| A real estate contract is a contract for | | | | consideration for the real estate, which |
| the purchase/sale, exchange, or other | | | | is typically money in the amount of the |
| conveyance of real estate between | | | | purchase price. However, the details |
| parties. Real estate called leasehold | | | | about the type of ownership may not be |
| estate is actually a rental of real | | | | specified in the contract. Sometimes, |
| property such as an apartment, and | | | | signing buyer(s) may direct a lawyer |
| leases (rental contracts) cover such | | | | preparing the deed separately what type |
| rentals since they typically do not | | | | of ownership to list on the deed and may |
| result in recordable deeds. Freehold | | | | decide to add a joint owner(s), such as |
| ("More permanent") conveyances of real | | | | a spouse, to the deed. For example, |
| estate are covered by real estate | | | | types of joint ownership (title) may |
| contracts, including conveying fee | | | | include tenancy in common, joint tenancy |
| simple title, life estates, remainder | | | | with right of survivorship, or joint |
| estates, and freehold easements. Real | | | | tenancy by the entireties. Another |
| estate contracts are typically bilateral | | | | possibility is ownership in trust |
| contracts (i. e., agreed to by two | | | | instead of direct ownership. |
| parties) and should have the legal | | | | Contingencies |
| requirements specified by contract law | | | | Contingencies are conditions which must |
| in general and should also be in writing | | | | be met if a contract is to be performed. |
| to be enforceable. | | | | Contingencies that suspend the contract |
| Details explained on the contract | | | | until certain events occur are known as |
| In writing | | | | "suspensive conditions". Contingencies |
| In many countries, real estate contracts | | | | that cancel the contract if certain |
| must be in writing to be enforceable. In | | | | event occur are known as "resolutive |
| the United States the Statute of Frauds | | | | conditions". |
| require real estate contracts to be in | | | | Most contracts of sale contain |
| writing to be enforceable. In South | | | | contingencies of some kind or another, |
| Africa, the Alienation of Land Act | | | | because few people can afford to enter |
| specifies that any agreement of sale of | | | | into a real estate purchase without |
| immovable property must be in writing. | | | | them. But it is possible for a real |
| Additionally, a real estate contract | | | | estate contract not to have any |
| must: | | | | contingencies. |
| Identify the parties: The full name of | | | | Some types of contingencies which can |
| the parties must be on the contract. In | | | | appear in a real estate contract |
| a sales contract, the parties are the | | | | include: |
| seller(s) and buyer(s) of the real | | | | Mortgage contingency - Performance of |
| estate, who are often called the | | | | the contract (purchase of the real |
| principals to distinguish them from real | | | | estate) is contingent upon or subject to |
| estate agents, who are effectively their | | | | the buyer getting a mortgage loan for |
| intermediaries and representatives in | | | | the purchase. Usually such a contingency |
| negotiation of the price. If there are | | | | calls for a buyer to apply for a loan |
| any real estate agents brokering the | | | | within a certain period of time after |
| sale, they are typically listed also as | | | | the contract is signed. Since most |
| the real estate brokers/agents who would | | | | people who buy a house get a mortgage |
| earn the commission from the sale. | | | | loan to finance their purchase, mortgage |
| Identify the real estate (property): At | | | | contingencies are one of the most common |
| least the address, but preferably the | | | | type of contingencies in real property |
| legal description must be on the | | | | contracts. |
| contract. | | | | Inspection contingency - Purchase of the |
| Identify the purchase price: The amount | | | | real estate is contingent upon a |
| of the sales price or a reasonably | | | | satisfactory inspection of the real |
| ascertainable figure (an appraisal to be | | | | property revealing no significant |
| completed at a future date) must be on | | | | defects. Contingencies could also be |
| the contract. | | | | made on the satisfactory repair of a |
| Include signatures: A real estate | | | | certain item associated with the real |
| contract must be entered into | | | | estate. |
| voluntarily (not by force), and must be | | | | another sale contingency - Purchase or |
