The Real Estate Contract
A real estate purchase contract is an agreement in writing, between two parties, for the transfer of real estate. It is a legal document that essentially binds the buyer and the seller to complete the transfer of the property. The parties must both have the legal capacity to make the purchase, exchange, or other conveyance of the real property in question. To be valid, a contract requires the exchange of legal consideration, usually in the form of money, or a promise to pay a certain amount of money in the future in exchange for the property. The terms of the real estate contract are binding upon the signatories once properly executed.
The statute of frauds requires that real estate contracts be in writing to be valid. Real estate contracts that are not written and signed by both the buyer and seller are not enforceable under the law. The courts do not want to be placed in the situation where they have to try to figure out what each party verbally agreed to.
In addition to the consideration (amount of money) to be provided for the purchase of the property, a real estate contract should Identify of the parties, contain a description of the property, state the condition of the property, contain the essential details, rights, and obligations of the parties, state the amount of the money deposit, state which fixtures and appliances are included in the sale and which are not, Identify any contingencies or conditions that must be met before the sale can be finalized, It should contain a closing date, an itemization of expected closing cost and identify which closing cost are to be paid by the buyer, and which closing cost are to be paid by the seller, the terms of possession and the signatures of all the parties to the contract.
A contract may need to include various contingencies such as a loan contingency, allowing the purchasers to be released from the contract should they not be able to secure financing. Another contingency known as an inspection contingency permits a buyer to cancel the purchase if their professional house inspector finds significant problems with the home. The election to withdraw from the purchase of the property must be made within a certain amount of time following the date of inspection as established in the contract. If the buyer waits too long, he or she will have been deemed to have waived their right to withdraw from the purchase. Alternatively, the buyer and seller can agree on a lower sale price or the buyer and seller may agree to have the seller make the necessary repairs.
Other contingencies may include the house appraising for a certain amount of money, or the sale being contingent on the sale of another property the buyer needs to sell before he or she can proceed with the new purchase.
A real estate contract is a powerful and binding document and should only be signed after consulting with a real estate attorney. Real estate buyers who enter into contracts without the guidance of an attorney often find themselves in breach of the contract because they agreed to something that they were not able to comply with, or didn’t realize they even needed to do. A real estate contract may look simple, but when they go bad, the results can be disastrous. The courts will not consider that you misunderstood the terms that you agreed to, and will strictly hold you to the provisions of the contract as stated, often resulting in the buyer either losing the down payment, or being liable for a substantial amount of money.