Real Estate Contracts: What you need to know

by Feb 1, 2017Buying, Selling


The contract for a sale of real estate is the blueprint for the entire transaction.  The real estate agent asks the seller and buyer to sign a document called a “contract,” “bid,” “binder,” “offer to purchase,” “deposit receipt,” “memo” or any of a number of other names.  Whatever it is called, when signed by both the buyer and seller, the contract is a legally binding document.

Certain provisions in standard offers often favor one party over the other.  Both the seller and the buyer are legally obligated to act in the manner outlined in the contract from the time it was signed until the closing and sometimes even after the closing!

Both the seller and buyer should have a lawyer review the contract before signing.  The attorney can offer legal advice concerning the contract to protect against future problems.  The importance of having a contract that reflects accurately what the parties intended cannot be overemphasized.

In certain areas of Connecticut, it is customary for the seller and buyer to sign the contract before an attorney reviews it.  In such cases, the standard contract form should include the contract clause:


When the agreement is signed, the buyer usually must deposit some money with the seller or the seller’s real estate agent.  That deposit may be called a “good faith” or “earnest money” deposit or a down payment.  Once the buyer pays that money, its disposition in the event the transaction is not consummated is controlled by the terms of the contract.

The contract for sale should reflect all of the terms of sale.  The contract should cover the following:

  1. Purchase price and how it is to be paid, including the amount of cash required, any planned financing, its cost, interest charges and length of mortgage.
  1. A financing contingency clause, if financing must be obtained to purchase the home, should be inserted by the buyer’s attorney. This means the contract can be legally rescinded by the buyer if financing is not obtained.  The buyer’s right to waive the contingency should also be expressly included.
  1. A home sale and closing contingency should be included if a buyer is selling an existing home and needs the proceeds to pay for the new home, or if financing depends on the availability of the sale proceeds. This gives the buyer the option to terminate the contract or waive the contingency.
  1. An inspection contingency should be inserted by the buyer’s attorney if the buyer wants the home to be professionally inspected. Such inspections might include: termite, environmental, mechanical and structural.
  1. An appraisal contingency should be included if a buyer wishes to rescind if a property does not appraise for the agreed upon purchase price.
  1. An insurance contingency should be included if the property cannot be insured against fire and other hazards at normal rates.
  1. Legal description of the property (a street address is not adequate; in some cases, a survey of the property should be required).
  1. Good title furnished by the seller, as indicated by a policy of title insurance.
  1. Warranties of title, including title restrictions and any other rights and limitations to which the title may be subject.
  1. A firm date for possession should be established. The buyer should request a provision requiring the seller to pay rent if the home is not vacated by the agreed date.   If the buyer wishes to take possession prior to closing which your attorney is likely to discourage, the seller should ask that the purchaser pay rent for that period of time.
  1. Proration of utility bills, property taxes and similar expenses.  In general, real estate taxes are paid in arrears, so the buyer will receive credit against the purchase price at the closing.
  1. Party responsible for risk of fire or other hazard pending closing or transfer of possession. After the transfer of either title or possession, the risk of loss is on the buyer.
  1. Itemization of furnishings, appliances, shrubbery, fixtures, air conditioners and other personal property included in the sale.
  1. Basic terms of any escrow agreement. 
  1. Provision for return of initial payment if the sale is not completed (earnest money or binder deposit).
  1. Signatures of the parties.
  1. Effective date of the contract.

In addition to these types of provisions, the contract will include many provisions of a technical legal nature.  For example, the contract will probably include a “time is of the essence” clause, which makes all the dates in the contract, including the closing date, legally binding.   Also, both parties will want the contract to be binding on the successors, heirs or representatives of the other party so that the death or incapacity of one party will not render the contract void.  These and many other terms will be included by your attorney.


As a homeowner, you should consult with an attorney to decide how to take title to the new home.

Where two or more persons are purchasing a home, these title considerations become very important.  Possible choices are “tenants in common,” “joint tenancy” and “tenancy by the entirety”.

Tenants in Common – If you choose to take title as tenants in common, each individual owns an “undivided fractional interest” in the entire parcel or real estate.  This interest can be disposed of and, on the death of the owner, the interest will be transferred to the owner’s heirs if the owner dies without a will or it will go to those people specified in the will.

Joint Tenancy in Survivorship – Married couples especially might be interested in taking title in joint tenancy.  This means each person owns an undivided fractional interest in the real estate and this interest can be disposed by each individual during his or her lifetime.  When one of the two joint tenants dies, however, according to the law his or her interest immediately goes to the survivor.  In a joint tenancy, the heirs or devised (those named in a will) would not have a claim to the property.

Tenancy by the Entirety –  Some states also have tenancy by the entirety, which is like a joint tenancy but requires that the two joint tenants be married.  Some states are “community property” states, which have special rules for married persons.

Kelsey Law, LLC can advise you on the various implications of the different means of taking title.  It is the attorney’s professional responsibility to protect you, the client, to see that you get precisely what you are entitled to get and that you can keep what is legally yours.


