Real Estate Contracts: Types and Essential Terms

Real Estate Contracts kept on a table with keys and money


There are various real estate contracts, and it is important to understand that contracts are essential for real estate transactions. A contract is a legally binding agreement. The contract comprises an offer, acceptance, consideration, legal capacity, and legality of purpose. A real estate contract is a legally binding document between two or more parties involved in the real estate purchase, exchange, or transfer. 

It outlines the buyer’s and seller’s expectations. A real estate contract typically includes terms such as financing, seller assistance, home inspection, fixtures and appliances, closing date, sale of an existing home, etc.

Types of real estate contracts

Real estate contracts are classified into four types:

  1. purchase agreement contracts;
  2. contracts for deed;
  3. lease agreements;
  4. power of attorney contracts.

They each have different applications and requirements. This article will review the various real estate contracts and provide the foundational knowledge you need to make informed investing decisions.

Purchase agreement contracts

This is the most commonly used type of real estate contract. A purchase agreement (a sales contract) is a legally binding contract between two parties (the property buyer and the property seller) to transfer ownership of a specific property. This contract spells out the specifics of a property sale. There are various types of purchase agreements available to real estate investors. However, which type you choose will be determined by several factors. Here’s a quick rundown of the various types of purchase agreements available to you:

State/association purchase agreement

Many states and local realtor associations have standardized purchase agreements that they use to guide their transactions.

Purchase agreement for a specific property

This purchase agreement is typically used in the purchase of non-traditional single-family properties. It could, for example, be used for mobile homes or vacant land.

General purchase contract

This is a shortened, simplified version of the state/association purchase agreement. When working directly with sellers and not using a real estate agent, this real estate contract is a great option.

Purchase agreement contracts typically comprise all the essential elements of a contract that are given below: This type of real estate contract includes all of the standard contract elements:

  • Both parties’ identification;
  • Description of the property;
  • The state of the property;
  • The property’s purchase price;
  • Contingencies;
  • Appliances and fixtures included and excluded;
  • Earnest money down payment;
  • Each cost is the responsibility of the party who bears it;
  • The closing date;
  • Possession conditions;
  • Both parties’ signatures.

To learn more about purchase agreement contracts, you are welcome to get help from our lawyers.

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Lease Agreement

A lease agreement is a real estate contract binding the property owner (landlord) and the renter (tenant) to the property. The landlord agrees to rent their property to the tenant at a fixed monthly rate. Aside from the rent amount, the agreement includes essential provisions such as the security deposit and utility payment. All critical items should be included in the lease agreement to avoid future legal disputes. Standard lease agreements can be found online and customized for your needs.

Power of Attorney

While a Power of Attorney is not typically used in a real estate contract, such documents may be used if a party cannot sign the contract, for example, if the party is not physically present in the country to sign or has a mental disability. In this case, the party can appoint another party to sign on their behalf as a power of attorney.

This type of contract can also be useful if you own multiple investments (rental) properties or are taking care of an elderly parent or family member who may be unable to sign the contract. This is one of the most unusual types of real estate contracts. In this case, the principal will appoint another party as power of attorney, allowing them to sign the contract on their behalf. This could happen if the principal is in any of the following situations:

  • Mentally handicapped;
  • They are hospitalized or have another illness that prevents them from signing the contract;
  • Inability to sign the contract because they are not physically present in the country
  • and possess several investment properties;
  • Is a parent or relative who is elderly and may be unable to sign the contract.

You are recommended to get a detailed legal consultation on this type of contract from legal persons.

A Real Estate Assignment Contract

It is used in the purchase of a wholesale investment property. This could include secured foreclosed homes and then assigned to another buyer. Certain terms have been added to this type of contract, as the term assigns commonly used to distinguish it as an assignment contract. 

A real estate assignment contract is initiated when the property owner agrees to sell the right to purchase the property to an investor, and both parties sign a contract committing them to the upcoming transaction. The contract grants a real estate investor the right to purchase a property but not the property itself, and the investor can then sell their right to purchase the subject property to another buyer. The end buyer, who will purchase the property from the owner, will pay the investor a small assignment fee. It is important to note that a real estate assignment contract does not transfer the title to investors. The contract assignment will also not appear in the title. 

All these are the types of real estate contracts. Below, you will find crucial information about the essential terms of a real estate contract. To understand a real estate contract, you must first understand what the key terms and components of the contract mean. Here are some common real estate contract terms:

  • A title search is searching public records for the rightful legal owner of a property to avoid third-party claims on the property.
  • Earnest money is a payment made to the seller to demonstrate good faith during the contract signing.
  • Closing costs are fees paid in addition to the purchase price to transfer the home to the buyer. The contract should state who is responsible for which closing costs, such as title search fees, title insurance, notary fees, recording fees, transfer tax, and so on.
  • No contract is legally binding unless both parties sign it. If the buyer signs the contract but later backs out, the seller may forfeit the earnest money.
  • Considerations refer to anything of value exchanged in the transaction, usually money.
  • A mortgage note contains all mortgage terms that are signed at the time of closing.
  • A government agency will charge a recording fee for recording the purchase or sale of any real estate.
  • A deed of trust between a lender and a borrower allows the property to be transferred to a neutral third party while the debt is paid off.
  • For example, if you want the seller to pay for some closing costs, you can include a clause in your contract requesting seller assistance. It functions similarly to credit because the seller bears some closing costs.
  • Riders or addendums to a real estate contract allow for changes based on special circumstances. Some common riders include revealing homeowner’s association rules or a Federal Housing Administration rider stating that the buyer will obtain a mortgage through FHA.
  • Contingencies are requirements that must be met before closing. Contingencies include the buyer obtaining a loan to finance the purchase, selling their current home, repairing any issues discovered during the home inspection, and the house appraisal being equal to or greater than the sale price.
  • Given that any real estate transaction represents a significant investment for the buyer, price is the first consideration for both parties. You can request a comparative market analysis from their real estate agents to determine whether the current price is above or below market value. You will almost certainly need to obtain a mortgage to purchase real estate.
  • You should research your interest rate for financing based on your credit score before making an offer. If you have to withdraw your offer after making it, the seller keeps the earnest money. If you are financing the transaction with a loan, you must specify this in your contract.


If you are interested to know about these terms, you are welcome to contact our seasoned lawyers are LegaMart. Besides providing comprehensive information, LegaMart lawyers are the best choice for people looking for legal assistance when signing a real-estate contract.

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