Real Estate Contracts: 5 Essential Clauses to Include
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Foundational Elements to Know Before Reviewing a Real Estate Contract
Real estate contracts play a central role in residential and commercial property transactions. These agreements outline the expectations, responsibilities, and conditions that guide both parties from the moment an offer is made through closing. While the structure and specifics of these documents can vary, certain clauses appear frequently because they help provide clarity, reduce uncertainty, and establish a framework for how the transaction will proceed.
The following information is designed for general educational purposes. It explains several common elements often included in real estate contracts so readers can better understand the types of provisions they may encounter. Because individual situations differ, this information is not a substitute for legal advice.
1. Property Description
A clear and detailed property description is a foundational element of most real estate contracts. This section identifies the property being transferred, often including the address, parcel number, legal description, and any structures, fixtures, or features associated with the property.
A precise property description helps ensure both parties have a shared understanding of what is included in the transaction. This may extend to permanent fixtures, built-in features, and sometimes certain personal property items if agreed upon. The goal is to reduce ambiguity, which in turn helps minimize misunderstandings later in the process.
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2. Purchase Price and Payment Terms
Another essential component of a real estate contract is the clause that outlines the purchase price and payment structure. This typically includes:
The agreed-upon purchase price
Any initial deposits or earnest money
When payments are due
How funds will be delivered at closing
This section clarifies the financial commitments involved in the transaction. By setting expectations around payments, the parties can better understand the sequence of financial steps that occur between contract execution and closing.
3. Inspection and Due Diligence Rights
Inspection and due diligence provisions offer the opportunity to evaluate the property’s condition before completing the purchase. These clauses often address the types of inspections allowed, timeframes for conducting them, and how findings may be addressed.
Common inspections include structural evaluations, pest assessments, roof inspections, and, in some cases, environmental reviews or surveys. The purpose of these provisions it to give the buyer an opportunity to gather information about the property. Inspection clauses help define the process for accessing the property, communicating findings, and, most importantly, navigating next steps if issues arise.
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4. Contingencies
Contingencies are conditions that must be met for the transaction to move forward. They help outline what occurs in the event of certain developments. Common types of contingencies found in real estate contracts include:
Financing Contingencies: These address situations where the buyer’s ability to purchase the property depends on securing a loan.
Appraisal Contingencies: These relate to the property’s appraised value and how it aligns with the purchase price.
Title-Related Contingencies: These ensure the property can be transferred with clear or marketable title.
Contingencies help provide structure for how the contract proceeds when specific events occur. They can offer guidance on how the parties may address changes or unexpected findings during the transaction process.
5. Closing and Possession Terms
Most real estate contracts include provisions that establish when closing will take place, what steps must be completed beforehand, and when possession will transfer. This section may address the agreed-upon closing date, what documents or certifications must be prepared, and when the buyer will take possession. This is also an opportunity to put down in writing how closing costs may be handled.
These terms help set expectations regarding timing and ensure each step of the final transfer is clearly defined.
Additional Considerations
In addition to the core clauses listed above, real estate contracts sometimes include sections addressing disclosures, dispute-resolution procedures, homeowners association requirements, or property maintenance responsibilities prior to closing. The inclusion and specifics of these clauses can vary depending on the type of property, local regulations, and the particular circumstances of the transaction.
Real Estate and Trust Attorneys in St. Augustine, Florida
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