A real estate contract is a written agreement that defines the terms of a transaction between two parties. It must be enforceable to be legally binding and should include the following:
Property details: The real estate contract must state all the properties being transferred, as well as the price and payment terms. It must also include the names, current home addresses, and phone numbers of all buyers and sellers. If there are multiple buyers, it must specify whether they are buying the property as tenants in common or joint tenancies.
Contingencies: Real estate contracts almost always contain various contingencies which allow buyers to back out of a transaction if certain conditions are not met. The most common contingencies relate to inspections and financing. During the contingency period allowed for these types of inspections, buyers are typically able to terminate if they are dissatisfied with results of an appraisal, environmental analysis, or pre-leasing. In addition, buyers often have open-ended financing contingencies which allow them to terminate the contract if they are unable to obtain a loan to purchase the property.
Closing costs: The real estate contract must specify which party is responsible for a variety of closing costs, such as escrow fees, title insurance, recording fees, and transfer taxes. It should also list other expenses which may be incurred during the closing process, such as survey charges and pest inspections.
Sellers must disclose any issues with the property, including any defects or liens. The contract must also specify in what condition the property is being sold, including affixed items such as appliances and fixtures.
Buyers must make a down-payment, usually 10% of the purchase price. This check is made out to the seller’s attorney, who holds it for safekeeping in a special account called an escrow account. During the closing process, the attorney reviews all documents to ensure that all of the seller’s obligations under the contract have been fulfilled.
The date of the final closing is the time at which ownership of the property will be transferred from the seller(s) to the buyer(s). A real estate contract may specify a different date for the transfer, and it may have provisions in case the parties are unable to close on the agreed upon date.
Once all of the conditions under the real estate contract have been satisfied, a document known as an executed agreement or deed will be prepared by the seller’s attorney and signed by the buyer(s). The deed will then be recorded in the local county recorder’s office. If a sale is not completed for any reason, the earnest money deposit will be returned to the buyer(s).
