In the sale or purchase of a house, a real estate contract is a legal requirement. This is the case in the United States and in many other countries. Its intended use is primarily for protection of both the buyer and seller. The real estate contract must be in writing to be enforceable.
All contracts follow a standard format and must contain the following elements:
• Identity of the parties involved: full names of both buyer and seller and any real estate agents.
• Identity of the property: address of the property and preferably the legal description of said property.
• Identify purchase price: sales price of the property.
• Include signatures: must be signed voluntarily by both parties.
• Have a legal purpose: any illegal action called for in the contract renders it void.
• Involve competent parties: a person who is mentally incompetent or drugged cannot enter into a contract.
• Reflect a meeting of the minds: both buyer and seller must be clear on and agree to the essential details, rights, and obligations of the contract.
• Include consideration: consideration is anything of value bargained for in exchange for the real estate. Money is the usual form but other considerations could be property, a promise to pay, or anything of value.
A document called a deed is used to transfer property and this document must be notarized after signing by the parties involved in the transfer. One type of deed is a warranty deed or a quitclaim deed as it is most often called. “Quitclaim” means the owner of the real estate, also called the grantor, “quits” his right and claim to the property thus allowing a transfer of property to the recipient or grantee.
Most real estate contracts have contingencies, or conditions which must be met if a contract is to be performed. The following are some examples of some contingencies:
• Mortgage contingency- purchase of the property is contingent upon obtaining a mortgage. One of the most common contingencies because most people must finance a home in order to purchase it.
• Inspection contingency-purchase of the property is contingent upon a satisfactory inspection of the property.
• Appraisal contingency-purchase of property contingent upon price of property being at or below fair market value as determined by an appraisal.
The purchase of a house represents a big step, one of many in your adult life and the real estate contract is there to guide and protect the process.