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Contracts define the terms of real estate transactions. Purchase contracts, lease agreements, and related documents create binding obligations for all parties. Understanding contract components, common terms, and review practices helps protect interests and avoid costly mistakes.

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Why Contracts Matter

Real estate contracts are legally binding documents. Once signed, parties are obligated to perform according to the terms. Failure to perform can result in:
  • Loss of earnest money deposits
  • Legal liability for damages
  • Forced completion of unfavorable terms
  • Litigation costs
Reading and understanding contracts before signing is essential.

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What This Section Covers

Purchase Contracts

Key terms, standard provisions, and what to review in sales agreements

Lease Agreements

Rental contract terms for landlords and tenants

Addendums & Contingencies

Modifications, conditions, and additional terms

Reviewing Before Signing

What to check and when to seek professional review

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Standard vs Custom Contracts

Standard contracts Most residential transactions use standardized forms created by real estate associations or attorney groups. These forms:
  • Include common provisions and protections
  • Are familiar to agents, attorneys, and title companies
  • Have been reviewed for legal compliance
  • May favor one party or be relatively balanced
Custom contracts Some transactions use custom-drafted contracts. These may be necessary for:
  • Complex commercial transactions
  • Unusual property types
  • Non-standard terms
  • Situations where standard forms don’t fit
Custom contracts require careful legal review since they lack the familiarity and vetting of standard forms.

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Who Prepares Contracts

Contract preparation varies by transaction type and state: Residential sales:
  • Real estate agents typically prepare using standard forms
  • Attorneys may prepare in attorney-required states
  • FSBO sellers may use attorney-prepared contracts or standard forms
Commercial transactions:
  • Attorneys typically draft or heavily modify contracts
  • More negotiation of individual terms
Leases:
  • Landlords or property managers typically provide
  • Attorneys may prepare for commercial or complex situations
  • Standard forms available for residential rentals
Real estate agents can fill in blanks on standard forms but generally cannot draft custom contract language. Custom terms or unusual situations often warrant attorney involvement.

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Contract Basics

All real estate contracts share common elements: Parties Who is bound by the agreement. Must be legal entities or individuals with capacity to contract. Property description Clear identification of the property involved. Legal descriptions preferred over addresses for precision. Terms Price, dates, conditions, and obligations of each party. Consideration Something of value exchanged. In sales, typically the purchase price. In leases, rent payments. Signatures Contracts aren’t binding until signed by all parties. Electronic signatures are valid in most situations.

Next: Purchase Contracts

Key terms, standard provisions, and what to review in sales agreements