Contracts
Reading a Purchase Agreement Clause by Clause
Contract forms, required disclosures, statutory rescission or attorney review periods, and the remedies available for breach are governed by state law and often by locally promulgated forms. Read your own jurisdiction's rules and forms, and refer clients to a licensed attorney for legal advice, since explaining a form is brokerage and interpreting it for a party is not.
A purchase agreement is a schedule of obligations attached to a schedule of dates. Read it that way and it stops being a wall of text: every clause either creates a duty, sets a deadline for a duty, or states what happens when a duty is not performed.
This page gives a method for reading one, a tour of the clauses that decide outcomes, and a short list of terms whose legal meaning differs from their ordinary meaning. It is written for licensees and candidates, not as legal advice for a transaction.
A Method That Works on Any Form
Read the agreement three times, looking for something different each pass. The first pass establishes the frame: who the parties are, exactly what property and what personal property are being conveyed, the price, and what money is changing hands and when. Names and the legal description matter here, because a misidentified party or parcel is a title problem rather than a typing problem.
The second pass extracts every date and every period expressed in days. Write them on a calendar as you go. Note for each one whether the count runs in calendar days or business days, when the clock starts, whether it starts on the date of acceptance or some other trigger, and what happens if the deadline falls on a weekend or holiday. This pass takes twenty minutes and prevents most of the disputes a transaction can produce.
The third pass reads for consequence. For each obligation, ask what happens if it is not performed: does a right lapse automatically, does someone have to give notice, is there a cure period, does money change hands, can the contract be terminated. Then read the signature and delivery provisions, because how an acceptance or a notice must be delivered determines whether it counted.
Finally, check that the parts agree with each other. Addenda, counteroffers, and amendments normally control over the base form where they conflict, and handwritten or typed insertions commonly prevail over preprinted text. Confirm that every referenced exhibit is attached and that every blank is filled or struck, because an empty blank is ambiguity waiting to be argued about.
The Clauses That Decide Outcomes
These are the provisions that produce disputes. Read each one in full on every transaction, even on a form you have handled many times.
Parties, Property, and Inclusions
The legal names of the parties, the capacity in which they sign, the legal description of the real property, and an itemized statement of what personal property conveys and what does not. Fixtures are the recurring argument: an item attached to the property is generally presumed to convey while an unattached item is not, and the presumption is rebuttable. The cure is specificity in writing rather than reliance on the presumption.
Price, Deposit, and Financing
The purchase price, the amount and timing of the earnest money, who holds it and under what authority, the loan amount, type, and terms the buyer will pursue, and the deadlines for application, approval, and any appraisal condition. Confirm that the financing terms described match what the buyer has actually been qualified for, since a mismatch surfaces at the worst possible moment.
Contingencies and Their Deadlines
Each contingency is a condition that must be satisfied, waived, or removed by a stated date. Inspection, financing, appraisal, title review, association document review, survey, and sale of an existing property are the usual ones. The critical mechanics are who must act, by when, in what form, and what the failure to act means, because some forms treat silence as a waiver and others treat it as a termination.
Title, Conveyance, and Survey
What quality of title the seller must deliver, what form of deed will be used, what evidence of title will be provided and at whose expense, and the period in which the buyer may object to title matters. Permitted exceptions such as easements, covenants, and restrictions are commonly listed or incorporated by reference, so read what the buyer is agreeing to accept.
Closing, Possession, and Prorations
The closing date, who selects the settlement agent where the contract allows it, the date as of which recurring items are apportioned, allocation of transfer charges and settlement costs between the parties, and the date and time possession passes. Closing and possession are separate concepts and separately negotiable; when they differ, the occupancy terms belong in writing.
Condition, Disclosures, and Risk of Loss
The condition in which the property will be delivered, the disclosures the seller is required to make, any warranty provisions, the right to a walkthrough, and the allocation of risk if the property is damaged before closing. Disclosure obligations are largely statutory and vary considerably, and a contract clause cannot waive a disclosure the law requires.
Default and Remedies
What constitutes a breach by each party, whether notice and an opportunity to cure are required, and what the injured party may do. Typical provisions address retention or return of the earnest money, liquidated damages where enforceable, and whether a party may seek specific performance. Read whether remedies are stated as alternatives or as an exclusive election, because that distinction decides what is actually available.
Notices, Dispute Resolution, and Boilerplate
How notices must be delivered and when they take effect, any mediation or arbitration requirement and whether it is a precondition to suit, attorney fee provisions, assignment rights, survival of terms after closing, the entire agreement clause, and the governing law. The boilerplate is where the enforcement path is decided, and it is the part most often skipped.
Calendar the Dates on the Day of Acceptance
Do this once, immediately, and the rest of the transaction manages itself. Missed deadlines cause more harm than bad terms do.
Identify the trigger date the periods run from, usually the date of final acceptance, and confirm how the form defines acceptance and when it is treated as effective.
Determine whether each period counts calendar days or business days, and apply the form's own rule for deadlines landing on a weekend or a holiday rather than assuming the usual one.
Enter every deposit deadline, the application and approval dates, the inspection period and the response window that follows it, appraisal and survey dates, title objection and cure periods, association document delivery and review, the walkthrough, and closing.
Set reminders ahead of each deadline rather than on it, with enough lead time to obtain a signature from a party who may be traveling.
