At first sight, a real estate sales contract can look complex, but it consists of standard clauses that, with a little effort, are individually easy to understand.
Let's start with the basics:
The function of a sales contract is to identify the property being sold, name the buyer and seller, state the amount of money the buyer will pay, and the date when title to the property will be exchanged for the money.
If that's all, why does it take 5 or more pages of small type?
For starters, the property you know as 1820 Maiden Lane probably has some other legal description. It turns out that street names change often enough to force most counties to use a more permanent way to identify property. So in the very first paragraph of a basic sales contract, the reader is confronted with lot and block numbers plus pages in a platte book at the county court house.
...the eyes start to glaze over.
Get over it! All you need know about a platte book is that it exists. Obscure words are a major block to reading contracts because we expect to understand every word, when all we need is to focus on the basic English and treat the obscure terms as objects (sort of like using a television without a clue as to how it produces a picture).
Okay, there are a few words you do need to know:
- Real property refers to land (land is the only real property because it lasts forever).
- Improvements refers to buildings and structures on the land (your house is an improvement to the land on which it sits).
The bulk of pages in a sales contract are written to answer questions such as: What happens if the buyer doesn't have the money to purchase the house on the agreed date? or What if the seller refuses to fix the leaking roof? The difference between a five page contract and a ten page contract is the longer contract covers these "what if" questions or contingencies in greater detail.
If Mary Buyer offers to pay $120,000 for John Sellers house, what are the major contingencies to be covered by their sales contract?
Money: Unless she has $120,000 in cash, the buyer will need a mortgage loan and she will be released from the contract if unable to get a big enough loan. Most contracts will require the buyer to describe her loan application in more detail than the seller cares to know. Why? So the buyer can't get out of the contract by falsely claiming an inability to get a loan.
Inspections and repairs: Be prepared for brain numbing lists such as: "inspections may include appliances, heat and air conditioning systems, electrical systems, plumbing, machinery.." The point is the buyer has the right to inspect the property. If problems are found, the seller can either make repairs or release the buyer from the contract.
Clear title: Does John Seller really own the property and does he have the right to sell it? Most contracts handle this by requiring the seller to turn over a "marketable" title which has been researched and insured by a title company.