Guide to Real Estate Contracts

Written by Posted On Monday, 24 August 2020 19:01

Any real estate transaction needs to have binding terms before the commencement of the purchase. This article will give you in-depth information to guide you in making an informed decision when planning to sign a real estate contract.

Real Estate Contract Definition

A real estate contract is a formal and legal binding agreement that outlines the terms and conditions agreed upon by two or more individuals for exchange or purchase associated with real estate transactions.

The contract takes effect or becomes binding once signed by both parties. The contract consists of the responsibilities of both parties and financial aspects, including closing costs. Before deciding on the terms, both parties need to agree on every element of the stipulated information.

The best way to ensure that the contract terms are realistic is by using contract management software, which helps in the negotiation, creation, data analysis, and renewal of the legal contract. There are various types of real estate contracts, such as the power of attorney, purchase agreement, contracts for deed, and lease agreements.

Real Estate Contract and the Legal Terms

The contract becomes legally binding when the property is secured and agreed upon by both parties. It becomes fully enforceable when signed and sealed.

Once both parties reach the final agreement, the contract is termed as valid. Should there be a counteroffer from either party, then the original contract will be null and void since there was no consent from one party.

To create a smooth process, both parties need to be aware of what the contract says. There needs to be a clarification in confusing areas, abbreviations, and the language used. The contract should also have the end date, and any action that will be taken should there be a breach of contract.

Details Included in the Real Estate Contract

The contracts vary based on the type of real estate transactions. However, it would be best to get conversant with the essential information included in the real estate contract.

Understanding the information will help you know what type of agreement you're getting into. Below are the details of the essential information included in the real estate contract.

  • Inspection Details- The contract needs to allow the buyer to drop the deal should the property's inspection fail to go to plan. It should include the responsibility of the seller, such as necessary repairs costs. Clarity will allow both parties to know their expectations, and this will protect the buyer against any forced transactions.
  • Financial Terms- It's crucial to include the eventuality that gives the buyer the freedom to drop the deal in case of financial inability. The contract also needs to protect the buyer should their previous home fail to sell.
  • Closing Costs- There needs to be clear information about who will take care of the closing costs between the buyer and the seller. Sellers are responsible for the closing costs in most cases. Highlight whoever is responsible for avoiding confusion in due course.
  • Warranty- In most cases, houses will have warranties during the advertisement. This will take care of various types of repairs costs. Should there be a warranty for the home, it needs to be documented in the contract.
  • Contract Breach- The real estate contract needs to state what happens if a default occurs from either party. Defaults happen in most real estate contracts, and it's good to set the expectations straight to avoid a lawsuit.

Taking the first step by agreeing to the terms is the best way to have smooth transactions from the beginning to the end of the contract. The process shouldn't be daunting or overwhelming as long as both parties stick to the agreed terms.


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