Guide to Real Estate Sales Contracts
If you're buying or selling a house, you will need to complete a real estate sales contract to make the sale. Contracts are legal documents that give you well-defined rights and responsibilities whether you are buying or selling a piece of property. In United States contract law, all contracts involving real estate must be written, not oral, so you will have to look at several pages of fine print in your real estate sales contract before purchasing or selling a house.
This guide can help to demystify the process of looking through and signing your real estate sales contract. You will learn about some of the common aspects of real estate sales contracts in the United States, but keep in mind that local and state laws about real estate can vary significantly. For more information about the kind of real estate sales contract considered valid in your locality, consult your local realtor or a real estate lawyer.
What's Included in a Real Estate Sales Contract?
Real estate sales contracts are extremely specific about what, precisely, is being sold and who is selling it. Your real estate sales contract will identify both parties, and the property being sold, as well as how much it is being sold for.
The contract is also likely to specify inclusions and exclusions from the property, detailing which parts of the property will now be considered the buyer's. You will also see information on whether the home has been inspected (this is a common contingency—more on that later) and whether the home comes with a home warranty. Your real estate sales contract may also specify whether a recent pest inspection has been completed.
Dates are specific on the contract, and you will see how many days are given for the seller to respond to an offer, when the buyer can take possession, and so forth. There may be property disclosures on the house pertaining to lead-based paint or other known issues that the previous homeowner is required to disclose to all buyers.
What is a Contingency in a Real Estate Sales Contract?
Most of the text in a real estate sales contract is about contingencies—what happens if something doesn't go according to plan. Since most homeowners are borrowing most of the money for a home from a bank, one of the most common contingencies is to make a sale contingent on financing. If the buyer cannot obtain financing within a limited period of time, the house goes back on the market.
For older homes especially, many contracts are contingent upon the completion of a home inspection and repairs to any problems the inspection may reveal.
Real Estate Sales Contracts : What is Earnest Money?
To discourage people from signing contracts they had no intention of following (for instance, a buyer who includes a financing contingency, then never seeks a mortgage), a non-refundable deposit called “earnest money” will be required to sign the contract. This ensures that you are serious about purchasing the home and creates a loss for a buyer who fails to complete the contract.