A real estate Contract is a legally binding document between a buyer and seller of property that includes a detailed outline of the sale. It typically covers information on the property itself, the purchase price, closing costs, payment terms, transfer of ownership and title, and contingencies that allow either party to walk away from the deal if certain conditions are not met. The contract is often created by a lawyer, although there are many standardized forms available online for use by buyers and sellers.
The first step in building a real estate Contract is when a buyer submits an official offer to the seller. The seller may accept or reject this, which will then start the negotiation process of creating the contract. This can include the drafting of counter offers, wherein both parties alter items such as the purchase price, closing date and any contingencies.
There are a few basic elements that should be included in all contracts:
Clearly defined property details:
These typically include an accurate description of the property, a proposed close date and the purchase price. If the property is a condominium or commercial space, the contract should also note what features and amenities are included in the sale.
Transfer of ownership and titles:
Both the seller and the purchaser must agree to the transfer dates for the property, which is normally the date of the final closing. The contract can also include provisions on who will pay for what closing costs, and whether any liens on the title are cleared before the closing.
Contingencies:
Almost every real estate Contract contains contingency provisions that can allow the buyer to back out of the contract for various reasons. For example, most real estate contracts will contain a home inspection contingency, which allows the buyer to cancel the contract if the property does not meet the agreed-upon inspection standards. Similarly, financing contingencies are common, as they usually require that the buyer obtain a mortgage loan to complete the purchase.
Although it is not ideal to have contingencies in the contract, they can protect both parties in case something goes wrong during or before closing. This can include when the loss of income makes it unaffordable to take on a mortgage, or when the home inspection reveals significant issues that make the property less desirable.
Other clauses:
There are a number of other clauses that can be added to a real estate Contract to provide additional protection for the parties involved. These can include an “as-is” provision, which states that the buyer is taking the property in its current condition as visually observable. This does not, however, relieve the seller of its legal obligation to disclose any known defects to the buyer.
A general real estate Contract should include the names of both parties, their contact information and a clear statement that the contract is legally binding. It should also contain a declaration that both parties are of legal age and have the mental capacity to enter into a transaction.
