Essential Elements of a Real Estate Contract

When a buyer decides to purchase a property a legally binding contract is signed between the two parties to finalize the transaction and transfer the legal right of ownership to the buyer.

While contractual matters are typically handled by attorneys and estate agents, as a buyer or a seller you too should be aware of the requirements and essential elements of a real estate contract.

Legal objective

Law does not enforce illegal arrangements or contracts between parties. Even if both parties are in agreement, the objective or subject matter of the contract needs to be legal.

So for instance, if one party is trying to sell property not belonging to him/her, it would be an illegal act and any contract for such a sale would also be considered invalid.

Mutual agreement

In order for any contract to be finalized, all parties need to be in complete agreement over the terms and conditions therein. There can be no changes or room for negotiation later on and mutual agreement on the final terms is essential for a valid contract.

Legal capacity

All parties in a contract are required to be legally competent to enter the agreement. The legal capacity of a party in such a scenario depends on several factors; including age (legal age) and mental condition to willfully understand agree to the terms of the contract.

A valid offer

An offer is the foremost requirement of a contract. Essentially it is defined as a statement or a proposal to enter into an agreement on the given terms and is considered binding if accepted by the other party.


Acceptance is given in response to an offer and is an unequivocal agreement to the terms stated in the offer. If you suggest or demand changes in the original offer, you negate it and present what is known as a counter-offer.

Another important element here is that acceptance needs to be given willfully and not under duress, fraud or misrepresentation.


Consideration is basically a thing of value exchanged between the parties. Without consideration transactions become gifts and are not valid commercial contracts.

For instance, when you purchase a property, you pay money in exchange for it – the money you pay and the property you receive are both things of value which are exchanged.

Implications of a valid contract

The formation of a valid contract means that all parties to it are legally bound and obligated to fulfill their promises. For instance, once you have agreed to purchase a property from someone by way of a contract, you must abide by your promise.

If a party does not abide by a legal contract, the other party has the right to take the matter to court and seek legal remedies.

Typically the court can either force the non-abiding party to act in accordance with the contract or to pay costs and damages to the affected party.

Given the legal implications and nature of a real estate transaction, it is always recommended that you seek professional legal counsel to ensure that all legal regulations are being adhered to.

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