Copyright

Real Estate Sales Contract: Definition & Characteristics

Instructor: Deborah Miller

Deborah is a licensed Real Estate Broker. She has a Post Master's Certificate in college teaching with all but the dissertation of her doctorate in philosophy complete.

How well do you understand the real estate purchase contract? In this lesson, learn about the real estate purchase contract, its characteristics, standard clauses and provisions, and the rights and obligations of each party.

Real Estate Purchase Contract

You've been looking, and now you've found the perfect home. To make your dream come true, you and the seller must agree to the purchase price and contract terms of the real estate purchase contract before the purchase agreement is signed.

The real estate purchase contract is a purchase agreement, a legally binding written offer to purchase that the seller accepts with a promise to convey real property for a monetary value. A binding contract is formed when an offer is made and accepted between capable parties, the contract is for a consideration of legal purpose, and there is mutual agreement. A contract is performed when the terms and contingencies of the contract are completed by the parties as mutually agreed. In other words, each party does what is expected according to the terms of the purchase agreement. The rights and obligations of the parties under contract may be enforced by the courts.

The real estate purchase contract is divided into sections. Each section highlights the terms and conditions, or provisions, of the contract. The topics of each section vary. Most contracts begin with a legal description to identify the physical location of the land by city, county, state, parcel number, lot number and size, topography, and street address. Legal descriptions of land with buildings identify architectural style, the number of bedrooms and bathrooms, garage type and capacity.

Other sections may include conditions or provisions for the terms of purchase, finance, and contract performance that include tax prorations and specified charges. Provisions for marketable title and title insurance are also included, along with a gas line warranty and recommendations for home inspections and tests that include a remedy period, if requested. Conditions for the disposition of earnest money deposit, and notices related to legal and professional advice, fair housing laws, property disclosure, closing and possession, and offer duration are also included.

Lease Purchase Options

Real estate purchase contracts vary. Not all buyers qualify for a mortgage at the time a purchase offer is made, so some require creative financing. A lease purchase option enables the buyer to lease property for a specified period of time before finance or purchase. The buyer has the option to rent now and buy later.

Rent-to-Own, Lease Purchase Option, and Land Contract are names commonly associated with purchase agreements that allow the buyer to take a number of years to finance or purchase real property. If the buyer does not perform by the terms agreed, the seller can void the contract and keep the buyer's deposit that would have been a down payment if the buyer had performed the terms of the agreement. Although the buyer has purchase rights, the buyer has no obligation to purchase.

Contract Contingencies

Embedded within the terms and conditions section of a purchase contract are the contingencies for contract performance. Contingencies are a set of conditions the buyer and seller must agree to for the contract to be performed. If the conditions are not met, the contract can be voided. Examples include contingencies on appraisal, home inspection results, and financing. Should the buyer fail to show proof of lender pre-approval or fail to obtain a loan commitment, the contract may be voided. A contract can be voided if the terms of agreement are contingent on the occurrence of an event that does not take place.

Contract Provisions

Time is of the essence and dispute resolution are contract provisions incorporated within the purchase contract to control response or performance time and disputes, respectively. Time is of the essence provides notice to the parties that the contract must be performed within the time specified; otherwise, the contract is void.

In some cases when a contract is voided, a dispute may arise over entitlement to earnest money deposit. A purchase contract may include provisions for resolving conflict through arbitration or mediation. In both cases, a neutral third party is used to resolve disputes. An arbitrator has the authority to decide the dispute, whereas the mediator works to help the parties negotiate a settlement. Should the parties fail to settle, the court can enforce a decision.

To unlock this lesson you must be a Study.com Member.
Create your account

Register to view this lesson

Are you a student or a teacher?

Unlock Your Education

See for yourself why 30 million people use Study.com

Become a Study.com member and start learning now.
Become a Member  Back
What teachers are saying about Study.com
Try it risk-free for 30 days

Earning College Credit

Did you know… We have over 200 college courses that prepare you to earn credit by exam that is accepted by over 1,500 colleges and universities. You can test out of the first two years of college and save thousands off your degree. Anyone can earn credit-by-exam regardless of age or education level.

To learn more, visit our Earning Credit Page

Transferring credit to the school of your choice

Not sure what college you want to attend yet? Study.com has thousands of articles about every imaginable degree, area of study and career path that can help you find the school that's right for you.

Create an account to start this course today
Try it risk-free for 30 days!
Create an account
Support