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A contract for the purchase and sale of real property in which the buyer agrees to purchase for a certain price and the seller agrees to convey title by way of a deed or an assignment of lease (for leasehold property). In addition to binding the parties to the purchase and sale of the property during the period of time required to close the transaction, the contract frequently serves as the initial directions to the closing agent or escrow company to process the mechanics of the transaction. The parties must agree in the contract on all of the pertinent closing details, such as who pays the various expenses of the sale, who bears the risk of loss, the date of occupancy, and the proration date. In essence, the contract of sale is an executory contract to convey property, serving as the vehicle to get to the deed, which finally conveys title. Once the sales contract is signed, the remainder of the transaction is primarily mechanical.

Some of the many names for this contract are sales contract, purchase agreement, deposit receipt, offer and acceptance, agreement of sale, offer to lease, or purchase and sale agreement.

To be enforceable, the contract of sale must be in writing, be signed by both parties, contain the buyer’s and seller’s names, contain an adequate description of the property (a full legal description is advisable, however, in the sale of unimproved land), state the sales price, and have a legitimate purpose. If the seller is married, the spouse should sign the contract so that he or she will be bound to release all marital rights (if applicable) when the deed is delivered. For example, if a wife fails to sign, the contract is nonetheless valid and enforceable against her husband; however, she must be willing to join in the deed to release her dower and/or homestead rights.

Most contracts of sale are not recorded unless the parties anticipate a particularly long period of time to close the transaction. However, a contract for deed should be recorded to protect the buyer, because it may be years before the buyer pays off the contract and obtains legal title to the property.
If the buyer defaults and does not purchase the property, the seller can keep the deposit as liquidated damages, sue the buyer for money damages or sue the buyer to complete the purchase under the terms of the agreement. This last remedy of specific performance is possible only in the rare case that money damages cannot adequately compensate the seller for his or her loss. If the seller defaults, the buyer can rescind the agreement and obtain the return of his or her deposit money or sue the seller for specific performance to have the court compel the seller to sell the property on the agreed terms.

A broker typically uses a standard contract of sale form. In most states, a broker who does not charge a separate fee for completing this form is not engaging in the unauthorized practice of law, only assisting a client in filling it out and advising on the insertion of appropriate special conditions. As long as this service is rendered incidentally to representing the client in the purchase or sale of the property, such service is permissible.
Dearborn Real Estate Education
This "Word of the day" is excerpted from The Language of Real Estate, 6th Edition by John Reilly (published by Dearborn Real Estate Education, 2006 copyright). To purchase the complete book, with over 2800 key terms and definitions, or to browse through Dearborn's hundreds of other professional real estate titles, including Real Estate Technology Guide by Klein, Barnett, Reilly, click here.