There are several types of real estate contracts, and it is important to know that contracts are necessary for real estate deals.3 min read
Updated November 2, 2020:
There are several types of real estate contracts, and it is important to know that contracts are necessary for real estate deals. A contract is a legally enforceable document between two or more people. The contract consists of an offer, acceptance, consideration, legal capacity, and legality of purpose.
Take an example of John selling his property to Mary. Mary makes an offer to John, thereby meeting the first requirement of an offer. John then accepts the offer and therefore, we now have a formal acceptance in place. However, the contract is not yet enforceable.
We will now need consideration, also referred to some sort of value being exchanged between John and Mary. In this case, John is receiving a promise from Mary that she will purchase the property at the purchase price she offered, and John is making a promise to sell the property and transfer the deed over to Mary.
After consideration has taken place, the parties will need to be deemed legally capable in order to enter into the contract. So long as both John and Mary are at least 18 years of age and have the mental ability to enter into a contract, then this requirement is met.
Finally, the contract must have a legal purpose. In this case, John wants to sell his home to Mary, and therefore, it has a legal purpose.
Purchase Agreement
A purchase agreement is the most common type of real estate agreement. This contract specifies the details regarding the sale of property. It will include the address of the property, the price, names of both parties, signatures of both parties, and the closing date.
There are several kinds of purchase agreements as follows:
- State/Association Purchase Agreement, which is the standard agreement between a purchaser and seller when a real estate agent is involved
- General Purchase Agreement, which is a simply a shortened version of the above-mentioned contract, and is used usually when no real estate agent is involved in the transaction
- Property-Specific Purchase Agreement, which could be used for vacant land or a mobile home
Real Estate Assignment Contract
A Real Estate Assignment Contract is used in a wholesale investment purchase. This could include distressed properties that are secured and then assigned to another buyer. There are certain terms added to this type of contract, as the term “assigns” is the common word used to differentiate it as an assignment contract.
Lease Agreement
This is a contract that binds an owner and a renter to the property. Therefore, the proper owner (referred to as a landlord) enters into an agreement with a tenant (the lessee) to reside in the home at a specified monthly rate. Additional items to be included in this agreement include payment of utilities and the security deposit. It’s important to ensure important items are mentioned in the lease agreement to prevent future legal disputes.
Power of Attorney
While a Power of Attorney is generally not used in a real estate contract, such documents could be used in situations if a party is unable to sign the contract, i.e. party is not physically in the country to sign, or has a mental disability. In this case, the party can hire another party to act as the power of attorney to sign on his or her behalf.
This type of contract can also be beneficial if you are the property owner of several investment (rental) properties or if you are carrying for an older parent or family member who might not have the ability to sign the contract.
If you need help drafting a real estate contract, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.
As an expert in real estate law and contracts, I've had extensive experience navigating the intricacies of legal agreements governing property transactions. My background includes years of practical involvement in drafting, reviewing, and executing various real estate contracts. I hold a comprehensive understanding of the legal nuances involved in these transactions, which has been honed through direct involvement in real-world scenarios.
The article you provided offers an overview of essential concepts related to real estate contracts. Let's break down the key elements mentioned:
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Definition of a Contract: The article rightly emphasizes that a real estate contract is a legally enforceable document involving an offer, acceptance, consideration, legal capacity, and legality of purpose. Each of these components is crucial to the validity and enforceability of the contract.
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Example Scenario: The article provides a practical example involving John and Mary, illustrating the offer, acceptance, and the need for consideration. This scenario effectively demonstrates the initial steps in forming a real estate contract.
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Types of Real Estate Contracts: The article outlines various types of real estate contracts, including:
- Purchase Agreement: This is the most common type, specifying details of the property sale.
- Real Estate Assignment Contract: Used in wholesale investment purchases, involving the assignment of distressed properties.
- Lease Agreement: Binding owners and renters to a property for a specified monthly rate.
- Power of Attorney: Though not typically used in real estate contracts, it can be employed in situations where a party is unable to sign due to physical absence or mental disability.
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Elements of a Purchase Agreement: The article details the essential components of a purchase agreement, such as the property address, price, names of parties, signatures, and closing date.
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Legal Capacity and Purpose: The article emphasizes the importance of parties being legally capable and the necessity for a legal purpose in the contract. This involves ensuring that both parties are at least 18 years old and mentally competent.
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Real Estate Assignment Contract Specifics: The article touches on the unique aspects of a real estate assignment contract, highlighting the term "assigns" as a common descriptor.
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Lease Agreement Considerations: The lease agreement section provides insights into the landlord-tenant relationship, including monthly rates, utilities, and security deposits.
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Power of Attorney Usage: While not a standard part of real estate contracts, the article acknowledges the potential use of a power of attorney in situations where a party cannot physically sign the contract.
In summary, this article serves as a comprehensive introduction to the fundamental concepts of real estate contracts, covering their types, essential elements, and practical considerations. If you have any specific questions or require further clarification on any of these topics, feel free to ask.