There are several forms of “common-interest ownership,” the most common of which are condominiums, cooperatives (co-ops) and the ownership of a lot or unit governed by a homeowners association.

Condominiums –  The condominium form of ownership permits an apartment dweller to own his or her own apartment.  The apartment is called a “unit” in the condominium.  The individual condominium unit can be conveyed, leased or mortgaged much like a traditional single-family home.  Condominium owners are treated as homeowners for purposes of estate and gift tax laws, income tax laws and the rules concerning title.  The difference is that the unit owners as a group own or manage the common areas which may include hallways, stairs, elevators and recreation areas.

Co-ops –  In a co-op, a corporation usually holds title to the real estate.  The people who occupy apartments in the building own a share of stock in the corporation.  In fact, a person must generally be a shareholder of the corporation to be entitled to enter into a lease for a particular apartment.  Even though the co-op “owners” are tenants, they receive some favorable tax treatment because of the ownership interest in the corporation.  Few lenders will provide mortgages on individual co-op apartments because they are difficult to foreclose on in case of a default.  Consequently, most co-ops (which were set up before condominiums were established) have lower purchase prices than condominiums and usually must be purchased without a mortgage.  Kelsey Law, LLC can explain the details of this arrangement to you in greater detail.

Planned Unit Development (PUD) – A PUD is a zoning devise that permits single-family homes, townhouses and apartment buildings or condominiums to be constructed in one area.  More traditional types of zoning have prohibited such mixed uses.  Although it is not a form of common-interest ownership, the PUD shares many of the characteristics of the condominium and co-op, in that there may be a commonly association that governs the PUD.  This community association may own roadways, recreational facilities, natural areas, drainage facilities and other amenities.  Typically, the lot owner or unit owner has an ownership interest in these common areas by virtue of membership in the master association.  Some subdivisions may have covenants, conditions and restrictions that provide for a homeowners association which may own common areas and also have assessments rights.

Prospective buyers must be aware that the financial obligation is purchasing real estate in a group setting is not limited strictly to the cost of the individual lot or unit.  Monthly “assessments” will be charged to cover maintenance and related expenses in operating the common areas.  These assessments will be in proportion to the percentage of the undivided interest in the common areas attributable to a lot or unit.

The amount of the monthly assessment should be determined before signing any binding contract.  These costs may well increase over time.  Also ensure there is sufficient liability insurance coverage for the entire development project.  The liability insurance policy should name as insureds the board of directors or board of managers and each lot or unit owner individually as a co-owner of the common area.

Consider the following points before buying real estate in the condominium, co-op or homeowners association.  These are basically group living situations, and there are extensive rules and regulations governing what you can and cannot do with your property.

Request all available information that will disclose the terms of sale and the existence of such regulations.  Study in detail the declarations of covenants, conditions and restrictions, by-laws, operating budget, management agreement and regulating agreement and have your attorney explain these to you.

Finally, there may be major restrictions on your right to lease, finance or resell the unit you buy.  Many common-interest associations grant the board of directors or board of managers a right to purchase a lot or unit.  This means you must offer to sell your lot or unit to the board before offering it for sale to any other person.  This “right of first refusal” is rarely exercised however since most associations lack the financial resources to pay fair market value for unit(s).  Your attorney will examine the documents and advise you on the nature and extent of any such restrictions.


Although the basic concepts relating to buying and selling a home do not differ for the senior citizen, a number of factors are unique to these individuals.

Most senior citizens, whether selling or buying a home, will have a large equity position.  That is, they will realize a large amount of cash from a sale, which could have tax consequences, or they will put down a large amount of cash in a purchase.  In addition, people who move after age sixty-five usually do so as part of or in anticipation of retirement.  Such a move may mean a major change in location, which should involve investigation of the location prior to the move.

Many senior citizens who plan to sell their homes consider buying a home in another state.  If you are in this position, and if you have only visited the new location on vacation, consider closing or renting your house and trying out the “dream” location for a year.  You may find that living in your vacation spot is not as delightful as you hoped.

Exercise the same caution in selling your home to move to a senior care facility.  You may find that you would rather remain in your home than live in senior housing, or you may find that the collegiality and companionship in such housing meets your needs beyond your fondest expectations.  Test the new living arrangements.


The real estate “closing” is a meeting at which the parties to the transaction complete the sale in accordance with the terms of the purchase contract.  If you are a seller, the closing can be conducted by granting your attorney a formal Power of Attorney to act on your behalf.  If you are a buyer, some lenders will allow your attorney to execute the documents under a power of attorney. At this meeting the buyer customarily makes all the required payments.  In turn, the seller produces all documents necessary for the title transfer and delivers a deed conveying title to the buyer.  The actual title to the home passes to the buyer when the seller delivers the keys to the buyer.  The closing can be viewed as a continuous process from the date of initial review of the contract until title is transferred and possession is surrendered.  There are many issues to be addressed during that time period including but not limited to insurance coverage, home inspections, appraisal issues and loan commitment.  Kelsey Law has a closing coordinator to guide you through all relevant issues.

