In buying or selling a home, a real estate contract is a legal requirement. This is the case in the United States and many other countries. Its intended use is primarily for the protection of both the buyer and the seller. The real estate contract must be in writing to be enforceable.
All contracts follow a standard format and must contain the following elements:
• Identity of the parties involved: full names of both the buyer and the seller and any real estate agents.
• Identity of the property: address of the property and preferably the legal description of said property.
• Identify purchase price: sale price of the property.
• Include signatures: it must be signed voluntarily by both parties.
• Have a lawful purpose: any illegal action provided for in the contract renders it null and void.
• Involve competent parties: A mentally incompetent or drugged person cannot enter into a contract.
• Reflect a meeting of minds: Both buyer and seller must be clear and agree on the essential details, rights and obligations of the contract.
• Include consideration: Consideration is something of value traded in exchange for real property. Money is the usual form, but other considerations could be property, a promise to pay, or anything of value.
A document called a deed is used to transfer property and this document must be notarized after signing by the parties involved in the transfer. One type of deed is a warranty deed or a quitclaim deed as it is more often called. “Quitclaim” means that the owner of the real property, also called the grantor, “relinquishes” their right and claim to the property, allowing for a transfer of ownership to the recipient or grantee.
Most real estate contracts have contingencies or conditions that must be met if a contract is to be executed. The following are some examples of some contingencies:
• Mortgage contingency: the purchase of the property depends on obtaining a mortgage. One of the most common contingencies because most people must finance a home in order to buy it.
• Inspection Contingency: The purchase of the property is contingent on a satisfactory inspection of the property.
• Appraisal Contingency – Purchase of property contingent on the price of the property being equal to or less than fair market value as determined by an appraisal.
Buying a home is a big step, one of many in your adult life, and the real estate contract is there to guide and protect the process.