Sales Contract
Definition and meaning of Sales Contract in real estate.
A sales contract is a legally binding agreement between a buyer and a seller that outlines the terms, conditions, and price for the transfer of real estate. Once signed by both parties, this document establishes the obligations that must be fulfilled before the transaction can officially close.
In more detail
The sales contract serves as the roadmap for the entire real estate transaction. It includes critical details such as the purchase price, down payment amount, closing date, and items included in the sale like appliances or light fixtures. It also features contingencies, which are conditions that must be met for the transaction to proceed, such as a satisfactory home inspection or securing a mortgage.
If either party fails to meet the terms of the contract without a valid contingency, they may lose their earnest money deposit or face legal action. In most states, real estate agents or attorneys draft this document to comply with local laws.
Key facts
| Category | Buying & Selling |
|---|---|
| Also known as | Purchase agreement, earnest money contract |
| Typical timing | Signed at the start of the escrow process |
| Required by | State laws for transferring real property |
A buyer and seller sign a sales contract specifying a purchase price of $350,000 with a contingency that the buyer must secure a mortgage loan within thirty days, or the contract can be canceled without penalty.
Frequently asked questions
Can you back out of a signed sales contract?
Yes, if the contract contains contingencies that are not met, such as a failed inspection or a low appraisal. Otherwise, backing out can result in a breach of contract lawsuit or forfeiture of the earnest money.
Who drafts the real estate sales contract?
A buyer's real estate agent typically drafts the contract using standard state-approved forms, but in some states, real estate attorneys are required to prepare or review the document.