Before the closing all documents will be reviewed by Kelsey Law, LLC, who will see that all conditions and provisions of the purchase contract are fulfilled.  The attorneys, or perhaps the title company, will prepare a closing statement or “settlement sheet,” which provides a full recapitulation of the financial aspects of the transaction.  If the transaction is one involving a “federally related mortgage loan,” then the Real Estate Settlement Procedures Act (RESPA) applies and a “Closing Disclosure” developed by the Consumer Financial Protection Bureau (CFPB) will be used.  In other types of closings, the attorneys may prepare their own form of settlement sheet.

At the time of closing, the seller and buyer will total up various credits in order to determine how much money the buyer must pay.  The seller will receive credits for items such as fuel on hand, unused insurance premiums, prepaid interest, escrow deposits for insurance and taxes and any other items that the seller has prepaid but that will benefit the buyer.  Typically, the buyer will receive credits for such items as taxes or special assessments left unpaid by the seller in accordance with the terms of the real estate contract.

The closing disclosure will also indicate who is responsible for paying broker’s fees or commissions, title evidence costs, survey expenses, termite and other inspection expenses and the necessary recording fees and transaction taxes.  The allocation of these expenses between the seller and buyer will depend on the locality in which the transaction takes place.  The purchaser should obtain estimates of these expenses at the time of loan application.  Since these expenses must be paid in cash at the time of the closing, the buyer should be certain that these expenses, plus the payment of the purchase price, will not exceed his or her financial capability.

Once the closing has been completed, the buyer expects to have the right to occupy the home.  If the seller intends to remain in possession after the closing, the seller and buyer should have a specific agreement concerning the terms of occupancy.  For example, the agreement should state whether the seller is paying rent and the day the seller will move out of the house.


  1. Contact a Kelsey Law, LLC – A mistake commonly made by home buyers is to contact their attorney at the end rather than the beginning.  An experienced real estate attorney can provide a wide range of additional advice in the home buying process.  Your attorney should be contacted prior to any agreement being signed.
  1. Get Your Finances in Order -Your credit reports are an ongoing look at how you manage your finances. You must know exactly what your credit reports say about your financial history before you apply for a mortgage.  The reports play an important role in the mortgage approval process and in determining the interest rate and other loan terms that a lender offers you.  If you haven’t looked at your credit reports, you might be surprised at their contents, because errors are common.
  1. Get Familiar with the Mortgage Industry – Finding the right loan and lender is crucial to your home buying success. It’s up to you to determine which lender is best for your needs, and it’s always a good idea to have at least a bit of background about the loan process before you talk with a lender.  Kelsey Law, LLC can assist you in this process and provide a wide range of information.
  1. Get Pre-Approved for a Mortgage – Do you know how much house you can afford?  Probably not, unless you’ve talked with a lender.  Pre-approval helps you in other ways.  Consider this scenario:  A home seller gets two similar offers accompanied by a letter from the buyer’s bank that states she is pre-approved for a mortgage included in the offer.  The other has no supporting documents.  Which offer do you think the seller will consider accepting?
  1. Determine Your Wants and Needs – Buying a home isn’t as difficult as you might think, but the process is smoother if you get familiar with your real estate market and narrow down your wants and needs when looking at houses.
  1. Learn to Work with Real Estate Agents – Real estate agents represent buyers, sellers or both. It is essential to understand agent duties and loyalties before you make that first phone call.  Kelsey Law, LLC can recommend some of the more experienced real estate agents in the area.
  1. Start Searching for a Home – You can start by reviewing properties for sale on this website. Your agent will give you multiple listing sheets to study. I’m sure you’ll also pick House For Sale magazines and real classified ads in your local newspapers.  You’ll probably spend time surfing the internet for homes.  You might even plan afternoon drives to preview neighborhoods.  Those are all excellent ways to see what’s available.
  1. Handle Pre-Offer Tasks – Deciding whether or not you want to buy a particular house involves a look at its structure and its features, but there are may other topics that are every bit as important to your purchase. Questions you should ask before:  What is the resale potential?  Are there deed restrictions on the property?  Are the heating and mechanical systems efficient?
  1. Make an Offer There is no one set of instructions that can cover all the differences in real estate laws and customs throughout the United States, so the mechanics of making an offer and its specific contingencies for your location. Kelsey Law, LLC can prepare a contract that protects your interests.


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Kelsey Law, LLC
2275 Silas Deane Highway
Rocky Hill, CT 06067
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True, we build no bridges. We raise no towers. We construct no engines. We paint no pictures. There is little of all that we do which the eye of man can see. But we smooth out difficulties; we relieve stress; we correct mistakes; we take up other men's burdens, and by our efforts, we make possible the peaceful life of men in a peaceful state."

John W. Davis

Attorney & West Virginia Congressman, Early 1900s