Contracts and What They Mean

Real estate contracts are more than paperwork that finalizes a handshake deal. They're binding legal documents that create specific rights and obligations for both parties. This page explains the contract terms that matter most—and where to focus your attention when reviewing an offer.

A Contract Is More Than Price and Date

When you agree to sell your home, you're agreeing to a lot more than a price and closing date. Real estate contracts create specific rights and obligations for both parties—and some of those obligations may surprise you.

The terms buried in a contract determine what happens when something changes. What if the buyer finds a problem during inspection? What if they can't get financing? What if they decide to assign the contract to someone else? The answers to these questions aren't obvious from the headline numbers. They're in the fine print.

Five areas of the contract deserve particular attention: contingencies, inspection periods, earnest money terms, assignment language, and the closing timeline with any penalties. Understanding these sections tells you far more about the deal than the purchase price alone.

Contingencies: Built-In Exit Doors

A contingency is a contract clause that allows one party to exit under specified conditions—usually with earnest money returned. They're standard in real estate, but they fundamentally change what a "signed contract" actually means.

The most common contingencies include financing contingencies (giving buyers 30-45 days to secure a loan), inspection contingencies (7-14 days to examine the property and request repairs or exit), and sale contingencies (making the purchase depend on the buyer selling their current home).

When a contingency is triggered, the buyer typically gets their deposit back. This means a signed contract with active contingencies isn't a locked-in deal—it's more like a strong indication of intent with formal exit options. Cash buyers often waive contingencies, which is one reason their offers may be more attractive despite lower prices.

The "Partner Approval" Trap

Some contingencies have clear triggers—loan denied, inspection reveals major defect, buyer's home doesn't sell. Others are dangerously vague.

A clause like "subject to buyer partner approval" sounds reasonable. It might seem like a financing-related contingency. But it's actually an unlimited exit right. The "partner" can disapprove for any reason—or no reason—and the buyer walks away with their earnest money intact. There's no objective standard to meet, no deadline that matters, no real commitment.

Other vague contingencies include "at buyer's sole discretion" or "subject to satisfactory due diligence" without defining what "satisfactory" means. These clauses let buyers tie up your property while preserving full optionality. If they find a better deal or simply change their minds, they have a contractual escape route.

Assignment: When the Buyer Isn't the Buyer

If the buyer name on your contract includes "and/or assigns," the person who signed may not be the person who closes. An assignment clause allows the buyer to transfer their purchase rights—and obligations—to another party.

This is standard practice in wholesale real estate transactions. A wholesaler contracts to buy your property, then assigns that contract to an end buyer for a fee. You close with someone you never met or vetted. Your proceeds are the same, but the actual purchaser is different from who you negotiated with.

Assignment is legal, and it doesn't necessarily harm you. But it does mean the person sitting across the table at signing might have different resources, intentions, and follow-through than the person at closing. Understanding assignment language helps you know who you're really dealing with.

For complete details on wholesale transaction structures, see Cash and Wholesale Offers.

Inspection Periods: The Free Look

An inspection contingency gives the buyer time to examine the property and decide if they still want it. Standard periods run 7-14 days for cash transactions and slightly longer for financed purchases.

But inspection periods can become a trap for sellers. A 21-day inspection period—or worse, one with unlimited extension rights—gives the buyer weeks of free optionality. Your property is off the market, other buyers move on, and the contracted buyer hasn't actually committed to anything.

In some cases, buyers use extended inspection periods to find an end buyer (if they're wholesaling) or to negotiate better terms after seeing what else is available. If they can't find what they need, they exit during the inspection period with their earnest money intact. You've lost time and potentially missed other opportunities.

Earnest Money: What It Actually Secures

Earnest money is supposed to signal buyer commitment—money they forfeit if they back out for reasons not covered by contingencies. Standard deposits run 1-3% of purchase price. A $200,000 property typically has $2,000-$6,000 in earnest money.

But earnest money only matters if it's truly "at risk." When the deposit is refundable under broad conditions, or when contingencies let the buyer exit easily, that money isn't really securing anything.

Very low earnest money—$100-$500 on a six-figure property—signals minimal commitment. The buyer can walk away and lose almost nothing. On the other end, "non-refundable" earnest money (rare but meaningful) shows strong intent.

The question isn't just how much earnest money is in the contract, but under what conditions the buyer keeps it or gets it back.

No One Is Automatically On Your Side

A common assumption: the title company or escrow agent will review the contract and flag problems. They won't.

Title companies and escrow agents are neutral third parties. Their job is to ensure clear title and proper fund disbursement—not to review contract terms for fairness or advise either party on whether to sign. They don't work for you; they work for the transaction.

If you're selling through a listing agent, they have a duty to advise you on contract terms. But in for-sale-by-owner transactions or direct deals with investors, you may have no one representing your interests. The buyer has their own advisors; you're responsible for understanding what you're signing.

This doesn't mean every contract is dangerous. It means the responsibility for understanding the terms falls on you—whether directly or through advisors you choose to engage.

Five Contract Sections That Matter Most

Contract review doesn't have to be overwhelming. Most of what matters falls into five categories, each with clear questions to ask.

Contingencies: What exit rights does the buyer have? Are they standard (financing, inspection) or vague ("partner approval")? Under what conditions can they leave with earnest money intact?

Inspection Period: How long? Can it be extended? Standard is 7-14 days for cash deals. Anything over 21 days or with unlimited extensions deserves scrutiny.

Earnest Money: How much (1-3% is standard)? Under what conditions is it refundable or at risk?

Assignment Language: Does "and/or assigns" appear? If so, you may close with a different party than who signed.

Timeline and Penalties: When does closing occur? What happens if it's delayed? Are there penalties for either party missing deadlines?

None of this replaces professional legal review for significant transactions. But knowing where to look transforms an intimidating document into something you can navigate. The contract isn't a formality—it's the architecture of your deal.

For red flags to watch for in any offer, see Red Flags and Warning Signs.

Related Pages

Understanding these structures:

• Cash and Wholesale Offers — how investor offers work

• Understanding Seller Risk — risk concepts across all structures

Taking action:

• Red Flags and Warning Signs — what to watch for in any offer

• Questions to Ask Before Signing — verification questions by structure

Note: This page provides general educational information about real estate contracts. It does not constitute legal advice and does not substitute for review by a qualified attorney. Contract terms and their legal implications vary by state and situation.