What is the Sales Contract

The document that spells out the terms and conditions of a home (or condominium) (or commercial property) purchase is variously referred to as a sales contract, purchase contract, deposit receipt, or earnest money contract. It is a legally binding document that should reflect your intentions and capabilities accurately.

Purchase contracts will vary depending on the type and location of the property, and on whether the contract is merely a reprinted form used by a real estate broker, or a specifically tailored and highly customized document drawn up by an attorney. But there are basic elements that must be included in any real property sales agreement.

To be enforceable, a property sales contract must be written; oral agreements to sell real estate are not legally binding. The contract must identify the buyers, the sellers and the property. And it must establish a purchase price and the terms of the sale, if the sale is not all cash.

The contract specifies the amount of the buyers' earnest money (good faith) deposit. The agreement usually provides for this money to be held by a third party, typically an escrow officer or an attorney. The deposit is applied to the purchase price at closing, or it is refundable to the buyers if certain terms of the contract (called contingencies) are not satisfied. The deposit amount is negotiable, but local custom often prevails.

Most real estate purchase contracts will include at least two contingencies. A financing contingency makes the purchase conditional on the buyers' ability to obtain a loan commitment from a lender. An inspection contingency allows the buyers to have professionals inspect the property to their satisfaction. If the sellers are unwilling or unable to correct defects, the contract is voidable, and the buyers' deposit is refundable.

A deposit could be forfeited by the buyers under certain circumstances, such as the buyers backing out for a reason not provided for in the contract. 

The purchase contract should describe the sellers responsibilities, which will include such things as: passing clear title to the property; maintaining the property in its current condition until closing; delivering the property "broom clean" and free of personal possessions and debris; and making any agreed upon repairs to the property.

The sales contract should also specify exactly who is responsible for paying which specific closing costs. Closing costs include such things as brokerage commissions (often divided between a listing agent commission and a buyer’s agent or sub-agent commission), loan origination fees, title insurance, and transfer taxes. Who pays these charges is usually dictated by local custom, but they can be negotiated at the time of presenting a written offer.

The purchase contract should clarify any items of personal property that will be included in the sale, as well as any attached fixtures that will be excluded. The date in which the title will transfer to the buyer, as well as when physical possession of the property will be delivered to the buyer, should also be specified exactly in the contract.

A final walk-through provision gives the buyers the right to inspect the property prior to closing. This allows the buyers an opportunity to confirm that the property is in the same general condition as it was when they agreed to purchase it. A walk-through can also be used for the purpose of assuring that the sellers have completed any repairs that they agreed to have carried out, or that a home that was still under construction when the buyers purchased it is completely finished. 

THE CLOSING: A real estate purchase contract is a complicated legal document. You should read and understand it before signing it, although many buyers never do. If you have any questions, contact MLSNow (or your own private attorney) for an explanation. Because, when it comes to buying real property, unanswered questions can only create problems or difficulties in the long run.  
 

<-Back     Next->