Understanding Your Real Estate Contract

Most states do not require that you use any particular contract form. You can buy a form at an office supply store or online office supply Web site. You can even get a standard contract form, within your state, from your local real estate agent and broker. It is recommended, however, that you seek advice from a real estate attorney to assist you with understanding the terms and conditions of a contract.

How to determine if a real estate contract is valid

A real estate contract is valid when it becomes “legally enforceable”. In layman’s terms, once all parties sign the contract, they are legally required to perform according to the terms of the contract. A party can be in default of the contract once they fail to perform. In short, they could be legally required to pay damages to the other parties within the contract.

A contract between parties must act in accordance to the law. So, parties cannot execute a contract to commit an illegal act. In this case, the contract involves fraud; therefore, the contract would automatically become invalid. The following are a few important elements that you will find in a written contract:

• Legally Competent Parties – All parties of a contract have to be legally competent in order to enter into an agreement, for example, being mentally competent and of legal age.
• Consent – All parties of a contract must enter agreement knowingly and willingly to the contracts terms and conditions.
• Consideration – This is anything of legal value exchanged and offered in a contract including valuable goods such as services, money, etc. This has to be clearly explained within the contract.
• Agreement by Offer and Acceptance – An offer to purchase a house by a buyer and the approval of this offer by the seller.
• Contingent: a party who has an existing home may desire to buy before actually selling and make the contract “contingent” on selling their home. So, sellers who agree to a contingent offer often give the buyer a certain amount of time to perform. In the case that the buyer fails to perform, the seller is allowed to cancel the contract.

Understanding all that is included within a contract can be a little mind-boggling. The key is that you understand the terms and conditions of a contract that you are signing. There are other issues that you should take into consideration when it comes time to signing the dotted line.

You will want to make sure that a private well inspection is performed. If a house is not linked to city water, and connected to a private well, you should make sure that the water meets suitable health standards.

Make sure that you also obtain a preliminary title report. These records will reveal monetary liens of record and it will even show if the seller is able to transfer a clean title to the buyer.

Lastly, but certainly not least, be aware that a real estate contract does not include any financing contingency. So, if you need to obtain a home loan in order to purchase a house, make sure that you consult your attorney or real estate agent. You should ask him/her to add a condition that will make your offer contingent upon your ability to acquire the loan.

Also, if your loan falls through (it happens) at the last minute, you want to guarantee that you will not lose your money. This is why it is so important to have your attorney review your contract before signing it.