A real estate Contract is an agreement between two parties that outlines the terms of a property sale. It includes the purchase price, an adequate description of the property, and closing deliverables. It also includes any events that must occur before the deal can close, known as contingencies.
A contract should be written and signed by both the buyer and seller to be legally binding. Real estate agents may sign on behalf of their client, but they should include their authority in the document. The document should also clarify the roles and responsibilities of all parties involved, including any agents or attorneys who are not directly responsible for the writing of the document.
Most contracts require the buyer to make an earnest money deposit upon signing, which is a good-faith deposit that shows they are serious about purchasing the property. This is usually a percentage of the purchase price and is held by an escrow agent until closing. It can be used to cover a variety of expenses, such as the transfer fee, title insurance, and notary fees. The deposit will be forfeited if the buyer backs out of the sale, unless otherwise specified by the contract.
Contingencies are essential for most buyers and sellers to protect themselves against unforeseen events that could cause them to lose their money or cancel the contract. A common contingency is a home inspection, which allows the buyer to have an expert review the property and identify any issues that must be addressed before the sale can close.
Other important contingencies may include appraisals, home loans, and environmental testing. Some states may have specific requirements for certain types of loans or conditions, so it is important to check these rules before making an offer.
If a party is not available to sign the contract, a power of attorney can be included in the document to authorize another party to do so. This can be helpful if a party is out of the country or if they are unable to sign due to a disability.
The closing date should be clearly outlined in the contract, as well as the type of closing (for example, cash or mortgage). A good rule of thumb is to allow for a reasonable postponement of the date if necessary. A buyer or seller may want to specify that “time is of the essence,” but this is not a requirement in New York.
A contract should also outline the responsibilities of each party, such as escrow instructions and procedures, transfer taxes, the purchase price, closing costs, and other details. It should also include any personal property that is being transferred with the property, such as appliances and furniture. Closing costs are typically the responsibility of one party, but this can be negotiated. In addition, the contract should include a risk of loss clause that clarifies who is liable if there are damages caused to the property between the initiation of the sale and the closing date.