| signed by the parties, to be | | | | sale of the real estate is contingent on |
| enforceable. | | | | a successful sale or purchase of another |
| Have a legal purpose: The contract is | | | | piece of real estate. The successful |
| void if it calls for illegal action. | | | | sale of another house may be needed to |
| Involve Competent parties: Mentally | | | | finance the purchase of a new one. |
| impaired, drugged persons, etc. cannot | | | | appraisal contingency - Purchase of the |
| enter into a contract. Contracts in | | | | real estate is contingent upon the |
| which at least one of the parties is a | | | | contract price being at or below a fair |
| minor are voidable by the minor. | | | | market value determined by an appraisal. |
| Reflect a meeting of the minds: Each | | | | Lenders will often not lend more than a |
| side must be clear and agree as to the | | | | certain percentage (fraction) of the |
| essential details, rights, and | | | | appraised value, so such a contingency |
| obligations of the contract. | | | | may be useful for a buyer. |
| Include Consideration: Consideration is | | | | 72-hour kick out contingency - Seller |
| something of value bargained for in | | | | contingency, which allows the seller to |
| exchange of the real estate. Money is | | | | keep the property in the market while |
| the most common form of consideration, | | | | the buyer contingencies are not yet |
| but other consideration of value, such | | | | fulfilled. |
| as other property in exchange, or a | | | | Date of closing and possession |
| promise to perform (i.e. a promise to | | | | A typical real estate contract specifies |
| pay) is also satisfactory. | | | | a date by which the closing must occur. |
| Notarization by a notary public is | | | | The closing is the event in which the |
| normally not required for a real estate | | | | money (or other consideration) for the |
| contract, but many recording offices | | | | real estate is paid for and title |
| require that a seller's or conveyor's | | | | (ownership) of the real estate is |
| signature on a deed be notarized to | | | | conveyed from the seller(s) to the |
| record the deed. The real estate | | | | buyer(s). The conveyance is done by the |
| contract is typically not recorded with | | | | seller(s) signing a deed for buyer(s) or |
| the government, although statements or | | | | their attorneys or other agents to |
| declarations of the price paid are | | | | record the transfer of ownership. Often |
| commonly required to be submitted to the | | | | other paperwork is necessary at the |
| recorder's office. | | | | closing. |
| Sometimes real estate contracts will | | | | The date of the closing is normally also |
| provide for a lawyer review period of | | | | the date when possession of the real |
| several days after the signing by the | | | | estate is transferred from the seller(s) |
| parties to check the provisions of the | | | | to the buyer(s). However, the real |
| contract and counterpropose any that are | | | | estate contract can specify a different |
| unsuitable. | | | | date when possession changes hands. |
| If there are any real estate brokers | | | | Transfer of possession of a house, |
| agents brokering the sale, the buyer's | | | | condominium, or building is usually |
| agent will often fill in the blanks on a | | | | accomplished by handing over the key(s) |
| standard contract form for the buyer(s) | | | | to it. The contract may have provisions |
| and seller(s) to sign. The broker | | | | in case the seller(s) hold over |
| commonly gets such contract forms from a | | | | possession beyond the agreed date. |
| real estate association he/she belongs | | | | The contract can also specify which |
| to. When both buyer and seller have | | | | party pays for what closing costs. If |
| agreed to the contract by signing it, | | | | the contract does not specify, then |
| the broker provides copies of the signed | | | | there are certain customary defaults |
| contract to the buyer and seller. | | | | depending on law, common law (judicial |
| Offer and acceptance | | | | precedents), location, and other orders |
| As may be the case with other contracts, | | | | or agreements, regarding who pays for |
| real estate contracts may be formed by | | | | which closing costs. |
| one party making an offer and another | | | | Condition of property |
| party accepting the offer. To be | | | | A real estate contract may specify in |
| enforceable, the offers and acceptances | | | | what condition of the property should be |
| are normally in writing and signed by | | | | when conveying the title or transferring |