Note which deadlines require affirmative notice to preserve a right and which operate automatically, and keep the required notice format to hand for each one.
Record how any extension must be documented. Extensions are amendments, they require the signatures of all parties, and an oral agreement to extend is generally not enforceable.
Keep a single file containing the contract, every addendum and amendment in order, all notices with proof of delivery, and the disclosures. If a dispute arises, this file is the evidence.
Terms That Do Not Mean What They Sound Like
As-is describes the seller's obligation to repair, not the buyer's right to investigate. It ordinarily means the seller will make no repairs and give no credits for defects, while leaving intact any inspection right the contract grants and any statutory duty to disclose known material defects. Selling as-is is not a license to conceal, and a buyer who inspects may still be able to terminate under an inspection contingency if the form provides for it.
Time is of the essence changes the consequence of lateness. Without it, a short delay in performance may be excused as immaterial; with it, the stated dates become material terms and missing one can itself be a breach. On a form containing that clause, every calendared date is a hard date.
Liquidated damages is an agreed sum payable on breach in place of proving actual loss, most often the earnest money. Enforceability depends on the sum being a reasonable pre-estimate of loss rather than a penalty, and many jurisdictions impose form or initialing requirements before the clause operates. Whether it is the exclusive remedy or one option among several depends on the wording.
Specific performance is a court order compelling completion of the sale rather than an award of money. Because each parcel of real property is treated as unique, this remedy is available in real estate in circumstances where it would not be for ordinary goods, though it remains equitable and discretionary. Contingency is also worth distinguishing from condition in casual use: a contingency is a condition whose failure gives a defined party a defined right, typically to terminate or renegotiate, and the identity of that party decides who benefits from it.
Where the Form Came From, and What the Licensee May Say About It
Purchase agreements are not uniform across the country. In some jurisdictions a commission, a state bar committee, or a joint bar and association body promulgates the form and licensees are expected or required to use it. In others, the local association publishes the standard form. In still others, attorneys draft the agreement and the licensee's role is limited to preparing an offer on an approved form. Some states also build in a statutory attorney review or rescission period after signing. These differences are state-portion material, and they are the reason a national summary of contract practice is never sufficient preparation.
The licensee's authority is limited in a way worth stating plainly. Filling in the blanks on an approved form, explaining what a provision generally does, and advising a client to obtain legal advice are brokerage activity. Drafting substantive clauses, advising a party on the legal effect of a provision in their particular circumstances, or predicting how a court would rule is the practice of law in most jurisdictions. Where a transaction needs something the form does not cover, the answer is a lawyer-drafted addendum rather than improvisation.
Two practical habits reduce risk more than anything else. Put everything in writing, including every change, because contracts for the sale of an interest in land generally must be evidenced in writing to be enforceable and an oral amendment often is not. And deliver documents in the manner the contract specifies, keeping proof, because a notice that was sent the right way on time and a notice that was not are treated very differently.
On the exam, contracts is one of the largest national categories. Expect items on the elements of a valid contract, on offer, acceptance, and counteroffer, on the distinction between void, voidable, and unenforceable agreements, on assignment and novation, on the statute of frauds, and on breach and remedies. Expect state-portion items on your own promulgated forms, required disclosures, review periods, and earnest money handling rules. RE License Prep covers both, with state banks for all 50 states plus DC on the salesperson and broker tracks, a free diagnostic to start, and full access at $79 one time with immediate access and a 30-day money-back guarantee.
Contract Reading Questions
Does an offer become a contract when the seller signs it?
Usually on acceptance communicated back to the offeror, not merely on signature. Most forms require delivery of the signed acceptance, and most define how delivery occurs and when it is effective. A seller who signs and then does not deliver before the offer is withdrawn or expires may have no contract at all, which is why the delivery provision deserves attention.
Can a contract be changed after both sides have signed?
Yes, by a written amendment or addendum executed by every party. Extensions of deadlines, price adjustments following inspection, and changes to included items are all handled that way. Oral modifications of a contract for the sale of land are generally unenforceable, so the practical rule is that nothing has changed until it is signed.
Who should review the contract besides the agent?
In attorney-closing jurisdictions, an attorney reviews as a matter of standard practice, and some states provide a statutory review period. Elsewhere, standard promulgated forms are frequently signed without attorney involvement. Complex facts argue strongly for review in any jurisdiction: entity or trust ownership, probate, unusual title history, seller financing, leaseback or extended possession, or commercial and investment property.
What happens to the earnest money in a dispute?
The holder is normally a stakeholder who cannot release the funds unilaterally. Most forms and most state rules require a written release signed by both parties, and where the parties will not agree, the holder may be required to hold the funds, follow a statutory dispute procedure, or deposit them with a court. Broker handling of these deposits, including deadlines and trust account rules, is state-regulated and is regularly tested on the state portion.
If a contingency deadline passes with no action, what happens?
It depends entirely on the form. Some treat inaction as a waiver so that the contract continues without that protection; others treat it as an automatic termination; others require written removal before the right is lost. Because the default outcome differs, the deadline mechanics of your own jurisdiction's form are something to know before you need them rather than after.
Do preprinted terms or handwritten insertions control?
Where they conflict, specific language added by the parties generally prevails over general preprinted language, on the reasoning that the insertion reflects the parties' actual agreement. Addenda and amendments likewise control over the base form where they say so. The safer approach is to eliminate the conflict rather than to rely on the rule.