What defines a real estate contract?
Every real estate contract meets four requirements to be valid:
- A valid home purchase agreement must be in writing
- The contract must contain an offer and an acceptance
- The purpose of the agreement must be legal.
- There must be an exchange of things of value (usually, it’s money for property)
In addition, all parties signing must be legally competent. If you sell a house to a 12-year-old and he backs out, you probably won’t be able to enforce your contract.
Defining a purchase and sale agreement
A purchase and sale agreement is a real estate contract. It’s a written agreement between buyer and seller to transact real estate. The buyer agrees to pay an agreed-upon amount for the property. The seller agrees to convey the deed to the property.
The deed is a legal instrument.
A real estate contract often includes:
- Price
- Sales or closing target date
- Deadline by which the offer expires
- Earnest money deposit amount
- Details about who pays for inspections, surveys, title insurance, etc.
- Details about adjusting utilities, property taxes and other fees
- For example, an attorney must review and the buyer must have a final walk-through inspection
- Contingencies are known as conditions that must be fulfilled for the contract to proceed.
Contingencies give buyers a chance to back out of the purchase. For instance, an offer is subject to the buyer obtaining financing. Another is getting a favorable report from a licensed home inspector.
How the contract works
In many states, the initial offer is in the form of a contract. If the seller accepts, that converts the offer into a binding agreement. If rejected, the seller can counter the offer. Both parties can counter as many times as they want until they sign a mutual agreement or no agreement is met.
Who provides the contract
The buyer’s agent usually creates the contract.
Many Realtor associations in different states have developed form contracts. They provide the agent with a starting point from which they can customize the contract for the specific deal. It’s always smart to get a lawyer to review the contract. The lawyer has specialized training in contract formation and interpretation.
What to look for in a contract
It’s important to review a contract thoroughly. If anything is unclear, ask your agent and attorney.
The key info to watch for has to do with buyer contingencies. These allow the buyer to make up their mind on the purchase based on two things. The first is their own investigation of the property.
The second is formal disclosures the seller gives the buyer. Once contingencies are removed, the buyer can no longer back out of the purchase without penalty.
As a Professional Realtor, I will be with you in every step of the way to guide you and make the transaction as smooth as possible.
- Colene
