How to Prepare Real Estate Sales Contracts

Instructor: Tara Schofield

Tara has a PhD in Marketing & Management

A sales contract is an important agreement between the seller and buyer, outlining the terms of the sales agreement. Learn when and how to use these sales contracts.

Purpose of Real Estate Sales Contracts

When you represent a buyer or seller in a home transaction, you are helping them with one of the biggest transactions they may make in their life. The sales contract is a vital part of the sale. It protects both the buyer and seller and outlines the legal aspects of the sale.

Let's imagine your client, Amber, is selling her home and has hired you to be her exclusive seller's agent. After only three weeks on the market, Amber has accepted an offer and is ready to sell her house.

Who Uses Sales Contracts

In a real estate transaction, a sales contract is the document that outlines the terms of the sale between the seller and buyer. It shows how much the buyer is going to pay for the property, any terms and agreements the two parties have made, and expectations related to the sale. For this reason, any party to a real estate transaction needs to have a contract.

  • Residential contracts are for homes that are being sold from a property owner to a buyer. In our example, you will prepare a sales contract for Amber when she sells her home to the buyer. It is your responsibility to make sure the sales contract is correct and has the appropriate information in it.
  • Commercial contracts are used when commercial properties are sold, such as office buildings, apartment complexes, or strip malls. The more complex the sales transaction, the more thorough the sales contract will be. If you are representing a commercial seller or company, you will likely need an attorney to prepare the sales contract.
  • Land contracts are agreements for parcels of land that have not been developed or have been cleared of a previous building. You may use a land contract when selling an empty lot, farm, or any other piece of open land.
  • New construction contracts are used by home builders who are selling a home that may be built or will be built based on the buyer's specifications. Home builders often use their own sales contract that is different that the template you will use as a real estate agent. A home builder's contract has likely been created by an attorney and includes the information necessary to make the contract legally binding between the builder and buyer.

For instance, if Amber decides to build a home after selling her house, she may work with a home builder who is developing a new subdivision. She may choose to purchase a home that has already been built or she may want to start from scratch. Either way, the sales contract outlines what she is building, when the home will likely close, and what is expected from her and the builder.

How to Prepare Sales Contracts

Each state has an approved template you can use as a sales contract. This contract will include some key information:

  • Legal address of the property
  • Name of the buyer and seller
  • Sales price
  • Sales or closing target date
  • Deadline for acceptance or offer expiration
  • Amount of earnest money deposit
  • Outline of who pays for various expenses such as title insurance, inspections, etc.
  • Who will pay various expenses such as utilities, closing costs, HOA fees, etc.

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