What characterizes a real estate contract? Each legitimate real estate transaction must satisfy four conditions:
- A fair agreement to purchase a house must be in writing.
- Contracts must include both an offer and an acceptance.
- The intent of the contract must be lawful.
- There must be an exchange of valuables (often, money for property).
Additionally, all signatories must be legally competent. If you sell a property to a 12-year-old and he backs out, you will likely be unable to enforce the agreement.
A Real Estate Contract Is Essential to the Success of Your Transaction
Purchasing a home is a significant endeavor. It entails substantial funds and a valuable asset. Therefore, legal safeguards must exist. A purchase and selling agreement/contract provides these safeguards for both parties.
However, these contracts may be intricate. They might be difficult to read and comprehend. Your real estate agent and legal counsel can act as guides. However, you must understand what you agree to.
Discover how this contract operates. Know what to look for and your responsibilities as a buyer. Consider the deadlines. Ask about anything you need help understanding. Remember that signing your name is simple. But it is difficult to breach a contract.
What Is a Sales Agreement?
A buy and sell agreement is a contract for real estate. A real estate contract is a written agreement between a buyer and a seller to trade real estate. The buyer agrees to pay the stipulated price for the property. The seller agrees to deliver the property’s deed.
“The deed is an official document. It indicates ownership and a description of the property,” explains Brian D. Swan, a real estate attorney and agent at Swan Realty in Sandy, Utah.
Typical clauses in a property deal include:
- Sales/closing date objective
- The date by which the deal will expire
- Earnest money deposit amount
- Who pays for inspections, surveys, title insurance, etc., is specified.
- Specifics on the adjustment of utilities, property taxes, and other expenses
- For instance, a lawyer must evaluate the contract, and the buyer must conduct a final walk-through inspection.
- Contingencies are often known as conditions that must be met for the contract to move forward.
Contingencies allow purchasers to back out of a purchase. Zachary D. Schorr, a real estate attorney at Schorr Law, explains, “They let customers do so without penalty and reimburse their initial deposit.” For example, an offer may be contingent on the buyer securing finance. A good report from a professional house inspector is another.
How the Contract Functions
In a few states, the original offer is a contract. If the seller agrees, the offer becomes a legally binding contract. If the offer is refused, the seller may counteroffer. Both parties may count until a mutual agreement is reached or one party stops replying, whichever comes first.
According to Nolo.com, the listing itself is considered an offer in certain areas. If a buyer accepts it by coming in at full price and without contingencies, the seller must either sell to the buyer or remove the home from the market.
When both parties sign a contract, it becomes legally binding for both parties.
“A contract is essential. It seeks to avoid potential issues, explains Swan. Without clearly specified parameters, he continues, “the agreement might go awry. By developing a robust written contract, many misunderstandings are resolved.”
Bruce Ailion, an Atlanta-based real estate attorney and realtor with RE/MAX Town & Country, concurs.
“This mutually approved agreement is the transaction’s plan. It establishes legal rights and obligations for both parties.”
Who Is the Contracting Party?
According to Schorr, the buyer’s representative often drafts the contract.
Schorr argues that several Realtor groups in various states have prepared form contracts. “They serve as a starting point for the agent to tailor the contract to the individual transaction. Always consult a lawyer before signing a contract. The attorney has specific expertise in the formulation and interpretation of contracts.”
Note that an agent is often not permitted to construct a contract from scratch, as doing so would constitute practicing law. However, an owner-seller can do so in their name.
“States have provided agents the authority to fill in the blanks of an attorney-drafted contract.” The usage of these contracts is typical for all real estate brokers.
“However, each unique transaction may create a scenario in which an agent’s filling in the gaps is crucial. It might not only make or break the sale, but improper writing could also lead to complications,” Swan explains.
How to Evaluate a Contract
It is vital to study a contract properly. If you have any questions, consult your agent and attorney.
“The most important information to look for pertains to buyer contingencies,” adds Schorr. “These allow the consumer to base their buying decision on two factors. Their study of the land is the initial step.
“The second is the seller’s official disclosures to the buyer through escrow. Once contingencies are removed, the buyer can no longer withdraw from the transaction without incurring a penalty.”
According to Ailion, a contract has several red flags to look out for.
“Be cautious with special contracts,” advises Ailion. “Pay great attention to contracts with several supplementary clauses. Additional clauses might also erode your rights.”
Also, consider timelines carefully.
“Be realistic about time frames,” Schorr advises. “It might be difficult to obtain a loan in fewer than 60 days. And the majority of contracts include a 30- or 45-day escrow. This may be too brief for many purchasers.”
Before Signing the Contract
Before signing a contract, you should consider the following:
- Whether you have the necessary funds and mortgage to close the deal.
- How lengthy will a contingency period be required? “Will you have sufficient time to do a home inspection?” Schorr queries. “Will you have sufficient time to obtain an appraisal and a preliminary loan approval?”
- Your intent to purchase the property. “Necessary Meeting deadlines might be tough,” adds Schorr. “Can you obtain loan funding and oversee the entire process?”
- Your obligation to operate with integrity. Ailion states, “Changing your mind after signing the contract might result in losing your deposit.”
Acquire pre-approval for your mortgage to expedite the procedure. With a pre-approved mortgage and no outstanding restrictions, buyers may close on any home within their price range that fulfills the lender’s standards. This is what genuine purchasers do to be considered seriously by sellers and ensure a smooth transaction.