The real estate contract is the most often used, yet little understood tool in the real estate business. Whether you are a real estate professional or just an amateur, there is no excuse for not knowing and understanding real estate contracts.
A real estate sales contract is a “bilateral” (two-way) agreement. The seller agrees to sell, and the buyer agrees to buy. Compare this with an option – which is a unilateral (one-way) agreement in that the seller is obligated to sell, but the buyer is not obligated to buy – it is in the buyer’s option to do so.
There are some basic requirements that must be present to make a real estate contract valid:
1.Offer & Acceptance – There must be an offer and acceptance. If the offer is not accepted in the time frame and manner set forth by the buyer (offeror), then there is no contract.
2. Mutual Consent – There must be mutual agreement or “meeting of the minds” between the buyer and the seller.
3. In Writing – With few exceptions, a contract for purchase and sale of real estate must be in writing to be enforceable. Thus, if a buyer makes an offer in writing and the seller accepts orally, and then backs out. The buyer may find difficulty to establish legal binding and not be able to claim compensation or specific performance.
4. Identify the parties – The contract must identify the parties. Although not legally required, a contract commonly sets forth full names and identities of the buyer and seller. If one of the parties is a company or corporation, it should so state with company name and company number.
5. Identify the property – The contract must identify the property. Although not required, the legal description should be set forth. A vague description such as “my dream home” may not be specific enough to create a binding contract.
6. Purchase price – The contract must state the purchase price of the property or a reasonably ascertainable figure (e.g., “appraised value as determined by ABC Appraisal Company”).
7. Consideration – A contract must have consideration to be enforceable. Consideration is the benefit, interest, or value that induces a promise. It is the glue that binds a contract. The amount of the consideration is not important, but rather whether there is consideration at all. It is common for a contract to state that “3 % of the purchase price or a specific amount of money and other good and valuable consideration has been paid and received.”
8. Signatures – A contract must be signed to be enforceable. The party signing must be of legal age and sound mind. A notary’s signature or witness is not required. A facsimile signature is usually acceptable, as long as the contract states that facsimile signatures are valid.