Real Estate Contracts
Contract Types
Real Estate Contracts
A real estate contract is one of the most significant agreements most individuals and businesses will ever sign. Whether you are buying a home, selling a commercial property, or entering a lease, the contract defines your rights and obligations — and the consequences if something goes wrong. Real estate transactions involve large sums of money, complex title issues, and time-sensitive deadlines. Understanding the key provisions of a real estate contract before signing is essential.
What This Contract Is
A real estate contract is an agreement for the purchase, sale, or lease of real property. The most common form is a purchase and sale agreement — a contract in which a buyer agrees to purchase a property from a seller at a specified price and under specified conditions. Real estate contracts typically address the identification of the property, the purchase price, the deposit, inspection and financing contingencies, title requirements, the closing date, and the allocation of risk between the parties. The specific rights and obligations of the parties can vary significantly depending on the type of transaction, the jurisdiction, and the form of contract used.
When It's Commonly Used
- •A buyer is purchasing a residential home, condominium, or investment property.
- •A seller is listing a property for sale and accepting an offer from a buyer.
- •A business is purchasing commercial real estate for its operations.
- •An investor is acquiring a rental property or commercial building.
- •A developer is purchasing land for a new construction project.
- •A company is selling a property it no longer needs as part of a business restructuring.
- •Parties are entering a commercial lease for office, retail, or industrial space.
How the Agreement Is Generally Structured
Identification of Property
A legal description of the property being sold, including the address and any applicable parcel identification number.
Purchase Price and Deposit
The agreed purchase price, the amount of the earnest money deposit, and the conditions under which the deposit is refundable.
Contingencies
Conditions that must be satisfied before the buyer is obligated to close — typically including inspection, financing, and title contingencies. If a contingency is not satisfied, the buyer may have the right to terminate and recover the deposit.
Title and Survey
Requirements for the condition of title at closing, including the type of title insurance to be provided and the resolution of any title defects.
Closing Date and Possession
The date on which the transaction is expected to close and the date on which the buyer takes possession of the property.
Representations and Disclosures
The seller's representations about the condition of the property and any required disclosures about known defects, environmental conditions, or other material facts.
Risk of Loss
Addresses what happens if the property is damaged or destroyed between signing and closing.
Default and Remedies
The consequences if either party fails to perform — including the buyer's right to recover the deposit and the seller's right to retain it as liquidated damages.
Addenda
Additional provisions that modify or supplement the main contract — such as seller financing terms, personal property inclusions, or repair obligations.
Clauses Commonly Found in This Contract
Representations and Warranties
The seller's representations about the condition of the property and any known defects. Buyers should examine whether representations are limited to the seller's actual knowledge or whether they are broader.
Assignment
Addresses whether the buyer may assign the contract to a third party before closing — relevant for investors who may want to assign the contract to an entity or another buyer.
Governing Law
Specifies which state's law governs the agreement. Real estate transactions are generally governed by the law of the state where the property is located.
Entire Agreement
Confirms that the written contract represents the complete agreement of the parties and that prior representations or promises not included in the contract are not binding.
Waiver
Specifies that a party's failure to enforce a provision does not constitute a permanent waiver of that right.
Severability
Provides that if any provision is found unenforceable, the remainder of the contract continues in effect.
Material Breach
A failure to perform a material obligation — such as failing to close on the agreed date — that may give the non-breaching party the right to terminate and seek remedies.
What Stewart Law Looks For
- ✓Whether the contingencies — particularly inspection, financing, and title — are clearly defined and whether the deadlines for satisfying them are realistic.
- ✓Whether the deposit is refundable if a contingency is not satisfied and whether the conditions for forfeiture are clearly stated.
- ✓Whether the seller's representations about the condition of the property are adequate and whether required disclosures have been made.
- ✓Whether the title requirements are clearly defined and whether the seller can deliver the type of title required at closing.
- ✓Whether the closing date is realistic given the financing timeline and any other conditions that must be satisfied.
- ✓Whether the risk of loss provision is clear and whether the buyer has adequate insurance coverage between signing and closing.
