Basics of the Real Estate Contract

The real estate contract is the most often used, yet small understood tool in the real estate business. Whether you are a rank learner or seasoned expert, there is no reason for not knowing and understanding the real estate contract.

Real estate contracts are based on general law contract principles, so it is significant that you understand the nuts and bolts of contract law. Offer, Counteroffer and Acceptance. In most states there are uniform contracts used by real estate agents and attorneys. The contract is usually drafted in the form of an offer. The offer is typically signed by the buyer. The contract is not compulsory until the seller accepts, creating a "meeting of the minds" (called "mutual assent").

An acceptance is made if the offeree (the seller, in this case) agrees to the precise terms of the offer. If the seller replies, "I'll believe your offer if you agree to close fifteen days sooner," there is no binding agreement, but rather a counteroffer. The fundamental building block of a contract is that there is shared agreement.

If the offer is not established in the time frame and manner set forth by the buyer, then there is no bond. For example, if the contract specifies that receipt must be made by facsimile, an acceptance by telephone call or post will not suffice.

Unilateral Contract vs. Bilateral Contract.

A real estate sales contract is a "bilateral" (two-way) accord. The seller agrees to sell, and the buyer agrees to buy. Compare this with a choice; a choice is a unilateral (one-way) agreement in that the seller is compelled to sell, but the buyer is not obliged to buy - it is his option to do so. A bilateral accord with a "liquidated damages" provision yields the similar result if the buyer fails to close escrow; the seller keeps the buyer's intense money and the deal is over.

Basic Legal Requirements of a Real Estate Contract.

There are various basic requirements that must be there to make a real estate contract valid:

1. Mutual Assent. As stated former, there must mutual agreement or "meeting of the minds."

2. In Writing. With few exceptions, a contract for buy and sale of real estate must be in writing to be enforceable. Thus, if a buyer makes a present in writing and the seller accepts orally, and then backs out, the buyer is out of fortune.

3. Identify the Parties. The contract must recognize the parties. Although not officially required, a contract usually sets forth full names and middle initials (it helps the title company in training of the title commitment). If one of the parties is a business, it should so state (e.g., "North American Land Acquisitions, Inc., a Nevada Corporation").

4. Identify the Property. The contract must recognize the property. Although not required, the official description should be set forth. A vague report such as "my lakefront home" may not be specific enough to create a binding contract.

5. Purchase Price. The contract must state the buy price of the property or a reasonably ascertainable figure.

6. Consideration. An agreement must have consideration to be enforceable. Consideration is the advantage, interest or value that induces a guarantee; it is the glue that binds a contract. The amount of the consideration is not significant, but rather whether there is consideration at all. It is general for a contract to state that "ten dollars and other good and valuable consideration has been paid and received."

7. Signatures. A contract must sign to be enforceable. The party signing must be of lawful age and sound mind. A notary's signature or observer is not required. A facsimile signature is typically acceptable, so long as the contract states that duplicate signatures are valid.