Buying or selling a home is not just a financial decision. It is a legal commitment. Most problems in real estate transactions do not come from the price. They come from misunderstanding the contract. Miss one clause, miss one deadline, or assume one term means something it does not, and you can lose time, money, or leverage fast.
You do not need to be a lawyer to protect yourself. You do need to understand the contract terms that control your risk. This guide breaks down the most important clauses every buyer and seller should know, why they matter, and how they affect real world outcomes.
This is written to help you avoid surprises and make smarter decisions before you sign anything.
Why contract terms matter more than you think
Real estate contracts are binding agreements. Once accepted, both parties are legally obligated to perform. Backing out without a valid contractual reason can trigger financial penalties or legal action.
According to the National Association of Realtors, contract related issues are among the most common causes of delayed or failed transactions. Most of these issues stem from misunderstood contingencies, missed deadlines, or unclear possession terms.
Knowing what each clause does gives you leverage. It also gives you protection.
1. Contingencies, the safety nets in your contract
Contingencies are conditions that must be met for the sale to move forward. If a contingency is not satisfied by its deadline, the party who included it can usually cancel the contract without penalty.
For buyers, contingencies reduce risk. For sellers, they define how solid the offer really is.
- Financing contingency
This allows the buyer to cancel the contract if they cannot secure a mortgage under the agreed terms.
Why it matters
• Protects buyers from being forced to close without financing
• Signals to sellers how likely the deal is to close
If a buyer waives this contingency, they are committing to close even if the loan falls through. That increases risk significantly.
- Inspection contingency
This gives the buyer a set period, often 7 to 10 days, to conduct professional inspections.
What buyers can do during this window
• Request repairs
• Ask for a credit
• Renegotiate the price
• Cancel the contract
According to data cited by the National Association of Realtors, inspection issues are a leading cause of renegotiations, not cancellations. Buyers use this contingency to fix problems, not walk away.
- Appraisal contingency
Lenders require an appraisal to confirm the home value supports the loan amount. If the appraisal comes in low, this contingency protects the buyer.
Buyer options
• Renegotiate the price
• Pay the difference in cash
• Cancel the contract
Without this clause, the buyer must close regardless of value.
- Home sale contingency
This allows the buyer time to sell their current home before purchasing the new one.
Seller perspective
This contingency adds uncertainty. Many sellers accept it only in slower markets or with strong backup offers.
2. Earnest money deposit, your financial skin in the game
The earnest money deposit, often called good faith money, shows the buyer is serious. It is typically 1 percent to 3 percent of the purchase price, though this varies by market.
- For buyers
• Applied toward down payment or closing costs
• Refundable if the contract is canceled under a valid contingency
- For sellers
• Acts as protection if the buyer defaults
• May be retained as liquidated damages if the buyer breaches without cause
The contract specifies when the deposit becomes nonrefundable. Missing a deadline can cost a buyer thousands of dollars.
3. Purchase price and financing terms
This section looks simple but carries major implications.
- Purchase price
This is the agreed amount, but look closely at how it interacts with credits and concessions. - Seller concessions
These are costs the seller agrees to pay on the buyer’s behalf, often used to cover closing costs or repairs.
According to Zillow data, seller concessions increase in higher interest rate environments as buyers look for ways to reduce upfront costs.
- Financing details
Key items to review :
• Loan type
• Down payment amount
• Interest rate assumptions
• Loan approval deadline
Sellers should insist on clear loan deadlines. Vague timelines increase the risk of delays or fallout.
4. Closing date and possession, not always the same thing
Many buyers assume they get the keys at closing. That is not always true.
- Closing date
This is the day ownership legally transfers. All documents are signed and funds are distributed.
- Possession date
This is when the buyer can occupy the property. It may be the same day or later.
- Rent back agreements
If the seller needs more time to move, a rent back agreement allows them to stay temporarily after closing.
Key details that must be spelled out
• Daily rent amount
• Security deposit
• Length of occupancy
• Responsibility for utilities and damages
Poorly written rent backs create disputes. Clear terms prevent conflict.
5. Property description, inclusions and exclusions
This is where many post closing arguments start.
- Fixtures
Items permanently attached to the home are usually included.
Examples
• Built in shelving
• Light fixtures
• Cabinetry
- Chattels
Moveable items are not included unless specifically listed.
Examples
• Refrigerators
• Washers and dryers
• Curtains
If a buyer wants something specific, it must be written into the contract. Verbal agreements do not hold up.
6. Default and dispute resolution
This section defines what happens when things go wrong.
- Liquidated damages
Most contracts limit the seller’s recovery to the earnest money if the buyer defaults.
Why this matters
• Caps the seller’s compensation
• Protects buyers from unlimited liability
Specific performance
This allows a party, usually the buyer, to force the sale to close as agreed.
Courts often view real estate as unique, which is why this remedy exists. It is rare but powerful.
How to protect yourself before signing
Do not skim the contract. Read it line by line. Ask questions early. Deadlines matter more than people realize.
Smart buyers and sellers
• Track contingency deadlines
• Understand when money becomes nonrefundable
• Confirm possession terms in writing
• Clarify inclusions and exclusions
At Uniquely Real Estate, we walk clients through every clause so there are no surprises later. Contracts should protect you, not confuse you.
Final takeaway
Price gets attention. Contract terms control outcomes. When you understand the clauses that manage risk, timelines, and money, you make better decisions and avoid costly mistakes.
Ready to Make Your Next Big Move? Let’s Do It Together!
Selling your home, buying a new one, or making a smart investment doesn’t have to be stressful—it should be exciting! At Uniquely Real Estate, Shelhee Gal and David Elan bring expertise, passion, and deep knowledge of the Los Angeles market to help you make the right moves. With our tailored strategies and hands-on approach, you can count on us to get results that matter.
If you're thinking about selling, curious about your home’s value, or ready to dive into buying or investing, now’s the time to act. We’ll be with you every step of the way, making the process smooth, stress-free, and—most importantly—successful.
