In real estate, the parties in a legal contract are commonly a buyer and seller. The contract is a bilateral, binding document that outlines what is required of each party. A contract is not said to be fully executed until each party has fulfilled those obligations. It is important to understand the terms, conditions and actions that must be executed in a contract so that the purchase or sale of a property can successfully move toward completion.
Status of Contracts
A real estate sales contract is usually considered executed once documents have been signed. The date the signatures are made is the execution date or date of final acceptance. An executory contract is one that is still in progress and has remaining obligations or actions to be completed. A rental lease is an example of an executory contract. Both the renter and landlord must continue to perform by respectively paying rent and providing the space. The escrow process is another example of an executory real estate contract. Once tasks such as approval of the seller’s disclosures, home inspections, clearing the title, and final walk-through are completed, in addition to other closing activities, the contract or portions of the contract are considered executed.
Terms and Conditions
Terms and conditions are the most important details when executing a contract. They stipulate the parties involved, who must take certain actions, the conditions involved in completing those actions, and timelines. The terms and conditions in a contract also serve to make the contract enforceable. In the case that either party fails to meet their obligations, legal recourse is an option. Terms that are often included in real estate contracts are finance terms, seller assistance, who must pay closing costs, home inspection requirements, appliances, closing date and sale of current home.
Generally, when real property is involved a contract must be in writing to be legally valid and enforceable. For example, the seller has no recourse if, say, a seller counters a buyer’s offer, and the buyer accepts, but accepts orally and then backs out. To be valid the real estate contract must: identify the parties, uniquely identify the property, clearly state the purchase price, include consideration and be signed. Consideration is the value or benefit expected by each party. The seller would expect financial gain while the buyer expects ownership and rights to the property.
Real estate agents often use standard contracts. As a consequence, the language, terms and conditions may not be best suited for the situation. It would be most beneficial to have a contract customized specifically for your needs. However, when standard contracts are used, the terms should be explained to all parties to ensure a mutual understanding. Real estate lawyers specialize in drafting and reviewing these kind of documents.
- Consideration: Every Contract Needs It
- Contracts 101: What Makes a Valid Contract
- Why You Need a Lawyer When You Buy or Sell a House
- Cornell Law School. "Statute of Frauds." Accessed March 30, 2020.
- Central Michigan University. "Agreement to Purchase Real Estate." Accessed March 30, 2020.
- IRS. "Publication 530 (2019), Tax Information for Homeowners." Accessed March 30, 2020.
Based in Washington, D.C., Jeremy Watson is an engineer and urban planner. He has been involved with urban design, city infrastructure and business since 2008. Watson holds a Bachelor of Science in civil engineering from the University Florida, as well as a Master of Science in urban and regional planning from Virginia Tech.