The purchase or sale of real property is governed by both common law (judge-made law), and by state and federal statutes (enacted by state legislatures or Congress). As a result, the requirements for a valid and enforceable real estate contract vary from state to state.
Customarily, a party wishing to buy or sell a home will enter into a “listing agreement.” This is a contractual relationship with an agent or broker, which establishes a wide range of terms—the commission rate to be paid, the length of time the house will be listed, where the property will be listed, and how the property will be shown. In most instances, the listing agreement is an exclusive one, preventing the buyer or seller from using multiple agents or brokers at the same time. Because of the exclusive nature of the relationship, a broker or agent may be entitled to a commission even when a buyer or seller completes a transaction without the broker or agent’s assistance.
Typically, the purchaser of real property initiates the negotiation, submitting an offer to buy the real estate according to specific terms. The seller may accept the offer (in which case, a contract has been formed), or may propose new terms in the form of a counteroffer. The purchase or sale of land is governed by the statute of frauds, which means that such contracts will only be enforceable if they are in writing.
State laws typically specify what provisions must appear in a real estate contract. Though the parties may draft an agreement from scratch, form contracts are typically available through realtor’s professional organizations.
As a general rule, real estate contracts tend to carry a number of conditions—requirements that must be met before the contract will be enforceable in a court of law. These typically include the requirement of a number of inspections, a survey, a policy of title insurance, and approval of financing. A purchase may also be conditioned on the sale of other property.
The Fair Housing Act prohibits discrimination in real estate transactions on account of race, color, religion, sex or national origin.
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