A real estate Contract is a legally binding agreement between two parties (property buyer and seller) to transfer property ownership. The agreement sets out all the details of the sale, including closing costs and escrow details. The real estate contract must contain certain provisions to be valid, and failure to meet these requirements can result in legal action.
While a real estate Contract may seem intimidating, the good news is that there are plenty of opportunities to back out of a deal without incurring significant cost. Whether your circumstances change or the home you’re buying is no longer affordable, there are ways to get out of a real estate contract, as long as you act quickly and follow the proper procedures.
Consideration: The contract must specify the consideration (a benefit or value) that both parties are exchanging in exchange for the property. This is usually in the form of money, but can also be another property or a promise to perform a specific action.
Mutual consent: All parties must willingly and knowingly agree to the terms of the real estate contract. This means that no one can be forced into a contract by fraud, misrepresentation, or undue duress. The contract must also clearly state that the property is being sold for its fair market value and that all parties have full knowledge of the transaction.
Buyer contingencies: Contingencies are important to include in real estate contracts, as they allow buyers to back out of a deal if there are problems that they cannot overcome. For example, a property inspection contingency allows buyers to cancel the purchase if a home inspector finds issues that make the property unfit for sale. A financing contingency can be included to allow buyers to cancel the contract if they cannot secure a mortgage.
Closing costs: It’s always important to include a clear description of closing costs in a real estate Contract, as this will help both parties understand who is responsible for what. For example, some sellers will cover a portion of the closing costs, but this should be stated in the contract so that it doesn’t come as a surprise at the end of the transaction.
Default: Every real estate contract should state the ramifications of default, such as what happens to the deposit and the home’s title. This will help prevent confusion and unnecessary delays down the road.
Riders and addendums: These are additional documents that can be attached to a real estate contract, and they typically clarify specific aspects of the transaction. For example, a rider might include information about homeowner’s association rules or a FHA rider that specifies that the loan is being secured via the Federal Housing Administration.
A real estate Contract is typically not notarized, but it is important to have both parties initial and sign the document for it to be considered valid. In addition, any alterations to the original offer must be initiated by both parties.