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The importance of a good real estate contract

On Behalf of | Jan 19, 2024 | Real Estate

Real estate transactions are usually complicated for both the buyer and the seller. The process involves a lot of paperwork and numbers, which can feel like a lot to think about while you are also trying to focus on moving.

One of the most important documents of the entire transaction is the real estate contract, also sometimes called a purchase agreement. This is a written document that states the terms surrounding the purchase and sale of a property.

Why a real estate contract is important

A real estate contract also contains conditions under which the sale will occur. Generally, if any of these conditions are not met, the sale can be cancelled.

Taking the time to create a thorough and complete real estate contract is important because it reduces the chance of legal or financial problems down the road. The contract’s purpose is to create a legally binding relationship for the buyer and seller and show their intent to complete the purchase transaction.

The overall goal of the real estate contract is to spell out all the details of the transaction. There are several key components that should be included in every real estate contract.

Financing terms

How the buyer will pay for the home is one of the most necessary terms of the contract. Although sometimes a buyer will pay all cash for the purchase, most buyers will be taking out a mortgage to pay for the home.

The contract should contain detailed financing terms. As the buyer, you should not agree to financing terms that you cannot afford.

For example, if you know you can only afford a certain percentage interest rate, make sure the contract does not allow for an interest rate above that.

Home inspections

The contract should contain terms regarding any home inspections that are to take place. The home is typically thoroughly inspected before the transaction is complete and the inspection could reveal major defects or problems with the house.

What to do in this situation should be laid out in the contract. The common remedy is to allow the buyer to walk away from the transaction, but other options could include the seller agreeing to pay the cost of fixing any problems that are discovered, up to a certain price.

Topics such as financing and inspections are major components of a real estate contract that should never be overlooked, but there are smaller details that are just as important.


One of these involves fixtures. These are pieces of property that come or do not come with the home, such as a stove, refrigerator or dishwasher.

While not having a dishwasher might not be something that would make you walk away from the entire deal, you still do not want to be unpleasantly surprised on move-in day when you do not get everything you expected. Learn exactly what fixtures come with the property and put the terms into the contract.

Contingency clauses

A common contingency clause in a real estate contract involves what happens if the seller decides they cannot sell the home. This sometimes happens when the seller’s plan to purchase another home falls through.

Options can include extending the time of the closing date to allow the seller to find another new home or canceling the sale and allowing the buyer to have any money they have already paid back.

Contingency language should also be included addressing what happens if the buyer’s financing does not come through or the sale of their old home is delayed.

These are examples of just a few common terms in a real estate contract. You will likely have details specific to your situation so it is best to have your contract reviewed before you sign it.

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