Real estate contracts are governed by federal statutes and state statutory and common law. The requirements established by state law often differ significantly from one state to the next.
Real estate brokers are employed as the agent of a seller in order to obtain a buyer for the property. The contract between the broker and seller is called a listing agreement. The agreement may be an open agreement whereby the broker earns a commission only if he or she finds a buyer. A listing is exclusive if the broker is the only agent entitled to a commission for finding a buyer. Under an exclusive arrangement, a broker may be entitled to a payment even if the seller finds the buyer without the broker’s aid. Real estate brokers and salesperson are licensed and regulated by state law. Professional organizations also may provide further guidelines.
The Fair Housing Act prohibits discrimination in real estate transactions on account of race, color, religion, sex or national origin.
The agreement to sell between a buyer and seller of real estate is governed by the general principles of contract law. The Statute of Frauds requires that contracts for real property be in writing.
It is commonly required in real estate contracts that the title to the property sold be marketable. This requires that the seller have proof of title to all the property he or she is selling and that third parties not have undisclosed interests in the title.
A title insurance company or attorney often is employed by the buyer to investigate whether the title is indeed marketable. Title insurance companies also insure the buyer against losses caused by the title being invalid.
In order to pass title, a deed with a proper description of the land must be executed and delivered. Some states require that the deed be officially recorded to establish ownership of the property and/or provide notice of its transfer to subsequent purchasers.
The most common method of financing real estate transactions is through a mortgage.
Last updated: Oct. 2, 2008
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