- ✓Whether the default and remedies provisions are balanced and whether the buyer's deposit is adequately protected.
- ✓Whether any addenda modify the main contract in ways that are not immediately apparent.
- ✓Whether the contract addresses what personal property is included in the sale and whether appliances, fixtures, or other items are specifically identified.
Areas That May Deserve Closer Attention
- ⚑Contingency deadlines that are very short and may not allow adequate time for inspection, financing approval, or title review.
- ⚑Deposit provisions that allow the seller to retain the deposit as liquidated damages for any breach, including minor or technical breaches.
- ⚑Seller representations that are limited to actual knowledge and that do not require the seller to investigate or disclose known defects.
- ⚑As-is provisions that may limit the buyer's ability to seek remedies for undisclosed defects.
- ⚑Assignment restrictions that prevent the buyer from assigning the contract to an entity or another buyer.
- ⚑Closing date provisions that do not address what happens if the closing is delayed due to circumstances beyond the buyer's control.
- ⚑Addenda that modify the main contract in ways that are not clearly disclosed or that create conflicting obligations.
- ⚑Attorney fee provisions that may expose the losing party to significant legal costs in the event of a dispute.
Party Perspectives
Buyer
- •Wants adequate time for inspection, financing approval, and title review.
- •Seeks clear conditions for the return of the deposit if a contingency is not satisfied.
- •Wants meaningful representations about the condition of the property.
- •Prefers the ability to assign the contract to an entity or another buyer.
- •Wants a clear closing date with provisions for reasonable extensions.
Seller
- •Wants a large, non-refundable deposit to protect against a buyer who walks away.
- •Prefers to limit representations to actual knowledge and to sell the property as-is.
- •Wants a firm closing date with limited ability for the buyer to extend.
- •Seeks to limit post-closing liability for property condition.
- •Prefers to retain the deposit as liquidated damages for any buyer default.
Related Contract University Terms
When to Have an Attorney Review It
Real estate transactions involve large sums of money and complex legal issues. Attorney review is particularly valuable when the transaction involves commercial property, investment property, or unusual terms. Even in residential transactions, having an attorney review the contract before signing can help identify issues with contingencies, deposit provisions, and seller representations. If the transaction involves a short sale, foreclosure, or other distressed property, legal counsel is especially important.
Frequently Asked Questions
What is an earnest money deposit, and is it refundable?
An earnest money deposit is a payment made by the buyer at the time of signing the contract to demonstrate the buyer's commitment to the transaction. Whether the deposit is refundable depends on the contract. If the buyer exercises a contingency — such as an inspection or financing contingency — the deposit is typically refundable. If the buyer defaults without a valid contingency, the seller may be entitled to retain the deposit as liquidated damages.
What is a contingency, and what happens if it is not satisfied?
A contingency is a condition that must be satisfied before the buyer is obligated to close. Common contingencies include inspection (the buyer is satisfied with the condition of the property), financing (the buyer obtains a mortgage), and title (the seller can deliver clear title). If a contingency is not satisfied within the specified deadline, the buyer typically has the right to terminate the contract and recover the deposit.
What does "as-is" mean in a real estate contract?
An as-is provision means the buyer is accepting the property in its current condition, without requiring the seller to make repairs. However, an as-is provision does not necessarily eliminate the seller's obligation to disclose known defects. Buyers should conduct a thorough inspection before waiving inspection rights or agreeing to purchase a property as-is.
What is title insurance, and why is it important?
Title insurance protects the buyer and the lender against losses arising from defects in the title to the property — such as undisclosed liens, encumbrances, or ownership disputes. There are two types: lender's title insurance (required by most mortgage lenders) and owner's title insurance (optional but recommended). Title insurance is a one-time premium paid at closing.
What happens if the property is damaged before closing?
The contract should address the allocation of risk of loss between signing and closing. In many states, the risk of loss passes to the buyer at closing. If the property is damaged before closing, the buyer may have the right to terminate the contract or to require the seller to repair the damage. Buyers should ensure they have adequate insurance coverage from the time the contract is signed.
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