A real estate contract is a written document that details the agreement between the buyer and seller. It should contain all essential aspects of the transaction, including the date of possession, selling price, mortgage details, closing date and more. Having a valid real estate contract can help both parties to avoid unpleasant misunderstandings.
The buyer and seller usually enter into a real estate purchase contract after negotiations have concluded. This document should be in writing and must be signed by both parties. In addition, it should be approved by the laws of the governing country.
A real estate contract can be a bilateral contract, or it can be drawn up by both sides together. Regardless of the type, the contract should be legally binding and provide clear guidance to both parties. If the parties cannot reach an agreement, they can use a power of attorney to sign the contract.
Real estate contracts typically contain conditions, or contingencies. These conditions can give buyers and sellers an opportunity to terminate the contract if the agreed upon terms are not met. Some common contingencies are financing, appraisal, pre-leasing, environmental inspections, and more. Each of these contingencies offers a buyer or seller a chance to back out of the transaction without penalty.
The parties must also agree on the consideration, which can be money, another property, or a promise to perform. Money is the most common form of consideration. However, other instruments of value are also acceptable. For example, a bank will lend a buyer a specified percentage of the appraised value of the property. Typically, the bank will want a warranty deed.
Depending on the state, the contract may be enforceable by default. A default means that the contract has been violated and the parties must act accordingly. If the breaching party does not act, a civil claim lawsuit can be filed.
A real estate contract can also include an arbitration process for any disputes. It should specify who is liable for the costs of closing the transaction. Sometimes, it can specify the sale as “as is” or that the seller holds over possession. When a real estate contract is void, monetary damages can be awarded to the buyer.
Real estate contracts are not usually recorded with the government. Occasionally, they are required to be initialed by all parties. Non-residential sales may require a specialist draft. Many recording offices will notarize the seller’s signature.
To make a good real estate contract, all parties must have the same intent. In addition, the contract must be in writing and have original signatures. Often, a power of attorney is required if one of the parties is mentally impaired or does not have the legal ability to sign.
Ideally, the real estate contract should be entered into voluntarily and without compulsion. If a minor or mentally ill person signs a real estate contract, the contract can be void. Generally, courts will enforce contracts with time as their essence.