Sales contracts establish binding agreements between buyers and sellers. Here we will examine in detail the key features of these contracts and how they work in real estate transactions.

Key Features

• Binding and Bilateral Contract for Purchase and Sale: A sales contract is a legally binding agreement (binding) in which both parties, the buyer and the seller, agree on the conditions of the sale.
• Executive “Plan” for Closing: The purchase and sale contract serves as a detailed “blueprint” for the transaction closing process (the enforceable “blueprint” for closing).
• Executory Contract (executory): This means that the contract must be fulfilled by both parties as agreed.
• Expires on Closing: Once the transaction is successfully completed and closed, the contract is no longer in effect (expires upon closing).
• Must Be in Writing: To be valid, a sales contract must be in writing.
• Validity Requirements: For the contract to be valid, it must contain valuable consideration (valuable consideration), identify the property in question (identify property) and be signed by all parties involved (be signed by all).

• binding, bilateral contract for purchase and sale
• the enforceable “blueprint” for closing
• contract is executory, or to be fulfilled
• expires upon closing
• must be in writing
• for validity, must
  – contain valuable consideration
  – identify property
  – be signed by all

Creation, Deposit and Contingencies

Creation

A contract of sale is created by the unrestricted acceptance of a valid offer. This gives the buyer equitable title and the power to demand specific performance of the contract.

• created by unqualified acceptance of an offer
• gives buyer equitable title, and power to force specific performance

Deposit or Earnest Money Escrow (Deposit or Guarantee Bond)

This deposit guarantees the validity of the contract and the equitable interest of the buyer. The amount may vary and is controlled by an impartial party who must act in accordance with escrow instructions.

• secures contract validity and buyer's equitable interest
• varies in amount
• deposit controlled by disinterested party who must act according to escrow instructions

Contingencies

Contingencies are conditions that must be met for the contract to be enforceable. They must be clear, have an expiration date and require diligence for compliance.

• conditions that must be met for the contract to be enforceable
• must be clear
• have expiration date
• require diligence to satisfy

Buyer Default (Buyer default)

If the buyer breaches the contract, the seller can take various actions, including:

• Cancel the contract (seller can cancel).
• Claim damages (claim liquidated damages).
• Require specific performance, meaning that the buyer must complete the transaction as agreed, even if the buyer refuses to do so (sue for specific performance).

Seller Default (Seller default)

If the seller breaches the contract, the buyer has similar options:

• Cancel the contract (buyer can cancel).
• Claim damages (sue for damages).
• Require specific compliance (sue for specific performance).

Primary Clauses (Main Clauses)

Options

Essentials

Options allow the optionor to give the optionee an option to buy at a certain price and time. This is a unilateral contract, meaning the seller must perform, but the buyer is not obligated. If the option is exercised, it becomes a bilateral sales contract.

• optionor gives option to optionee to buy at a given time and price; optionee must pay for option right
• unilateral contract: seller must perform, buyer need not
• if option is exercised, option becomes bilateral sale contract
• options are assignable

Contract Requirements

To be valid, an option contract must include non-refundable consideration for the option right, the price and terms of the sale, the expiration date of the option, and a legal description of the property. In addition, it must be in writing and, in many cases, its registration is recommended.

• non-refundable consideration for the option right
• price and terms of the sale
• option period expiration date
• legal description
• must be in writing
• must meet contract validity requirements
• option should be recorded

Common Clause Provisions

Common clauses in an option contract may include how to exercise the option, what happens to the option money if it is exercised, and how the option money will be applied to the purchase price.

• how to exercise option
• terms of option money forfeiture
• how option money will be applied to purchase price

Purchase and Sale Contract with Payment in Installments (Contract for Deed)

Essentials

In this type of contract, the purchase price is paid in installments over time. The seller retains title, while the buyer takes possession and obtains equitable title. At the end of the period, the buyer pays the remaining balance and obtains legal title.

• purchase price is paid over time in installments
• seller retains title, buyer takes possession, equitable title
• at end of period, buyer pays balance, gets legal title

Interests and rights (Interests and Rights)

The seller can mortgage or assign the interest in the contract. The seller remains responsible for the underlying mortgage. The buyer may use, own or benefit from the property, but must make periodic payments, maintain the property and purchase at the end of the term.

• seller may encumber or assign interest
• seller remains liable for underlying mortgage
• buyer may use, possess, or profit
• buyer must make periodic payments, maintain the
• property, and purchase at the end of the term

Non-compliance and Remedies

In the event of default by the buyer, the buyer may sue for cancellation and damages or specific performance. If the seller defaults, the buyer has similar options.

• buyer may sue for cancellation and damages or specific performance
• seller may sue for specific performance or damages, or may need to foreclose