|1. Once you've signed, there's no going back.
A sales agreement, also referred to as a purchase and sale agreement, a purchase contract, or a contract of sale, is a
binding legal document. Once you've signed it, you are bound by the terms of the document and any promises you've made
within it. (For a discussion of when you may be held responsible for oral promises made to the buyer or seller, see below).
Even if you think you have a good reason for violating the terms of the agreement or for refusing to go through with the deal,
a court can compel you to complete the transaction and compensate the other party for any financial losses that he or she
incurred as a result of your actions.
2. Things don't always go as planned, so plan for contingencies.
As discussed above, a sales agreement is a legal document that binds the signatories to certain obligations. A sales
agreement holds the buyer to his promise to buy and the seller to his promise to sell. But what if the buyer can't round up
enough money to pay for the home? What if the seller does a title search and discovers that the house he is selling is
situated on three acres when both he and the buyer thought it was five acres? A well-crafted sales agreement will plan
for these contingencies and give the contracting parties the power to terminate the sales agreement when they arise. A
poorly-drafted sales agreement will not provide for foreseeable problems like these and may cause the contracting parties
to end up in court. For a list of the most common sales agreement contingency provisions, see below.
3. An ounce of prevention is worth a pound of cure.
Legal advice is most helpful - and least expensive - when sought as a preventative measure. A well-negotiated contract
will protect your interests and help you avoid last-minute crises that might delay the closing or initiate litigation. Real estate
lawsuits are costly and can take years to resolve. So why not take a few steps upfront if it means keeping you out of the
courthouse? If you are a buyer, you probably will want your attorney to enter the process when you are ready to make an
offer or, at the very least, before you sign the sales agreement. If you are a seller, you probably will want to consult an
attorney before signing a listing agreement with a real estate agent.
4. Your sales agreement can encompass spoken promises as well as written ones.
Many kinds of contracts don't have to be in writing to be valid. If a seller orally promises to fix a leaky basement prior to
closing, the buyer may be able to insist that the system be updated even if the matter doesn't arise in later negotiations and
isn't mentioned in the sales agreement. Best practice, however, requires that all agreements be in writing
to maximize the likelihood of full performance and to minimize any misunderstandings.
5. Your sales agreement should contain a number of standard provisions.
A sales agreement can be tailored to include any number of special items, but the following items should always be included:
6. Your sales agreement should set forth specific rights and responsibilities.
- The date of the contract
- The closing date
- The purchase price of the property
- A legal description of the property
- The amount of the down payment
- The terms of any escrow agreement
In addition to some standard provisions (i.e. the closing date, the purchase price), a sales agreement should also embody
the result of any bargaining between the buyer and the seller with regard to rights and responsibilities. For example:
7. Your sales agreement should contain contingency provisions
- Who is going to pay the utility bills, property taxes, and insurance on the property through the closing date?
- When will the buyer be allowed to take possession of the property? If the seller does not move out on time, will there be consequences?
- Will any items presently on the property be included in the sale? (This might include furnishings, appliances, outdoor improvements, etc.)
- Has the seller promised to make any repairs to the property? If the repairs are not made, what are the consequences?
Contingency provisions outline the circumstances under which the sales agreement becomes unenforceable after both the
buyer and the seller have signed it. Without contingency provisions, a buyer can be forced to forfeit his deposit under
certain circumstances if he backs out of a deal. Most sales agreements include three standard contingencies:
Buyers and sellers are not limited to the aforementioned types of contingency provisions and should work closely with their
attorneys to negotiate a sales agreement that offers as many safeguards as possible.
- A financing contingency, which makes the validity of the sales agreement dependent on the buyer's ability to obtain a satisfactory mortgage.
- An inspection contingency, which makes the validity of the sales agreement dependent on the results of a professional inspection of the property.
- An attorney-approval contingency, which makes the validity of the sales agreement dependent upon the subsequent approval of the sales agreement by both parties' attorneys.
If you've already signed a sales contract and have a question about your rights, see (article describing common lawsuits) for a description of the legal issues that most frequently emerge in real estate transactions.
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