Terms

Definition

Terms: In real estate, “terms” refer to the specific conditions and arrangements outlined in a contract. These can encompass a variety of stipulations related to the transaction, including but not limited to, price, payment schedules, financing terms, contingencies, conditions, obligations of each party, and any items included or excluded in the sale.

Examples

Sales Contract: A typical sales contract will include terms that cover the price of the property, available financing options for the buyer, contingencies that must be met for the transaction to proceed (such as satisfactory home inspections or financing approval), how closing costs will be prorated, and any personal property (like appliances) included in the sale.
Lease Agreement: Terms might include monthly rent, security deposit amounts, responsibly for property maintenance, terms of lease renewal, and penalties for breaking the lease.
Contingency Clause: This might specify that the buyer’s obligation to finalize the purchase is contingent upon obtaining financing, a satisfactory inspection report, or selling their current home.

Frequently Asked Questions (FAQs)

Q1: What happens if a party does not fulfill the terms of a real estate contract?

A1: If a party fails to fulfill the terms, it may result in a breach of contract. Depending on the contract terms and local laws, the non-breaching party may have the right to seek remedies such as contract termination, monetary damages, or specific performance (compelling the breaching party to fulfill their obligations).

Q2: Can the terms of a real estate contract be changed once it has been signed?

A2: Contract amendments can be made in writing and with the agreement of all parties involved. Any changes must be documented and signed to be legally binding.

Q3: What is a “Cancellation Clause” in a real estate contract?

A3: A cancellation clause is a term within the contract that outlines specific conditions under which the agreement can be terminated by either party without penalty. This could include the failure to secure financing or pass inspections.

Q4: How is prorating closing costs addressed in contract terms?

A4: Contract terms will detail how closing costs such as property taxes, homeowner association dues, and utilities will be divided between the buyer and seller based on the closing date.

Q5: Are verbal agreements considered terms in real estate contracts?

A5: Verbal agreements are generally unenforceable in real estate transactions because state laws typically require that contracts related to property sales be in writing to be considered legitimate.

Contract: A legally binding agreement between two or more parties detailing the terms and conditions of the arrangement.
Contingency Clause: A provision within a contract that specifies conditions or actions that must be met for the contract to be legally binding.
Cancellation Clause: Terms within a contract allowing for the termination of the agreement under certain conditions without penalty.
Prorating Closing Costs: The process of dividing property expenses such as taxes, insurance, and escrow fees between the buyer and seller proportionate to the time each owns the property within a given billing period.

Online Resources

References

“Real Estate Principles: A Value Approach” by David C. Ling and Wayne R. Archer
“Modern Real Estate Practice” by Fillmore W. Galaty, Wellington J. Allaway, and Robert C. Kyle
“Property: Cases, Statutes, and Regulations” by D. Barlow Burke

Suggested Books for Further Study

Real Estate Law by Marianne M. Jennings
The Ultimate Guide to Real Estate Investment by Jeff Rohde
Real Estate Principles by Charles J. Jacobus

Real Estate Basics: Terms Fundamentals Quiz

### What defines a "term" in a real estate contract? - [x] A condition and arrangement specified in the contract. - [ ] Only financial obligations outlined in the contract. - [ ] A verbal agreement between the buyer and seller. - [ ] Description of the property features. > **Explanation:** "Term" refers to the conditions and arrangements specified in a real estate contract that determine the obligations, rights, and conditions particular to the agreement between the involved parties. ### What kind of clause allows contract termination without penalty under specific conditions? - [x] Cancellation Clause - [ ] Prorating Clause - [ ] Escalation Clause - [ ] Deadline Clause > **Explanation:** A Cancellation Clause allows for the contract to be terminated under certain conditions without penalty. This might include failure to secure financing or pass inspections. ### Which component is NOT typically covered under the terms of a sales contract? - [ ] Financing options - [ ] Price - [x] Property appraisal by the seller - [ ] Contingency Clauses > **Explanation:** Property appraisal is typically conducted by an independent appraiser, not stipulated specifically by the seller in the terms. Financing options, price, and contingencies are common terms. ### Can terms in a real estate contract be modified after signing? - [ ] No, once signed, terms cannot be changed. - [x] Yes, with mutual agreement and written amendments. - [ ] Only if the property value increases. - [ ] Only by the seller with verbal permission from the buyer. > **Explanation:** Terms can be amended post-signing if all parties mutually agree, and the changes are documented and signed as an amendment. ### What does "prorating closing costs" refer to in contract terms? - [ ] Adjusting the sale price after closing - [x] Dividing property expenses between buyer and seller based on their period of ownership. - [ ] Only calculating buyer's closing fees. - [ ] Seller paying all closing costs. > **Explanation:** Prorating closing costs involves dividing property expenses, such as taxes and utilities, based on the ownership period within the billing cycle, between seller and buyer. ### Who typically defines the key terms within a real estate contract? - [x] Both buyer and seller agree on the terms. - [ ] Only the lender defines the terms. - [ ] Real estate agents without involving the parties. - [ ] Title company imposes the terms. > **Explanation:** Both the buyer and seller negotiate and agree on the key terms within a real estate contract to ensure mutual understanding and consent, though facilitated often by their agents or legal professionals. ### What is a common type of contingency found in real estate contracts? - [ ] A clause to paint the property before closure. - [ ] Clause to reduce property taxes. - [x] Financing Contingency - [ ] Lease Agreement Terminology. > **Explanation:** A financing contingency is a common term, making the purchase dependent on the buyer's ability to obtain financing. ### Which aspect often customizes the terms of a contract? - [x] Specific needs and agreements of involved parties. - [ ] State-imposed regulations without any variation. - [ ] Only pre-set industry standards. - [ ] Local neighborhood gossip. > **Explanation:** Contracts are often customized to suit the specific needs and agreements between the buyer and seller within the bounds of applicable laws. ### Under terms, which agreement component can hinge on "satisfactory inspection report"? - [ ] Deadline Clause - [ ] Property Appraisal - [x] Inspection Contingency - [ ] Tax Audit > **Explanation:** An inspection contingency is a term that allows the buyer to withdraw from the sale if the property fails to pass a satisfactory inspection report. ### What is typically the outcome of breaching contract terms without mutual agreement or support? - [x] Breach of contract leading to potential penalties or withdrawal rights. - [ ] Property transfers without any party consent. - [ ] Immediate forgiveness with extended deadlines. - [ ] No effect since terms do not mandate compliance. > **Explanation:** Without mutual agreement or signed amendments, not fulfilling contracted terms can result in a breach, with potential legal consequences, penalties, or withdrawal rights by the disadvantaged party.