single change to a provision, condo or homeowner association status, an increase in the closing costs, advance amounts to be paid to the broker, home warranties, repairs to be made to the property itself, to name a few of the situations that could arise. In Kentucky, under the Terms of Agreement section , in the real estate purchase agreement, you are signing a purchase agreement pursuant to the laws of the state of Kentucky. However, an amendment may be necessary to comply with – for example – the Uniform Commercial Code (U.C.C.), which is consistent with Kentucky and a majority of other states. Any amendments or addendums should be signed by the same parties to ensure that no one else is getting the amendments to which they have not agreed.
The Kentucky standard contract contains many contingencies in addition to those concerning the property itself. These contingencies, some of which could be related to an inspection, contingencies on the sale of another property, or financing contingencies, could require an amendment once the specified condition has been satisfied. In Kentucky, the buyer is not required to obtain an itemized list of the earnest money deposit, however, in Kentucky, it is standard practice to insert a fax number and/or e-mail on which electronic signatures will be accepted.

The Closing Process in the Commonwealth

Within the state of Kentucky, the process of closing is generally considered to begin on the day that a buyer and seller sign and completely execute a Purchase Agreement. From that point until the Closing, there are several things that need to be completed by both parties to insure a smooth transaction. In most cases, a local lender will collect an earnest money deposit from the Buyer as well as the down payment and will then begin to order the title work and schedule the closing. The date of closing that is inserted on the Purchase Agreement is typically only a target date. The terms of the Purchase Agreement in conjunction with the overall market conditions, may result in a delay, or your attorney may request a delay based on the status of the closing. Sometimes a closing can occur prior to the date on the Purchase Agreement.
Closing agents are typically attorneys. However, in some counties, other title companies can be used as closing agents. Kenton County is one county in which closings are regularly handled by the Kenton County Title Company. The closing agent will gather all the necessary paperwork and will conduct the closing. Typically, certain documentation will need to be prepared for the buyers to sign. These documents will include a Certification of Sale by the buyer stating that the buyer is obtaining a loan through XYZ Lender and authorizes his/her lender to remit the loan proceeds from closing to the closing agent. A Deed of Trust and Mortgage given by the buyer to the lender usually must be registered on the public records. Typically, the lenders will require title insurance. Title insurance policies protect the lender and/or the buyer from any errors or omissions that may have occurred in title search, claims resulting from certain matters not shown on the title commitment and errors and omissions of the closing agent. The buyer will have the same rights under the title insurance policy that the lender has under their policy. An Escrow Agreement and Loan Receipt is commonly signed at the closing setting forth the amounts due to the sellers and an Affidavit of Debt or Credit shall also be included as part of the closing documentation. If the seller is being paid in full, a statement will also be signed by the lender stating that the mortgage will be released and delivered to the closing agent upon receipt of the funds. In such a case, the lender generally will not require a two party check signed by the buyer made out to the seller and the mortgage company. These documents may vary from state to state and even from county to county within the state of Kentucky.

Common Mistakes in Kentucky Real Estate Purchase Agreements

When it comes to real estate purchase agreements, there are a number of common pitfalls buyers and sellers should be aware of, but these traps can be easily avoided by following a few simple steps.
One of the most common problems that can delay a sale is an unclear or overly-complex lease agreement. Your attorney should be able to work through the intricacies of the lease to ensure that no issues will arise during the sale. A skilled negotiator can help clarify and settle these types of issues before the lease price is accepted.
Another common pitfall is failing to include conditions that must be met prior to closing. A financing contingency, for instance, should be listed so that the buyer is not held responsible for a property they cannot afford (or qualify for). There are many other contingencies that, depending on the nature of the property, may need to be included. Without these, the purchase agreement may disappear if the buyer fails to qualify for a mortgage.
In Kentucky, the law states that any agreement transferring title to real property over $500 must be in writing. Otherwise, it essentially does not exist and either party can simply walk away. This may be to your benefit if you are the property seller, but do you want to gamble on the chance that you can get out of an agreement with little or no notice? Your attorney will ensure that the terms of the purchase agreement are codified on paper, and that the details are clearly spelled out.

Speak with a Kentucky Real Estate Attorney

Buyers and sellers may represent themselves in a real estate transaction, however, having an experienced real estate attorney by your side is one of the best ways to protect your investment and your interests. Through the course of the transaction, a real estate purchase agreement may appear an easy contract and simple process. But if you have ever been involved with a real estate transaction you understand that purchase agreements are often complex, and must conform to Kentucky law. A real estate attorney can help avoid costly mistakes.
The purchase agreement between the buyer of real estate and the seller may seem simple , but it probably contains more legal jargon than you currently need to be familiar with or understand — especially if something should go wrong during or after the sale of the property. Some of the areas that a real estate attorney will represent your interests and help you understand the purchase agreement and other legal documents include: In Kentucky, real estate purchase agreements are not typically required to be in writing for the sale or transfer of real property, but under Kentucky law, the seller must provide a property disclosure as described in 24 Ky. Admin. Reg. 30.020 to the buyer. This requirement to provide a property disclosure form may be waived by the buyer or the seller or both. Because significant financial and legal interests are at stake, whether you are a buyer or a seller, you should seek the assistance of an experienced real estate attorney to review the purchase agreement before you sign.