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“Contract” is a money term you need to understand. Here’s what it means.

What is a contract?

Any real estate transaction requires a contract, which can be either written or verbal but must spell out every aspect of the transaction in detail. A contract is an agreement between a buyer and seller that outlines the terms by which the property owner agrees to sell the property to the buyer.

Deeper definition

Also known as a purchase agreement, a real estate contract can technically be a verbal agreement, but it won’t be legally enforceable unless it’s in writing and signed by both parties. Both parties must be of legal age and mentally competent to enter into an agreement. The contract includes the buyer’s offer to buy the property and the seller’s formal acceptance of the buyer’s offered purchase price.

The contract must address every part of the transaction by identifying the buyer and seller, the property being transferred between them and the agreed upon purchase price for the property. The contract also must describe the condition of the property as well as what is and isn’t included, such as if the appliances and above-ground swimming pool are included with the home or will be removed by the seller before the buyer takes possession.

The contract also must say who will pay the closing costs, any deposit that the buyer is putting down and the anticipated closing date of the transaction when the buyer will legally become the new owner of the property and the transaction will be final.

Consider these things before buying a new home.

Contract example

Once you’ve made a bid on a home and the buyer has accepted your bid, the next step is to draw up a written contract. Ideally, this should be created with the help of an attorney.

Start by listing your name and the buyer’s name, along with the agreed-upon purchase price. In the contract, include if the seller is requiring an upfront, earnest money deposit before agreeing to sell you the home. Also include whether you have agreed to buy the home contingent upon selling your existing home, and if the seller is including the kitchen appliances as part of the deal.

Looking to sell your home? Here’s how to buy a new home before you’ve sold your current one.

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