We’ve all signed contracts before. In fact, in the age of the internet, we enter into contracts nearly every day.
In real estate, understanding the ins and outs of contracts is particularly important since the transaction values are usually pretty high. So, in this article, we’re going to dig into the theory behind contracts, the elements of a contract, and how these elements come into play with real estate transactions.*
At the most basic level, a contract is an agreement between two or more parties.
A contract is an agreement involving mutual covenants. That’s a fancy way of saying that a contract requires two or more parties to promise something to the other party. Essentially, each party promises to do, or not do, something. This exchange is a contract.
The basic components necessary to create a contract are:
Offer: one party offers to do something, or not do something, to the benefit of another party. For example, “I will sell you my house for $150,000” is an offer.
Acceptance: the other party accepts the offer, creating a mutual agreement. In this case, the other party says “sure, I’ll buy your house for that price.”
Consideration: consideration is the concept that the promise must be induced. Once again, this is a legal way of saying that each party should get something of value from the agreement. For most real estate transactions, the offer would add an amount of money, which the buyer would need to either accept or renegotiate. Thus, the consideration for the house in this case would be an amount of money that the seller would accept.
The key here is that contracts don’t need to be inherently complicated. At their core, contracts are mutual promises that each party agrees to fulfill, supported on both sides by consideration.
For the most part, when reading any real estate contract, your goal should be to find what you are promising to do or not do, and what you are receiving in exchange. If you can find those elements, you’re well on your way to breaking your contract down from a complex legal document into something you can understand.
The information provided in Peak Title Professionals, does not, and is not intended to, constitute legal advice. All content is for general informational purposes only and is not intended to provide a complete description of the subject matter. Specific processes will vary based on applicable law. The title and closing process will be handled by a third-party attorney to the extent required by law. Product offerings vary by jurisdiction and are not available or solicited in any state where we are not licensed.
