A real estate sales contract, or real estate purchase agreement, is a contract for selling or purchasing a property. The contract outlines the rights, duties, and responsibilities of the seller and buyer of the property.
Once a seller accepts your offer, you have created a contract for the sale of the property. Real estate agents may suggest using a standard form that contains the required information for a real estate purchase contract. Standard forms help ensure the specific requirements for a real estate purchase are met. However, it is still a good idea to have an experienced attorney review your real estate purchase contract before signing.
What Does the Sales Contract Contain?
Real estate sales contracts have unique requirements in addition to standard rules for contract formation. If you are not using a real estate agent, or if you are buying directly from the owner, pay close attention to the sales contract.
Each jurisdiction has different laws regarding a real estate sales contract. However, a general contract usually includes:
- Legal and full description of the property, which may contain any zoning provisions
- Purchase price
- Terms of sale such as any payment options, mortgage, escrow
- Deposit amount
- Condition of property such as “as is”
- Closing date
- Inspection right or results of an inspection
- Items included in the sale of property, such as appliances and fixtures
- Any legal issues regarding the property’s title
- Option to terminate
- Insurance requirements
Is a Real Estate Sales Contract Binding?
A contract for the sale of a property is binding. A contract typically contains certain contingency clauses, or contingencies, which allow one or both parties to terminate the contract. These contingencies do not have any consequences if certain conditions are not met.
What Is an Option to Terminate in a Real Estate Sales Contract?
The option to terminate allows a buyer to end the sales agreement before completing the sale. It typically requires the buyer to give adequate notice to the seller or pay a termination fee.
Is a Breach of a Sales Contract the Same as an Option to Terminate?
No. A breach of a real estate purchase contract occurs when the buyer or seller does not follow the conditions and terms of the contract. Terms of the contract include things like the seller not providing a clear title and not including other items in the contract. A breach can occur in several ways, such as:
- Failure to pay
- Failure to provide the correct deed to the property
- Sub-leasing property when unauthorized in the contract
- Contesting one or more real estate contract penalty clauses
What is the Statute of Frauds?
The Statute of Frauds is an old piece of English common law that has been adopted in the U.S. The Statute of Frauds requires certain types of contracts to:
- Be written down
- Contain specific details about the agreement
The Statute of Frauds prevents a person from cheating someone else by claiming a breach of a fraudulent oral contract. An oral contract is a spoken agreement that isn’t actually legal in court.
Buying real estate falls under the Statute of Frauds. All contracts for the sale of real estate must be in writing. Real estate agents know this and should always make sure that the terms of a deal are in writing.
What is Required in a Real Estate Purchase Contract?
Not only does a real estate purchase contract have to be in writing, but it must contain certain elements to be legal and enforceable. The contract must:
- List the names of the buyer and seller
- Contain a description of the property (usually the address of the property and its legal description)
- Include the purchase price for the property
- Be signed by all necessary parties to the sale
A real estate purchase contract does not have to contain information about your down payment, counteroffers, or Federal Housing Association loan. The contract does not need to show how you legally got the money for the purchase. Standard contracts may include this information in the terms, but it is not legally required.
What Are the Additional Elements in a Real Estate Purchase Contract?
A real estate purchase should include other details to protect the buyer and seller. These details help ensure the real estate transaction is smooth, with as few opportunities for disagreement as possible.
The additional elements that may appear in a real estate purchase contract include:
- The date of the transaction settlement (when both parties sign the contract)
- The date the buyer can take possession of the property (called the closing date)
- A guarantee that the seller possesses legal title to the property
- A clause that allows the buyer to make inspections of the property for damage, pest infestations, etc.
- The names of the escrow and closing agents
- Your earnest money deposit (money that shows you are serious about purchasing the property)
- Purchase price and terms
- If you have an all-cash offer
- A contingency clause that addresses the proper actions if certain situations arise. For example, if the buyer can’t obtain financing by a specific date, a contingency clause could allow the seller to back out of the deal
- A liquidated damages clause requiring the seller to pay the buyer a specified amount of money for each day the buyer has to delay moving onto the property.
What Are Inspection Clauses in a Real Estate Purchase Contract?
Every real estate purchase contract should have a clause allowing for inspections. These clauses are often called inspection contingencies. Before purchasing real estate, make sure that a contingency clause covers situations that could arise out of the inspection. The clause should state that the seller is responsible for repairing any damage or dealing with any pest infestations. You may want to include a provision that allows you to back out of the deal if the problem is too egregious.
What Are Financing Clauses in a Real Estate Purchase Contract?
When drafting a real estate purchase contract, you may want to include a contingency clause that allows you to void your offer if you can’t secure financing before a certain date.
Sellers will usually not object to such a provision. If you can’t get money to buy the property, the seller should keep looking for another buyer.
How Can I Get the Best Contract as a Seller?
The first step towards getting the best contract possible is to get your buyer to agree to your preferred purchase price. You can often find wiggle room with the final cost through clauses in the contract. There should be some give and take during negotiations. Decide what things are important to you and be prepared to give up on others to keep the more important terms in the contract.
Should I Discuss a Real Estate Purchase Contract with an Attorney?
If you are entering into or planning to enter into a real estate sales contract, contact a contract attorney for help. They can represent you in negotiations to buy or sell a piece of property and advise you in any real estate transactions.
Use LegalMatch today to find the right real estate attorney near you. There is no fee to schedule a consultation.