What is a real estate contract?
When you want to sell your house, you will have to deal with the complexities of real estate contracts. A real estate contract is a legally binding agreement between two or more parties for a type of real estate transaction, usually for the exchange or purchase of a property. In real estate contracts, the buyer, seller, and terms involved in the transaction are laid out in writing and signed by all individuals involved. These contracts are used to protect both buyer and seller and form a basis for legal action that can be taken against any of the parties that do not fulfill the contract terms. In any real estate contract, the following requirements must be met for the contract to be enforceable:
- Offer: There should be an initial proposal made from one party to another, in which details and terms of the sale are included.
- Acceptance: Real estate contracts must have original signatures from all parties involved.
- Consideration: In a real estate transaction, this is something of value that is exchanged between the buyer and seller. It is often money, but it could also be another property or a promise of purchase.
- Legal capacity: Everyone involved should be eligible to enter into a legal contract, meaning they should be of legal age and have the mental capacity to knowingly go through with the sale.
- Legality of purpose: Real estate contracts should not involve anything illegal in purpose or action.
Types of real estate contracts
The paperwork required for a property sale depends on the type of property being sold and the circumstances of the sale. There are four types of real estate contracts:
- Purchase agreement contract: This is the most common type of real estate contract. A purchase agreement, also called a sales contract, is a binding promise between two parties to transfer a property. It will contain details of the home sale, including property address, price, identities and signatures of those involved, and the closing date.
- Lease agreement: These real estate contracts bind a property owner and a tenant to a rental property. The terms in these agreements include rent and responsibilities for owner and renter.
- Contract for deed: In some cases, the seller will provide funds to the buyer to purchase a house. The buyer has immediate possession of the property and pays the seller in installments over a definite period of time. During this time, the seller still retains legal title.
- Power of attorney: This is the least common real estate contract that is used. Power of attorney is used in situations where the principal, the selling party, is not physically able to sign the contract. This can occur when the principal is mentally disabled, hospitalized, not physically present in the country or state where the transaction takes place, or is an elderly parent or relative who needs assistance.
Property terms of sale
As you review and fill out your real estate contract, you should look for:
- Finance terms: Your buyer will likely need to secure financing to buy your house. This part of a real estate contract is where buyers specify if they need a loan, as well as what type of loan they need.
- Seller assist: It’s crucial to outline who pays closing costs, and which closing fees each party will be responsible for paying. These include escrow fees, title insurance, title search fees, notary fees, transfer tax, and recording fees.
- Home inspection: A home inspection contingency is common in real estate contracts. This means that if a home inspection reveals serious flaws that weren’t previously disclosed, the buyer can walk away from the sale without penalty.
- Fixtures and appliances: A verbal agreement is not enough to ensure that certain appliances and fixtures are included in the sale of the property, and this section outlines what stays and what goes.
- Closing date: Setting a realistic closing date is important. Common time frames to close on the sale of a house range from 30 to 60 days, and you may need to consider your next living situation or your buyer’s current living situation when planning a closing date.
- Sale of existing home: If your buyer needs to sell their house in order to buy yours, then this is where they would include a contingency that states the purchase is dependent upon the sale of their current property. This usually includes a reasonable time frame for the buyer to sell their house to prevent the seller from losing time and opportunity in the real estate market.
What a seller should look for in real estate contracts
There are several standard terms and agreements included in real estate contracts that are important to a seller. Some of them include:
- Disclosures: These documents outline a historical record of the house’s condition and features, from past to present. Although disclosure laws vary by state, providing disclosures to buyers can help you avoid legal troubles later down the road.
- "Clear title" requirement: This ensures that the seller is the sole owner of the property being sold, and that the property has no third-party claims on it.
- Cancellation provisions: These provisions allow a buyer to cancel the sales agreement within a designated time frame if a buyer’s home inspection reveals issues that aren’t previously disclosed.
- Earnest money deposit: Also known as a good faith deposit, this is a sum of money that the buyer uses to secure their interest in buying a house, which will later go toward closing costs when the sale is finalized. This earnest money deposit is usually held in escrow by a third party, and a buyer will lose this deposit if they back out of the transaction unless there are contingencies in place. The amount of the deposit can vary, but it will typically be 1%–3% of the sale price of your house.
Sell your house the simple way.
Dealing with real estate contracts can be tough, and professional help can be costly. But there's a simpler solution: HomeVestors®. We can help you with our straightforward 3-step selling process. With us, you get a:
- Free consultation: We begin with a no-obligation consultation to understand your needs as a seller and assess the condition and features of your property.
- Fast offer: After our visit, we can make an offer based on your home's condition, features, and comparable home sales.
- Flexible closing: If you choose to accept our offer, we can often close the deal in as little as 3 weeks. We handle all the paperwork, without charging any commissions or hidden fees. While you might not always get top dollar when selling to us, you’ll receive excellent customer service, convenience, and a fast sale in return.
Working with us means you can sell your house quickly and simplify the process of dealing with real estate contracts. Don't let the complexities of contracts hold you back. We walk you through every step of the sale. Contact us today to start your stress-free home-selling journey with HomeVestors.
This blog is for informational purposes only and should not be considered legal advice.
