5 Important Real Estate Contract Terms Every Buyer & Seller Should Understand
Real estate contracts can feel overwhelming, full of legal language and fine print. But understanding a few key terms can make a huge difference in protecting your money, timeline, and peace of mind.
Here are five essential contract terms every buyer and seller should know before signing on the dotted line.
1. Contingencies
What it means:
Conditions that must be met before the sale becomes final.
Common examples:
● Home inspection contingency
● Financing (mortgage approval) contingency
● Appraisal contingency
● Sale of buyer’s current home
Why it matters:
Contingencies protect you. If a condition isn’t met, you can renegotiate or walk away without losing your earnest money.
Agent tip:
Strong offers often limit contingencies, but removing them increases risk. Balance competitiveness with protection.
2. Earnest Money Deposit (EMD)
What it means:
A good-faith deposit showing the buyer is serious about purchasing the property.
Typical amount:
1%–3% of the purchase price (varies by market)
Why it matters:
If the deal falls through due to unmet contingencies, buyers usually get this money back. If they walk away without cause, sellers may keep it.
Agent tip:
A higher EMD can strengthen an offer in competitive markets.
3. Purchase Price & Financing Terms
What it means:
The agreed sale price, how the buyer will pay, the mortgage type, down payment, and closing timeline.
Includes:
● Loan amount
● Interest rate type (fixed/adjustable)
● Cash vs financed purchase
● Deadlines for loan approval
Why it matters:
Delays or financing issues can cancel deals if terms aren’t met by contract deadlines.
Agent tip:
Pre-approval letters help ensure smoother closings and stronger offers.
4. Closing Date & Possession
What it means:
When ownership officially transfers and when the buyer can move in.
Key points:
● Closing day
● Possession (immediate or delayed)
● Rent-back agreements if seller stays temporarily
Why it matters:
Misunderstandings here can cause serious stress, moving issues, or legal disputes.
Agent tip:
Always confirm whether possession is “at recording” or after closing.
5. Repair Requests & Credits
What it means:
Negotiations after the inspection regarding property condition.
Options include:
● Seller makes repairs
● Seller offers a credit at closing
● Price reduction
● No action taken
Why it matters:
This is where many deals are renegotiated and sometimes fall apart.
Agent tip:
Focus on major safety or structural issues, not minor cosmetic fixes.
Why Understanding These Terms Matters
Knowing these basics helps you:
✔ Avoid costly surprises
✔ Negotiate confidently
✔ Protect your investment
✔ Reduce stress during closing
A great real estate agent will walk you through every clause — but being informed puts you in control.