Elements of a Valid and Useful Real Estate Contract

Legal Article

Elements of a Valid and Useful Real Estate Contract

Real estate can lead to complicated issues because of the many details involved in each deal. From hiring a real estate agent, finding the perfect property, getting finance for the home, and finally creating a real estate contract. Every real estate transaction, whether it is a sale, purchase, or lease of residential or commercial property requires a real estate contract—which can sometimes be the most complex part of the transaction. However, there are certain elements a real estate contract must have to be legally valid and other conditions the contract should include to be useful for both real property buyers and sellers. Below is a description of the elements of a valid and useful real estate contract.

Required Elements of a Real Estate Contract

To establish legality, a real estate contract must include a legal purpose, legally competent parties, agreement by offer and acceptance, consideration, and consent.

A Legal Purpose

In any contract, the parties involved in the deal cannot execute a contract if the transaction is inherently illegal. This means that the purpose of the contract must conform to existing laws. Further, a contract that involves fraud by either party will be invalidated. For example, if the seller of the property is not the legal owner, not only will a judge not participate in the deal, however, it is also likely that they will end up in jail.

Legally Competent Parties

Another required element is that both parties signing the contract must be legally competent. Legal competence requires that someone be at least 18 years old and not be mentally incapacitated at the time of signing. In this case, say you find out that a 17-year-old inherits a piece of real estate that you want. You may get this person to sign the contract, but courts will not uphold the agreement. Similarly, a person who does not have mental capacity cannot legally sign a contract buying, selling, or leasing a property. If there is any doubt in your mind that the other party involved in your real estate contract does not have the capacity, it is vital that you do some due diligence to avoid legal issues down the road.

Agreement by Offer and Acceptance

In real estate contracts, the offer to purchase a property by the buyer and acceptance by the seller illustrates this element. However, in certain states, a handshake with a witness is enough to establish the offer and acceptance criterion. Though this is not the best way to sell or purchase a property. When dealing with real estate transactions, the best practice is to create a written contract and receive signatures from the parties involved. In short, the buyer offers a price with contingencies and the seller is accepting these contingencies.


Consideration is when one party offers something of legal value to another person in a contract. Things that have value include money, services, other valuable goods, and even love and affection. No matter the thing being exchanged, the contract must spell out the consideration. In real estate deals, money is the most common consideration.


The final legal requirement that a contract must have is for both parties to consent willingly and knowingly to the terms of the contract. This means that there cannot be fraud, misrepresentation, a mistake, or undue duress on any entity in the contract. Everyone must want the deal to occur or it will be considered invalid.

Seven Must-Have Real Estate Contract Conditions

When you make a formal offer to buy a home or accept an offer for the property you are selling, you will be required to read and fill out a lot of paperwork that typically includes specific terms and conditions relating to the offer. Aside from the common terms such as the address and purchase price of the property, below are some of the most important contingencies to include in a real estate contract.

Financing Terms

In most cases, the home buyer will not have enough money saved up to make a cash-only offer. This means that the buyer will have to take out a mortgage. However, before creating the purchase offer, the buyer must check the potential interest rate on the loan and where this loan fits into your current debt obligations and credit score. Further, the purchase offer should be contingent upon obtaining financing at a specified interest rate.

This contingency is extremely important for a few reasons. First, if you understand that you do not have the income to pay a mortgage that has above a 5 percent interest rate, do not put a rate higher than this on the agreement. If you do not follow this suggestion and are only able to secure an interest rate above 5 percent, the property seller will be able to keep the earnest money deposit.

Other information such as whether you need to secure an FHA or VA loan must also be included in this section. Finally, if you are planning on paying cash for a home, you should state this in your offer as well. This is because if you do not have to go through the mortgage process, the deal is more likely to go through.

Seller Assist

If you would like the seller of the property to pay for the closing costs, you must state this in the offer. There are closing costs for both the buyer and seller. These costs and which party will pay for them varies significantly from one transaction to the next and thus must be included in the real estate purchase agreement. In most cases, the buyer will cover these costs. However, the seller could pay the expenses, or the buyer and seller could decide to split the bill. A seller assist is meant to signal that you would like the property owner to cover some of these extra costs.

A seller assist is similar to purchase credit as the seller agrees to cover some expenses that the buyer would usually cover. In certain cases, the seller would agree to take on these costs if the buyer agreed to pay more for the home. This occurs when the buyer would rather use the mortgage to cover the costs for the home. However, it really comes down to how much each party wants to move on the transaction.

Who Pays Specific Closing Costs

This provision should state who is responsible for common fees in home purchases. These fees include title insurance, escrow fees, notary fees, title search fees, transfer tax, and recording fees. Your real estate agent or lawyer can advise you on who generally pays these fees in your area.

Home Inspection

Unless you are purchasing a tear-down property or a simple piece of land, you should include a home inspection contingency. This provision will allow you to cancel the deal. That is if the home inspection finds significant or expensive repairs—especially those in the home structure or foundation. One important point is that states and even cities have different laws on home inspections.

The home inspection involves an expert walking through the property and examining it for structural problems or damages. This inspection can also include electrical, pest, and lead-based paint inspectors.

This is an extremely important part of the home purchasing process so you should not overlook or take this part of the process lightly. Thus, you must include a contingency that allows you to walk away from the deal if there are issues with the property. For example, you would not want to buy a property that needs a new roof for the same price as a property that does not need this fix. The contingency is also useful as it allows you to leverage the ability to walk away into getting the seller to pay for the cost to repair the property.

Fixtures and Appliances

The purchase agreement must also state what items located on the property will be included or excluded from the sale. These include items that are not permanently affixed to a property such as.

  • Light fixtures
  • Heating and cooling equipment
  • Windows
  • Window treatments
  • Doors
  • Built-in kitchen appliances
  • Bathroom fixtures

Sellers must disclose any information that could affect the property value or safety.

Closing Date

Most closing dates will be between 30 – 60 days after signing the real estate purchase agreement. Issues that could prolong this timeframe include the seller’s ability to find and purchase a new home.

The date of closing will also be included in the purchase agreement along with any stipulations such as if the closing date must change, both parties must agree to the change in writing. This is important as the owner of the property legally changes upon the listed closing date. Further, the closing date marks the transfer of the property title from the seller to the buyer.

Sale of Existing Home

If you are an existing homeowner, it is likely you will use the funds from the home you are selling to pay for the new home you are purchasing. In this case, you should include a contingency in your purchase contract stating that your buying a property is contingent on selling your current home. Most people will state that they need 30 – 60 days to sell their properties and if they cannot meet this, the purchase agreement is void.

Final Thoughts

With over 20 years of experience, Antonoplos & Associates real estate attorneys have the knowledge and experience required to assist clients with real estate litigation in DC, Maryland, and Virginia. Furthermore, our attorneys have a strong background in real estate, construction law, and business law. Because of this experience, we are can assist clients with most aspects of real estate litigation. Finally, we are able to help you before, during, and after your real estate litigation. This is true whether you need assistance with personal or commercial legal issues.

Contact Our DC Law Office for More Information

Finally, for more information on elements of a valid and useful real estate contract, contact us at 202-803-5676. You can also directly schedule a consultation with one of our skilled attorneys. Additionally, for general information regarding real estate law, check out our blog.