Real estate contract, purchase agreement, sale agreement, purchase contract – what do they all mean? These terms are actually referring to the same thing – a legally binding contract between a buyer and seller that outlines the specifics of the transaction.
Learning the language and understanding the contract’s framework can make the world of real estate less of a confusing place. In an effort to build up your real estate contractual confidence, here’s an overview of what goes into the written agreement.
What Is a Real Estate Contract?
A real estate contract is an official agreement on the price, contingencies, closing costs, closing date, and more.
This comes after the initial negotiation period, but prior to closing. Essentially, it takes effect during the gray period while the buyer is attempting to secure funding, getting an inspection and appraisal, etc. It will protect both the buyer and seller from certain complications or disagreements that may arise.
The Steps to Signing
- The real estate agents on either side will work to create a contract that outlines the agreed terms, based on a template that follows state rules and regulations.
- From there, the completed contract will be sent to the buyer and seller, and their respective real estate attorneys for review.
- Even though the agents are responsible for drafting the contract, you should still be an active participant in the process.
- This will ensure your interests are fully addressed and included. Typically, the seller’s main objective is to close as soon as possible to avoid further negotiations. However, you may want time to examine the findings of the home inspection and appraisal.
- After the written terms are confirmed accurate, both parties will sign the purchase agreement and the home will be considered “under contract”.
Real Estate Contract Example
Typically, a real estate contract will include some version of the following, depending on the state where the property stands.
- The buyer and seller’s names and other basic information
- The property’s address
- The sale price and intention of financing
- Earnest money amount
- Property disclosures
- Larger items included in the purchase, i.e., appliances
- Closing date
Common Terms in a Real Estate Contract
- Closing Date: the exact date the seller will transfer the title deed. The buyer will then take possession of the property. Closing dates are generally assigned 30, 60, or 90 days once the contract is signed.
- Consideration: the exchange of property for something of value. Money is the most common form of payment used, though it can cite another piece of property as well.
- Earnest Money Deposit: a partial percentage of the down payment held in escrow before closing. It’s a sign of good faith that the transaction will be completed.
- Effective Date: the date the contract goes into effect and both parties are bound to its terms.
- Environmental Assessment Report: when a specialist evaluates whether the property is affecting the environment in a negative way, like an underground fuel tank leaking into the soil.
- Escrow: when the property title and earnest money deposit are held by a third party until the transaction has been completed.
- Escrow Agent: the independent third party that holds property in trust while the closing is being finalized. This agent is often responsible for collecting the payment from the buyer and transferring it to the seller.
- Legal Description of Property: a legal land description of the property from the County Clerk. It can also be found on the land title, tax assessment, and mortgage agreement.
- Riparian: bodies of water located on or bordering the property.
- Riparian Matters: the title holder’s legal rights to the bodies of water.
- Specific Performance: when a court takes action to ensure a party fulfills its contractual obligations.
- Unimproved Property: a raw piece of land, without any structures or developments.
Can a buyer or seller back out of a real estate contract?
Every real estate contract should outline the terms in which a party can terminate the agreement and under what conditions.
The language and corresponding contingencies will dictate whether a party is able to walk away with or without penalty.
If you’re having doubts about the purchase, it’s best to back out prior to signing the agreement.