How Binding Is a Real Estate Contract?

How Binding Is a Real Estate Contract?
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A real estate purchase agreement goes through a specific process before it becomes binding. Seller and buyer agree to a price and additional terms. The last party to sign the contract ratifies it with his signature, but only when it’s delivered to the other party is it considered binding.

Contingencies are often built into a real estate contract, and it’s during this contingency period that many transactions fall apart. What’s at stake is the deposit that accompanied the agreement, and its return to the buyer intact. Civil litigation can also be pursued when a binding real estate contract fails to conclude.


  • After both parties agree to the terms of a real estate contract by signing it, and each is in possession of the signed contract, the document becomes legally binding.

Offers and Counter Offers

A buyer presents an offer to a seller. The seller agrees to all the terms presented, accepts the deposit that may accompany the buyer's offer, and signs the purchase contract. When the signed contract is returned to the buyer, it is considered a binding contract.

A counter offer is considered a new offer, invalidating any and all previous contracts. The delivered contract must be written, signed and include the legal names of the parties involved in the transaction and the legal description of the property in order to be binding.

Monetary Consideration for Binding Contract

A binding contract includes consideration -- a monetary deposit, interest or value attached to it in order to make it binding. In real estate, that consideration is usually the deposit, also called earnest money, attached to the offer. Once the contract is in play, the ownership of the deposit is dependent on all parties performing according to the terms of the agreement.

Contingencies for Real Estate Contracts

While a contract to purchase is binding, contingencies can lead to the transaction's falling apart, through fault or no fault of either party. If a party to the sale fails to meet his contractual obligations as outlined in the contingencies, or if the property fails to meet the expectations of the buyer within the contractually stated parameters, the transaction can conclude and the deposit will be returned to the appropriate party.

Reneging on Contractual Obligations

When either party doesn’t meet his contractual obligations and pulls out of the transaction without justification, the deposit may be forfeited and turned over to the injured party. Civil litigation based on contract law can ensue.