5 Important Real Estate Contract Terms Every Buyer & Seller Should Understand
5 Important Real Estate Contract Terms Every Buyer & Seller Should Understand
During a real estate transaction, the contracts can feel overwhelming; they're often full of legal language and fine print. But understanding a few key terms often found in real estate sales contracts can make a huge difference in protecting your money, your timeline, and your peace of mind.
Here are five essential contract terms every buyer and seller should know before signing on the dotted line.
Contingencies
What is a Contingency in a Real Estate Contract?
A contingency in a real estate contract is conditions that must be met before the sale becomes final.
Common Examples of Contingencies in a Real Estate Sales Contract:
● Home inspection contingency
● Financing (mortgage approval) contingency
● Appraisal contingency
● Sale of buyer’s current home contigency
● There are many more contigency types available...
Why Contingencies Matter In a Real Estate Sales Contract:
Contingencies in a real estate sale contract protect you. If an agreed on condition isn’t met by the contingency deadline, you can renegotiate the terms of the contract or walk away from the transaction without losing your earnest money.
Agent Tip for Contingencies:
Strong offers often limit contingencies, but removing them increases the risk to the buyer. Balance competitiveness with protection when thinking about your contingencies. Work with your REALTOR, Mortgage Lender and other home buyer team members to determine the best contingencies to include.
Earnest Money Deposit (EMD)
What is Earnest Money Deposit in a Real Estate Sales Contract:
Earnest Money Deposit (EMD) in a real estate sales contract is a good-faith deposit; showing the homebuyer is serious about purchasing the property.
Typical Amount of Earnest Money Deposit:
1%–3% of the purchase price (varies by market)
Why Earnest Money Deposit Matters in a Real Estate Contract:
If the transaction falls through due to unmet contingencies, homebuyers usually get this money back. If they walk away without cause or fail to meet contingency deadlines, the seller may be able to keep the earnest money for time lost on the market.
Agent Tip for Earnest Money Deposit:
A higher EMD can strengthen an offer in competitive housing markets and popular homes. It shows you're very interested in the home and intend to follow through with the transaction through to closing.
Purchase Price & Financing Terms
What is Purchase Price and Financing Terms in a Real Estate Sales Contract:
Purchase price and financing terms in a real estate sales contract is the agreed sale price of the home and how the homebuyer will pay (i.e. cash, mortgage, rent-to-own, etc), what type of mortgage the buyer plans to use (i.e. FHA, conventional, bridge loan, hard money loan, etc), how much the buyer plans to use as a down payment on the mortgage and the closing timeline.
The Purchase Price and Financing Terms in a Real Estate Contract May Include:
● The loan amount
● Interest rate type (fixed/adjustable)
● Cash vs financed purchase
● Deadlines for loan approval (mortgage contingency)
Why the Purchase Price and Financing Terms Matter in a Real Estate Contract:
Delays or mortgage financing issues can cancel deals if terms aren’t met by contract contingency deadlines.
Agent tip:
Mortgage pre-approval letters from a reputable Mortgage Advisor help ensure smoother closings and stronger offers.
Looking to get pre-approved for a mortgage? We can help! Click HERE to explore our mortgage services with One Real Mortgage.
Closing Date & Possession
What Closing Date and Possession Means in a Real Estate Sales Contract:
Closing date and possession in a real estate sales contract states when ownership of the home officially transfers from the seller to the buyer and when the homebuyer can move into the property.
Key Points for the Closing Date and Possession Date in a Real Estate Contract:
● Closing day (the day legal ownership transfers - also known as "settlement")
● Possession (immediate or delayed) (when the homebuyer can officially move into the property)
● Rent-back agreements (if the buyer agrees to allow the seller to stay in the home for an agreed upon amount of time after settlement has taken place)
Why Closing Date and Possession Date Matters in a Real Estate Sales Contract:
Misunderstandings here can cause serious stress for sellers and buyers, moving issues for buyers, or often times legal disputes between contract parties.
Agent Tip for Closing Date and Possession Date:
Always confirm whether possession is “at recording” or after closing.
Repair Requests & Seller Credits
What Repair Requests and Seller Credits Mean in a Real Estate Contract:
Repair requests and seller credits are when negotiations after the inspection regarding property condition require something to be done or money to be offered.
Repair Requests and Seller Credits May Include:
● Seller makes repairs
● Seller offers a credit at closing (an agreed upon amount to cover the costs of repairs, etc)
● Price reduction (reduce the agreed sale price of the home)
● No action taken (the buyer agrees to buy the home in "as-is, where-is" condition)
Why Repair Requests and Seller Credits Matter in a Real Estate Contract:
This is where many real estate transactions are renegotiated and sometimes fall apart.
Agent tip:
Focus on major safety or structural issues, not minor cosmetic fixes.
Why Understanding These Real Estate Contract Terms Matters for both Sellers and Buyers:
Knowing these basic real estate contract terms helps you:
✔ Avoid costly surprises
✔ Negotiate confidently
✔ Protect your investment
✔ Reduce stress during closing
A great real estate agent will guide you through every clause of the real estate sales contract - but being informed puts you in control.
If you're thinking of making a move this year, The Zack Grimmer Group, Powered by Real, is your local real estate and mortgage team; here to guide you every step of the way. Click HERE to schedule a complimentary call about your real estate and mortgage goals.
Click HERE to learn more about our Real Estate Services | Click HERE to learn more about our Mortgage Services
The Zack Grimmer Group, Powered by Real, is a Residential & Commercial Real Estate and Mortgage Team that was founded in 2021 by Zachary ‘Zack’ Grimmer. We assist our clients who are looking to BUY, RENT, SELL or INVEST in real estate throughout Pennsylvania, New Jersey and Florida! We are tech-enabled and data-driven, giving our real estate team the necessary tools to successfully broker real estate in any market. Our mission is to provide white-glove service to our clients and investors. Browse our website at www.ZackGrimmerGroup.com to learn more about all the real estate and mortgage services we offer to our community.
Connect with a local REALTOR at Sales@ZackGrimmerGroup.com or 215-279-8519 or follow us on Facebook & Instagram, to learn more.
Disclaimer: The information provided on this blog is for general informational purposes only and should not be considered legal, financial or tax advice. Every situation is unique. Please consult a licensed attorney, financial advisor or tax professional before making any decisions.
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