Legal Issues Q&A
Learn the fundamentals of home purchase contracts
Forms for Home Sales

Q: Where can I find fill-in-the-blank purchase agreements for selling property? I'd like to use one to sell our modular home.

A: No document is more important in a real estate transaction than the contract, which contains all the important terms of the deal.

Most people who buy and sell through a real estate broker rely on the form provided by the seller's broker, but you can also find blank contracts in an office supply store or at a legal bookstore. You can find various legal forms on line as well.

When you are dealing with real estate, keep in mind that there are no fixed rules about anything. Everything is subject to negotiation.

Many parties who work out creative financing like to draw up their own contracts or add relevant clauses to standard contract forms. If you do this, be sure to have a real estate attorney review any creative financing agreements or additional clauses to make sure they are legally enforceable.

What Is a Real Estate Contract?

Q: What is a real estate contract? How effective are they, and what is the difference between using a real estate contract and a regular lender?

A: A real estate contract is also known as a sales contract, a purchase agreement, a sales and purchase agreement, or a sales offer contract. It is a document buyers use to make an offer and write down the terms and conditions of the sale, including the offering price, date of closing, inspection clauses and any other contingencies.

The seller and buyer use it to negotiate a deal, and the other parties to a real estate transaction -- including mortgage lenders, escrow and title search companies, appraisers and home inspectors, real estate lawyers and mortgage insurance companies -- use it to complete the transaction.

The contract spells out the conditions that the two parties specify as well as the various sales fees and closing costs charged by the county and the state. Sales contracts are legal documents. Should one party fail to meet its terms, the other party can use legal remedies to seek compensation and to sue to enforce compliance.

After a sales contract is signed, the buyer uses this document to apply for a loan. Without a sales contract for a specific property, a lender doesn't have piece of "real property" for a mortgage loan.

Because few buyers pay cash for the house, most need a loan to complete the transaction. That's when the lender comes in. Applying for a mortgage is the second phase of a real estate transaction.

A homebuyer takes the signed sales contract to apply for a loan, and the lender takes the application and, based on the applicant's financial situation, credit history and size of the loan, approves or rejects the application. Having a real estate contract doesn't preclude using the services of a lender. Rather, they usually go hand in hand.

Rent to Own Contracts

Q: Do you have any information on rent-to-own or land contracts?

A: A rent-to-own contract is formally known as lease with the option to buy.

Often the landlord asks for a higher rental price and the renter asks that a portion of the rent be credited toward the purchase price or the closing costs.

If the renter doesn't exercise the option at the end of the agreed-upon period, the landlord will keep the "extra" rent that the renter has been paying, but the renter has no further legal responsibilities.

There is another type of rent-to-own contract called a lease purchase, which is a type of delayed closing. The buyer and seller draft an agreement for the purchase and sales contract, with all the terms of a normal home purchase and a date for closing the sale.

In this type of transaction, the renter or buyer might ask that a portion of the rent be credited to the closing or to the purchase price. If the buyer defaults, the seller has all the legal remedies available under the terms of the sales contract.

A land contract is a type of financing in which the seller retains the title to the land. It is often called a contract for deed, installment contract, agreement for sale or contract for deed. The buyer and seller draw up the conditions of the transaction, including price, payment terms and purchase date as well as any contingency clauses. The would-be purchaser moves into the premises as if he or she owns the land.

But the seller retains the title until the purchaser completes all the agreed-upon payments. When it comes time to transfer the title, they will need the services of a lawyer and an escrow company as well as a title company.