Real Estate Contracts Explained: Types, Law and What Sales Contracts Include
Real estate contracts are the legal framework that makes property transactions binding. Without a signed agreement that meets state contract law requirements, a deal has no enforceable weight — either party can walk away without consequence. Understanding the basics of real estate contract law, the most common types of real estate contracts, and what goes into a sales contract protects you whether you’re buying, selling, or investing.
This guide gives you real estate contracts explained in plain language — no law degree required. You’ll know what to look for, what’s negotiable, and what’s fixed by statute before you sign anything.
Types of Real Estate Contracts
The types of real estate contracts you’ll encounter most often are purchase agreements, lease agreements, lease-options, and land contracts. Each serves a different function in a transaction. A purchase agreement governs the sale of property from seller to buyer. A lease agreement governs a landlord-tenant relationship. A lease-option gives a tenant the right to buy the property during or at the end of a lease term.
Land contracts — also called contracts for deed — are a seller-financing instrument where the seller retains title until the buyer completes payments. These types of real estate contracts carry higher risk for buyers because you don’t receive a deed until the contract is fulfilled. Any default typically allows the seller to reclaim the property without going through formal foreclosure in many states.
Key Elements Real Estate Contract Law Requires
Real estate contract law in all U.S. states requires four elements for a contract to be valid: offer, acceptance, consideration (money or something of value), and a written document signed by both parties. Verbal real estate agreements are generally unenforceable for property transactions under the Statute of Frauds.
The written requirement means that any modifications to a contract also need to be in writing and signed. A phone call where both parties agree to extend the closing date is not legally binding. A written addendum signed by both parties is.
What a Real Estate Sales Contract Will Include
A real estate sales contract will include the purchase price, the legal description of the property, the names of all parties, the closing date, the earnest money amount and how it’s held, and contingency clauses. Contingencies are the negotiable conditions that must be met for the contract to remain valid — financing, inspection, and appraisal contingencies appear in most residential transactions.
A real estate sales contract will include a default clause that specifies what happens if either party fails to perform. Typically, if the buyer defaults without a valid contingency reason, the seller keeps the earnest money. If the seller defaults, the buyer can sue for specific performance — a court order requiring the seller to complete the transaction at the agreed price.
When reviewing real estate contracts, pay close attention to the inspection contingency window. Most contracts give buyers 7 to 14 days to complete inspections and request repairs. Missing this deadline waives your right to object to conditions found during inspection.