Real Estate Contracts: 8 Items on a Real Estate Contract

A real estate contract is a legally binding sales contract that defines the terms of the sale of a piece of real property, whether it’s a house, a townhouse, or a condominium. Other names for a real estate contract include a real estate purchase agreement, a real estate purchase contract, or a home purchase agreement.

The parties involved in a real estate sales contract are the homebuyer and current property owner (or home seller), with the buyers’ and sellers’ real estate brokers or agents facilitating the sale of the property. This process will typically begin with an initial contract, which the parties may revise or amend to include additional information or counteroffers. The home is officially “under contract” once the seller accepts the buyer’s offer.

A real estate sales contract must include clear terms and detailed information outlining the many elements involved in a new home purchase. These terms protect both the buyer and seller throughout the lengthy real estate transaction. The real estate contract typically includes the following items:

1. 1. Property details: A real estate sales contract must include the property’s address that the buyer and seller intend to exchange. It should also include a detailed description of the property, including any easements or encumbrances that limit the new property owner’s usage of it.
2. 2. Buyer and seller information: A real estate sales contract should include the names, current home addresses, and contact information for both the buyer and the seller. Multiple buyers should state whether they are buying the property as tenants in common or joint tenants. There will also be a section of the contract where the parties can record their signatures to make the contract legally binding.
3. 3. Purchase price: A real estate sales contract will state the final purchase price of the property after the parties make any offers and counteroffers and negotiate a final price. It will also include information about buyer financing for the property, such as whether they will pay for the home in cash or with a down payment and a mortgage loan. The contract will also state whether the buyer will place an earnest money deposit as a good faith down payment to prove their commitment. A third party will hold this earnest money deposit in escrow until the parties finalize the sale. If the buyer backs out of the sale for any reason that the sales agreement doesn’t list (such as a sales contingency), they may forfeit the earnest money.
4. 4. Date of closing and closing costs: A real estate contract will list the property’s closing date, which is when the title will transfer to the buyer, and they will take possession of the property. The contract will also state who will be responsible for related closing costs.
5. 5. Property taxes: The real estate sales contract will outline property taxes for which the buyer is responsible. If property tax information is not available when the parties are finalizing the contract, they can add an addendum with the information after the fact.
6. 6. Excluded items: A real estate sales contract will outline any appliances or fixtures attached to the property they do not intend to sell. These things can include light and bathroom fixtures, built-in appliances, and heaters, and HVAC or air-conditioning units. The contract will describe these elements as excluded from the property’s final sale.
7. 7. Disclosures: The seller must disclose certain information about the property that may affect the new owner’s usage of it in the real estate sales contract. Information like this includes the locations of any wells on the property, the presence of lead paint, termite damage, subsurface sewage, and any history of the property being used to produce methamphetamine.
8. 8. Contingencies: A real estate contract will describe any contingencies that the buyer or seller needs to meet before they finalize the home sale. The buyer and seller should agree on these contingencies before they sign the contract. Some common contingencies include a property inspection contingency (when the sale is contingent on a home inspection to assess the condition of the property), a title insurance contingency (when the sale is contingent on a title search proving the buyer will have the full title), and a financing contingency (when the sale is contingent on the homebuyer securing financing).

The home seller and the home buyer must sign a real estate sales contract to make it legally binding. There are some instances where an auctioneer, realtor, or real estate agent can sign on behalf of a seller or buyer with their consent. Unless otherwise stated, the seller and buyer must represent themselves and submit their signatures on a real estate sales contract for it to go into effect.

All investments, including real estate investments, come with inherent risks which may involve the depreciation of assets, financial losses, or legal ramifications. The information presented in this article is for educational, informational, and referential purposes only. Consult a licensed real estate or financial professional before making any legal or financial commitments.

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