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Real Estate Contracts – What You Need to Know?

Real Estate
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A real estate contract spells out all the details for one of your biggest purchases. But they can be mind-numbingly complicated, with all sorts of contingencies and more.

According to Its Sold AZ, real estate agents in Arizona, a contract has four requirements to be valid and enforceable. It must have the buyers’ and sellers’ full legal names, and the property address should be clearly identified.


Real estate contracts are a crucial part of the real estate process. They clearly outline the terms of a property sale and help prevent unexpected legal or financial hurdles on the back end. Whether you’re selling your first home or investing in commercial properties, it’s important to understand how real estate contracts work to ensure that your transactions are legally sound.

As a general rule, real estate contracts should be in writing to be legally enforceable. However, there are some exceptions based on state law and the specific type of real estate transaction.

Contracts are usually bilateral agreements between two parties that establish the terms of a property transfer. The agreement will comprise various elements required by contract law, such as consideration and the signatures of both parties.

In addition, the contract should include any special conditions or provisions that are pertinent to the particular situation. Examples of this would be a contingency related to the outcome of the property inspection or a financing clause specifying that buyers must obtain a loan commitment before closing on the purchase.

Other common elements of real estate contracts include the final purchase price and the timeline of the transaction. An earnest money deposit accompanies the contract and is held by a third party, like an escrow company or attorney. This amount, which is customarily a fraction of the overall purchase price, can be forfeited in the event of a breach of contract.

The contract should also identify what closing costs are associated with the purchase, such as escrow fees, title insurance, notary fees, recording fees, transfer tax, and more. This information will help both parties accurately determine their closing responsibilities and budget accordingly.

Finally, the contract should clearly specify what remedies are available in the event of a breach. For example, a breach of contract by the seller could be cured with a specific performance action, in which a court orders the seller to give a deed to the buyer. A breach of contract by the buyer could be cured with a rescission, in which the buyer would ask for a return of the earnest money deposit.

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Real estate contingencies are essential tools that give buyers the ability to back out of a contract if specific conditions are not met. This gives both parties wiggle room and helps avoid potentially dangerous situations. Some common real estate contingencies include appraisal, inspection, financing, and home sale.

A buyer might also include a contingency that requires the seller to remove any non-permitted changes from the property before closing. This will protect the buyer if they need to make repairs after the purchase. However, if the sellers are willing to change their minds and allow for these changes, they will be required to disclose them in advance.

Most real estate contracts will include a clause specifying the conditions that must be met for a sale to become binding. Typically, contingencies are included to ensure that both parties can legally enter into a contract. This might include ensuring that both parties are of legal age and are not mentally impaired. It can also include a statement that both parties agree to the terms of the contract.

The most common real estate contingencies are those related to the condition of the property. A home inspection is one of the most important parts of any home purchase, and a contract should include details about what repairs are expected to be made before the transaction can close. It should also address who is responsible for paying closing costs and whether the seller is offering a warranty on the property.

Financing contingencies are also important for buyers, as they provide an escape clause in case the mortgage does not go through. Some lenders may refuse to approve a loan for a particular property, and this contingency allows the buyer to cancel the contract if they are not approved for the amount they need.

Other contingencies might include disclosure of rules of homeowner’s associations, a search for liens on the property, and the ability to obtain a clear title. Buyers should always review all documents carefully to ensure they understand the contract’s terms, especially those relating to closing costs. If they don’t, it could result in being in breach of contract and losing their earnest money deposit.

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When purchasing a home, buyers usually need to finance the transaction. This can be accomplished with mortgage loans or cash purchases. If the buyer is unable to finance the purchase, the contract can include a clause allowing the buyer to cancel the agreement. In addition, the contract should specify who would be responsible for various closing costs. These costs may include escrow fees, title insurance, and transfer taxes.

Real estate contracts must be written by a licensed real estate attorney or by a real estate broker. While some agents create their own contracts, this is not always a good idea. It is often easier to use preexisting documents created by law firms specializing in real estate transactions.

Typically, when building a real estate contract, the buyer’s agent will submit an official offer letter to the seller’s agent. The buyer and seller’s agents will then negotiate over the terms of the contract, adjusting items like the purchase price, closing costs, contingencies, and other important details. The final version of the contract will become enforceable when both parties sign it.

The terms outlined in a real estate contract will differ depending on the purchased property type. For example, leasehold real estate (like apartments) is covered by a lease contract while a deed covers freehold real estate. In addition, real estate contracts can be used to buy and sell land, buildings, or commercial properties.

The first item listed in a real estate contract is consideration or something of value exchanged between the two parties. This is most commonly in the form of money but can also be another property or a promise to perform a certain action. It is also common for the contract to require an earnest money deposit from the buyer, typically a small percentage of the purchase price held by a third party like a title company, attorney, or the seller’s real estate agent. The earnest money deposit is forfeited if the buyer backs out of the deal. Likewise, the contract should clearly state what happens if the sale falls through due to financing, inspections, or engineering issues.

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A real estate contract does not convey ownership of property by itself. A separate document, a deed, transfers ownership of the property to the buyer at the closing. In some cases, the title of the property might be held by a lien or other type of claim that must be cleared before the seller gives the buyer a clean title to the property. The seller and the buyer should discuss any potential problems or issues that could affect the closing before drafting a contract.

The contract should include the final purchase price and a timeline for the transaction to close. It should also specify who is responsible for various closing costs, including escrow fees, title search fees, title insurance, notary fees, recording fees, and transfer taxes. It is important to clarify who is responsible for these fees to avoid misunderstandings between the parties.

After both parties have signed the contract, the buyer will deliver a check for the down payment and closing costs to escrow. Generally, this amount is equal to 10% of the property’s purchase price. Typically, the contract will state that the seller can keep this money in the event that the buyer backs out of the contract for reasons not allowed under the terms of the agreement (such as a home inspection revealing significant problems with the property).

The final step in the process is to perform a walkthrough of the property prior to the closing date to ensure that no damage has occurred between the last walkthrough and the actual closing of the deal. If the property is a newer home, it might also be worth having home warranty coverage.

In addition to the provisions discussed above, a notary public should notarize a real estate contract. If the contract is not notarized, a court of law will not consider it enforceable. In the event that a party breaches a real estate contract, the non-breaching party can sue for specific performance. In this case, the court will order the breaching party to fulfill its obligations under the contract. This remedy is available for buyers and sellers, regardless of whether the breach was intentional or accidental.

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