Home Sale Contracts
A home sale contract is a written agreement between a seller and a buyer after they have negotiated the price and purchase details in a home sale. In other words, once the seller accepts your offer, you have created a contract for the sale of the home -- the "home sale contract."
Usually, real estate agents will suggest using a standard form that contains the required information for a home sale contract. These standard forms help ensure the specific requirements for a home sale are met. However, it can still be a good idea to have an experienced attorney review your real estate contract before signing on the dotted line.
These types of real estate contracts have unique requirements in addition to the standard rules for contract formation. This article explains some of the essential elements in a contract for the sale of a home. It also offers advice on how to get the most favorable contract as a buyer. Pay particularly close attention if you are:
- Not using a real estate agent
- Buying directly from the owner
These two situations can cause problems with the deal down the line if you are not careful.
Write It Down: The Statute of Frauds
The "Statute of Frauds" is an ancient piece of English common law that has been adopted in the United States. In essence, the Statute of Frauds requires certain types of contract to:
- Be written down
- Contain specific details about the arrangement
This is to prevent a person from cheating someone else by claiming a breach of a "fraudulent oral contract," which means a spoken agreement that isn't actually legal in court.
Buying a house falls under the Statute of Frauds, so all contracts for the sale of a home must be in writing. As mentioned above, real estate agents should know this and should always make sure that the terms of the deal are in writing.
TIP: If you are not using a real estate agent, always put the purchase agreement into writing. That way, the seller can't back out later, claiming the contract violates the Statute of Frauds.
What's Required in a Home Sale Contract
Not only does the home sale contract have to be in writing, but it must also contain certain elements to be legal and enforceable. Specifically, the contract must:
- List the names of the buyer and seller
- Contain the description of the property -- Usually, this involves both the address of the property and its legal description
- Include the purchase price for the property
- Be signed by all the necessary parties to the sale
The contract does not have to contain information about your down payment, counteroffers, or Federal Housing Association (FHA) loan. In short, the actual home sale contract does not legally need to show how you got the money for the purchase (though it is a good idea). Standard contracts will have this information included in the terms, but it is not legally required.
Additional Elements in a Home Sale Contract
A real estate purchase should include other details to protect the buyer and seller. It also helps ensure the real estate transaction goes down smoothly with as few opportunities for disagreement as possible. These additional elements that should appear in the sales contract include:
- The date of the settlement of the transaction (when both people sign the contract)
- The date the buyer can take possession of the property (called a closing date)
- A guarantee that the seller possesses a clear title to the property
- A clause that allows the buyer to make inspections of the property for damage, pest infestations, etc.
- The names of the escrow and closing agents
- Who pays closing costs on the deal
- Your earnest money deposit (money that shows you are serious about buying the house)
- Purchase price and terms
- If you have an all-cash offer
- Contingency clauses that address the proper actions if certain situations arise (for example, if the buyer can't obtain financing by a specific date, a contingency clause could allow the seller to back out of the deal)
- A clause sometimes referred to as a "liquidated damages clause" that requires the seller to pay the buyer a specified amount of money for each day that the buyer has to delay moving into the house.
Getting the Best Contract as a Buyer
The first step towards getting the best contract possible is to get the seller to agree to your preferred purchase price. Then, you can often find "wiggle room" with the final cost through clauses in the contract. Note that there should be some give-and-take. Decide what things are the most important to you and be prepared to give up on some of the others in order to keep the more important terms.
Inspection Clauses in the Contract
Every home sale contract should have a clause allowing for home inspections. This is often called an "inspection contingency." Make sure that there is also a contingency clause that covers situations that could arise out of the inspections. Basically, the clause should state that the seller is responsible for repairing any damage or dealing with any pest infestations. You may also want to include a provision that allows you to back out of the deal if the problem is too severe.
Financing Clauses in the Contract
You may want to include a contingency clause that allows you to void your offer if you can't secure financing before a specific date. Sellers will usually be happy to include this provision. After all, if you can't get the money to buy the house, the seller will want to keep looking for another buyer.
Don't Pay For Your Home Until It Is Yours
It would help to include a clause that makes it clear that the seller is responsible for paying utilities, fees, taxes, etc. for the property up until the transaction is settled. Otherwise, you could end up paying for "your home" before it is legally yours.
Along the same lines, always include the liquidated damages clause mentioned above. This will cover you for any expenses you may incur from a delayed move-in date.
Lead Paint Disclosure
Lead paint may have been used in some homes. Federal law says a homeowner must tell a buyer if the house has lead paint before they can enter into a home sale agreement.