Today we’re going to talk about what it takes to make a real estate contract legal and binding.

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Today we’re going to talk about what it takes to make a real estate contract legal and binding.

All offers to purchase real estate should be in writing. An offer doesn’t have any teeth unless it’s in writing, and most sellers won’t respond to a verbal offer. The seller then has the opportunity to respond to the offer by either accepting it or countering it with terms and a price that are acceptable to him.

This process would continue with each counteroffer being signed by the presenting party until mutually acceptable terms and price are agreed upon. If there is no agreement, then the contract falls apart.

So in general, the offer becomes a contract on the date that both parties have signed. Once this happens, the contract is binding for both the buyer and the seller. The contract is one of the most important steps in the home buying process, as it clears the way for both parties to begin the transfer of property.

It means that the sellers can begin planning their move out and the buyers can work with their agent, lender, and escrow company to get their ducks in a row for closing. Of course, just how binding the contract is depends on the detail of the contract itself. Some contracts may have contingencies built in.

Typically, a buyer’s agent will try to build in as many contingencies as possible into the contract to keep the client from being tied down in case something unexpected comes up. A listing agent, on the other hand, will typically advocate for as few contingencies as possible and may even ask to tighten up some of the time frames of the contingencies because their client doesn’t want the buyer walking away from the deal.

Why may a buyer cancel a contract? One of the most common reasons that real estate deals fall through or fall apart is because of financing, or, specifically, a buyer’s inability to get financing from their lender. For example, an appraisal contingency protects the buyer and gives them the opportunity to walk away from the sale if the property does not appraise for the purchase price.

If the home fails to appraise or appraises lower than the purchase price, it usually means that the lender won’t be able to provide the buyers with as much financing as they need to actually close on the property.


Other contingencies in the contracts include due diligence for a property passing a home inspection or a buyer’s property being sold before closing, or a title search that ensures the seller has the right to sell the property.

Sellers get some protection out of the contingency, like time limits for how long the buyer has to do their home inspections or to obtain their financing. But, most contingencies are written to protect the buyer and allow them an out if something goes wrong before closing. So, if contingencies aren’t met and the buyers walk away from the deal, they can typically get their funds that are held in escrow back, which could be like the earnest money deposit.

Should any of the contingencies not be met in a timely manner, the buyer should be able to dissolve the contract and walk away with no repercussions because that’s the point of the contingencies. Of course, if the contingencies were met and the buyer physically removes a contingency by signing a contingency removal document and then decides to cancel, then the buyer is obligated to perform in accordance with the original parameters of the contract.

That means potentially forgoing 3% for liquidated damages if that’s agreed upon in the contract. Or, they could be vulnerable to a lawsuit for specific performance demanding that the buyer close on the sale or provide funds equal to the purchase price to the seller.

Why a seller may cancel the contract: It’s more difficult for a seller to cancel the contract, but it’s not impossible. If the buyer’s contingency time period expires without an agreed-upon request for an extension for that time period for that contingency, then the seller can provide what we call a “notice to perform.” And the performance is to specifically remove that contingency within a certain number of days specified in the contract.

If the buyer does not remove the contingency, then the seller can unilaterally cancel the contract. Now, it is more typical for a buyer and a seller to work out an extension of time for that specific contingency to be removed, but let’s say that the seller has a higher backup offer and is looking for ways to get out of the contract with his initial buyer. This is why it’s always important for us to respect the agreed-upon time frames for contingencies in the contract, as time is of the essence and it should be respected by all parties and their representatives.

If you have any other real estate-related topics or questions that I can answer, please give me a call or send me an email. I’d be happy to make a video about it.