Guide to Real Estate Contracts

If you are buying or selling a home, real estate contracts are going to be part of the process. Here is an introduction to real estate contracts to get you going.

Guide to Real Estate Contracts

In many ways, real estate contracts are no different than a general contract. A buyer and seller enter into an agreement under which both agree to do something. The act each agrees to do is known as consideration. In consideration of the buyer paying a lot of money, the seller with transfer title to the property. In consideration of the seller transferring title, the buyer will pay a lot of money. At it's most basic, this is a real estate contract.

The first thing to understand about real estate contracts is they need to be in writing. Since the transaction involves hundreds of thousands of dollars, putting the agreement in writing is common sense. In most states, however, it is also the law. Courts severely dislike oral agreements since it is very difficult to tell who is telling the truth. In many cases, a judge will rule an oral real estate contract invalid if it isn't in writing. This is due to a public policy often codified in law that is known as the statute of frauds. While the law differs from state to state, it usually holds that no contract with a value over $500 shall be enforceable unless in writing.

Contingencies are the second thing to understand about real estate contracts. Simply put, a real estate agreement often contains them. The contingencies are for things that may or may not come up. For instance, a buyer will include a contingency that he or she is only bound by the agreement if a lender approves his or her mortgage application. Other common contingencies include the agreement only being binding if the home passes inspection, doesn't have termites and so on.

Yet another common clause with real estate contracts is an earnest money deposit. The contract should contain a clause requiring the buyer to put forth a cash deposit in a certain amount. This deposit proves the buyer is serious and is used to compensate the seller for the time the home is off the market if the buyer can't complete the deal. The buyer's failure is almost always related to an inability to get financing.

A final clause that should always be included in real estate contracts is the attorney's fee clause. Occasionally, disputes are going to arise between the parties that require court action. In such a situation, you should ALWAYS use an attorney. Attorney fees, however, can add up quickly. By putting a clause in a real estate contract regarding attorney's fees, you can recover your fees from the other party if the court finds in your favor.

At the end of the day, real estate contracts are not something to get overly worried about. If there is something unique about your real estate transaction, you should consult with an attorney just to cover you bases. Otherwise, forms should be fine.

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