Real Estate Contracts: Everything You Need to Know
Real estate contracts are essential for legally binding real estate transactions. There are different types of real estate contracts, and each has its own use and stipulations.3 min read
Real estate contracts are essential for legally binding real estate transactions. There are different types of real estate contracts, and each has its own use and stipulations.
Forms and Contracts
All real estate transactions require properly executed contracts and forms. Basically, there are four types of contracts in real estate:
- Purchase agreement contract
- Lease agreement
- Contract for deed
- Power of attorney
Real estate contracts must be in writing to be enforceable, and both the buyer and seller must sign them. While DIY templates are available, it's often worth enlisting the services of an experienced real estate agent or real estate attorney.
Real Estate Contract Conditions
The following are typical conditions a real estate contract covers.
Most people get a mortgage to buy a home, so a purchase offer should specify that an offer is contingent upon getting adequate financing. It's beneficial to research interest rates and to get mortgage pre-approval if possible. Buyers should specify in the contract if they need to get a specific type of loan to seal the deal, such as a VA or FHA loan.
If a buyer can pay cash for the property, he or she should state that up front because it makes an attractive offer to sellers. If someone doesn't have to obtain a mortgage, it's more likely that the deal with go through and that closing will happen on time, so sellers may be more eager to do business with someone who pays in cash.
Buyers must ask in their offer if they want the seller to pay any or all of the closing costs. This can be stated as a dollar amount or a percentage of the purchase price.
Contracts should outline who pays specific closing costs. The agreement should spell out if the buyer or seller is responsible for common fees associated with the purchase, such as the following:
- Escrow fees
- Title insurance
- Title search fees
- Notary fees
- Transfer tax
- Recording fees
A real estate agent can tell you who typically pays each of these fees in your locale.
It's a good idea to have a home inspection contingency in your offer. If an inspection shows serious and/or costly-to-repair flaws in the property, a home inspection clause allows the buyer to walk away from the deal. In some parts of the U.S., home inspections are done before finalizing a purchase contract. In these areas, inspections aren't a contract contingency.
Fixtures and Appliances
It's not enough (or legally binding) to have a verbal agreement if a seller wants any appliances or fixtures as part of the purchase. This may include dishwashers, refrigerators, and washers and dryers. The contract should specify which fixtures and appliances come with the property purchase.
Common time frames to complete the purchase range from 30 to 60 days. Some issues can affect the time to close, including remaining lease terms or the seller's need to find a new residence.
On occasion, a short closing time may be desired, such as two weeks. However, it's often hard to deal with all contingencies and obtain all the required paperwork and funds in such a short amount of time.
Sale of Existing Home
Existing homeowners who need the money from the sale of that home to buy property they're making an offer on should include this contingency. This basically states they'll make the purchase once their current residence sells. There should also be a reasonable time frame included for selling the home because a seller won't want to take a home off the market indefinitely while the buyer tries to sell his or her property.
While there are many other factors included in a real estate contract, most people don't have to worry about all the minor details when they deal with a real estate agent. Agents typically use standardized, fill-in-the-blank forms.
If you're well-versed in real estate terminology and regulations, you might understand real estate contracts enough to make deals on your own. However, there are many skilled real estate professionals who can help the average person wanting to buy or sell property. They're able to explain contract terms in easy-to-understand language so that laypeople are able to comprehend the deal they're entering into.
If you need help with real estate contracts, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio.