Many people sign a real estate contract and don’t even understand what terms they’re agreeing to. We think it is important for you to have a basic understanding of this legally binding contract. You don’t have to be an attorney or a real estate agent to appreciate the basic legal requirements of owning a home. We’re going to explain the real estate contract using everyday language so that you can sign your contract with confidence!
1) The contract must identify both of the parties involved in the real estate transaction – the buyer(s) and the seller(s). Both parties have to be at least 18 years old and be mentally competent.
2) Both parties must be in mutual agreement about the terms of the contract. This is often called a “meeting of the minds” or “mutual assent.” In other words, the buyer has made an offer, and the seller has accepted the offer (even if it’s after several counteroffers).
3) Contracts have to be in writing to be enforceable. It’s true that a contract can be verbal. But, but if one party decides he wants out of a verbal deal, he can legally walk away with no penalty.
4) The contract must state consideration. Usually the consideration is money (and the amount must be stated). However, you can legally give anything of value. Regardless of what consideration you choose, the contract is not enforceable if it is a free agreement. Occasionally you’ll see in tax records that someone bought land or a house for practically nothing (I think the cheapest I’ve ever seen is about $100). In these cases, usually the real estate is passing from one family member to another. It doesn’t matter what you charge a person, but he or she cannot get real estate for free.
5) The action that both parties agree to take must be legal. This requirement makes perfect sense because you can’t use a legal document to do support illegal actions.
6) You must identify the property. It is important to be very specific in stating this part. Most real estate agents and attorneys use the legal description found in tax records to describe the property in very clear terms.
7) The final part of a real estate contract is the signature. Contracts are not enforceable unless they’re signed by both parties. And, usually you don’t have to sign these in person. In most cases, both parties sign and date the contract, and then fax it to all of the people involved in the closing.
So, these are the seven basic legal requirements of a real estate contract. When it is explained using everyday terms, a contract is not as intimidating as most people think. And, if you have at least a basic understanding of this document, you can feel more at ease throughout the process of buying or selling real estate.