Knowing Your Real Estate Contract

Written documents are necessary to make every real estate transaction between two parties legal. With all terms and conditions in writing, a seller and buyer of a real estate property are guaranteed of a secure financial transaction. One real estate form that is of utmost importance is the real estate contract.

A real estate contract can either be a home sale contract for the sale of a property or a purchase agreement for the purchase of a property. They make up just one of the many real estate forms included in a single transaction. The Statue of Frauds in the U.S. requires that all real estate contracts be in writing to be enforceable.

As real estate laws vary from state to state, most contain some common information. These are the specific address and legal description of the property, the selling price, amount of deposit, the closing date and location, the items included and excluded in the sale of the property, the description of the warranty if any, contingencies, insurance, property disclosures, delivery of title, possession or closing date, the party to pay the closing costs and the names and signatures of the two parties involved.

In a contract, the seller and buyer are also referred to as principals to differentiate them from the real estate agents or the so-called third party. The two main parties should enter into agreement voluntarily and should affix their signature in the document.

The type of deed that will be used to convey the real estate may be identified in the contract. It may be a warranty deed or a quit claim deed. Most lenders, though, prefer a warranty deed. If a deed type is not stated, an option would be to put marketable title.

As for the title of the property, it is commonly required in real estate contracts that it should be marketable. The seller is governed by contract law to show proof of title to all the property he or she is selling. To ensure the authenticity of a title and prevent losses during a transaction, a buyer normally gets the services of a lawyer or a title insurance company. Additionally, any liens on the title to the real estate should be specified in the contract.

The contingencies or conditions included should be fulfilled by both parties. Some of these pertain to the acquisition of a mortgage loan by the buyer before closing date, inspection of the property's physical condition whether defects or pests are present, appraisal of the property to determine its real market value, the purchase or sale of another property and the time frame to accept the offer.

A typical contract also notes the closing date or the day when the money will be paid to the seller in full and the title of the real estate be conveyed from the seller to the buyer. A seller usually signs the deed for the buyer or his attorney or agent to record and finalize the transfer of ownership.

Specifying who will pay the closing costs in the contract may be needed for clarity. The costs can be split between the two parties depending on their agreement. However, in most cases, the seller offers to shoulder most of the costs as an incentive to the buyer.


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