14.2 Sale Contract Provisions

Sale contracts follow a fairly standard structure. In this topic, you’ll learn the most common provisions you’ll see on exam-style contracts: parties, property identification, price and financing, earnest money, closing, title and inspections, contingencies, and default remedies.

Parties and Property

Principal Parties

The contract should clearly identify the buyer and seller (the principal parties). If there are multiple owners, all owners should be named and should sign.

Property Identification

The property must be identified clearly enough that there is no confusion about what is being sold. A street address helps, but the best practice is a legal description.

Exam tip: If the property can’t be identified with reasonable certainty, the contract may be unenforceable.

Price, Financing, and Terms

Purchase Price

The contract must state the purchase price. It should also explain how the price will be paid (cash, new financing, assumption, seller financing, etc.).

Financing Provisions

If the buyer is obtaining a loan, the contract often includes a financing contingency and may specify loan type, maximum interest rate, minimum loan amount, and a deadline for approval.

Keep it tight: Financing terms should be clear and time-limited so the contract doesn’t become “maybe” instead of “binding.”

Earnest Money and Escrow Instructions

Contracts typically state the earnest money amount, who will hold it, where it will be deposited, and how it will be applied or disbursed.
The escrow holder must follow the contract’s instructions and applicable rules for trust funds.

Amount: varies by local custom and market conditions
Holder: title company, financial institution, or brokerage (if permitted)
Application: usually credited toward the purchase price at closing
Disputes: contract should address what happens if the parties disagree

Closing, Possession, and Prorations

Closing Date and Location

The contract should state when and where closing will occur and who will conduct it (often a title company or attorney, depending on local practice).

Possession

Possession can transfer at closing or at another agreed time. The contract should clearly state when the buyer receives keys/occupancy.

Prorations and Closing Costs

Many contracts address prorations (taxes, rents, HOA dues) and allocate closing costs (title insurance, recording fees, lender fees, etc.).

Title, Disclosures, and Inspections

Title Requirements

Contracts often require the seller to deliver marketable title and may specify how title evidence will be provided (title commitment, abstract, etc.) and how defects will be handled.

Inspections

Inspection provisions typically set deadlines, who pays, what happens if defects are found, and whether the buyer may cancel or require repairs.

Remember: Inspection language is a common source of disputes—deadlines and remedies should be crystal clear.

Contingencies and Default Remedies

Common contingencies include financing, appraisal, inspection, and sale of the buyer’s current home. Contracts should state what happens if a contingency is not met (usually cancellation without default).

Default remedies are often spelled out, including liquidated damages (earnest money forfeiture), specific performance, and/or actual damages—depending on the contract and state law.

Quick Check-Ins (Self-Test)

1) Which item is most important for identifying the property in a sale contract?

A. The seller’s favorite paint color
B. The legal description (or another clear, unambiguous identification)
C. The buyer’s lender name
D. The listing agent’s license number

Show Answer

Correct: B. The property must be identified with reasonable certainty—legal description is best practice.

2) If a financing contingency is not met by the deadline, the usual result is:

A. Automatic buyer default
B. The contract becomes voidable/cancellable under the contingency terms
C. The seller must lend the money
D. The buyer automatically gets the deed

Show Answer

Correct: B. Failure of a contingency typically allows cancellation rather than creating default.

14.2 Sale Contract Provisions