| the parties agreeing to the contract. | | | | possession. For example, the contract |
| Often, the party making the offer | | | | may say that the property is sold as is, |
| prepares a written real estate contract, | | | | especially if demolition is intended. |
| signs it, and transmits it to the other | | | | Alterrnatively there may be a |
| party who would accept the offer by | | | | representation or a warranty (guarantee) |
| signing the contract. As with all other | | | | regarding the condition of the house, |
| types of legal offers, the other party | | | | building, or some part of it such as |
| may accept the offer, reject it - in | | | | affixed appliances, HVAC system, etc. |
| which case the offer is terminated, make | | | | Sometimes a separate disclosure form |
| a counteroffer - in which case the | | | | specified by a government entity is also |
| original offer is terminated, or not | | | | used. The contract could also specify |
| respond to the offer - in which case the | | | | any personal property (non-real |
| offer terminates by the expiration date | | | | property) items which are to be included |
| in it. Before the offer (or | | | | with the deal, such as washer and dryer |
| counteroffer) is accepted, the offering | | | | which are normally detachable from the |
| (or countering) party can withdraw it. A | | | | house. Utility meters, electrical wiring |
| counteroffer may be countered with yet | | | | systems, fuse or circuit breaker boxes, |
| another offer, and a counteroffering | | | | plumbing, furnaces, water heaters, |
| process may go on indefinitely between | | | | sinks, toilets, bathtubs, and most |
| the parties. | | | | central air conditioning systems are |
| To be enforceable, a real estate | | | | normally considered to be attached to a |
| contract must possess original | | | | house or building and would normally be |
| signatures by the parties and any | | | | included with the real property by |
| alterations to the contract must be | | | | default. |
| initialed by all the parties involved. | | | | Riders |
| If the original offer is marked up and | | | | Riders are special attachments (separate |
| initialed by the party receiving it, | | | | sheets) that become part of the contract |
| then signed, this is not an offer and | | | | in certain situations. |
| acceptance but a counter-offer. | | | | Earnest money deposit |
| Deed specified | | | | Although, it is not absolutely required |
| A real estate contract typically does | | | | for a valid real estate offer or a |
| not convey or transfer ownership of real | | | | contract, an earnest money deposit from |
| estate by itself. A different document | | | | the buyer(s) customarily accompanies an |
| called a deed is used to convey real | | | | offer to buy real estate. The amount, a |
| estate. In a real estate contract, the | | | | small fraction of the total price, is |
| type of deed to be used to convey the | | | | listed in the contract, with the |
| real estate may be specified, such as a | | | | remainder of the cost to be paid at the |
| warranty deed or a quitclaim deed. If a | | | | closing. |
| deed type is not specifically mentioned, | | | | Financial qualifications of buyer(s) |
| "marketable title" may be specified, | | | | The better the financial qualification |
| implying a warranty deed should be | | | | of the buyer(s) are, the more likely the |
| provided. Lenders will insist on a | | | | closing will be successfully completed, |
| warranty deed. Any liens or other | | | | which is typically the goal of the |
| encumbrances on the title to the real | | | | seller. Any documentation demonstrating |
| estate should be mentioned up front in | | | | financial qualifications of the |
| the real estate contract, so the | | | | buyer(s), such as mortgage loan |
| presence of these deficiencies would not | | | | pre-approval or pre-qualification, may |
| be a reason for voiding the contract at | | | | accompany a real estate offer to buy |
| or before the closing. If the liens are | | | | along with an earnest money check. When |
| not cleared before by the time of the | | | | there are competing offers or when a |
| closing, then the deed should | | | | lower offer is presented, the seller may |
| specifically have an exception(s) listed | | | | be more likely to accept an offer from a |
| for the lien(s) not cleared. | | | | buyer demonstrating evidence of being |
| The buyer(s) signing the real estate | | | | well qualified than from a buyer without |
| contract are liable (legally | | | | such evidence. |
| responsible) for providing the promised | | | | |