Real Estate Contracts: 17 Clauses Every Seller Should Know

Navigating the complexities of real estate contracts can seem daunting, but indispensable insights from industry experts can demystify the most critical clauses every seller should be aware of. This article distills key advice on clauses ranging from liquidated damages to earnest money deposits, ensuring sellers enter negotiations with confidence. Armed with expert knowledge, understand the intricacies of each clause and how they can impact the sale of a property.

  • Focus on Liquidated Damages Clause
  • Understand the Price and Terms Clause
  • Review the Contingency Clause
  • Know the Timing and Deadlines Clause
  • Pay Attention to Termination Clause
  • Highlight the Title Contingency Clause
  • Clarify Dual Agency Disclosure
  • Check Commission Structure
  • Consider Staging and Presentation Clause
  • Note the Execution Date
  • Inspect Maintenance and Condition Requirements
  • Identify Who’s Paying Closing Costs
  • Understand the Protection Period Clause
  • Clarify Real Estate Commissions
  • Review Agent’s Commission Guarantee Clause
  • Consider the Inspection Period
  • Understand Earnest Money Deposit Clause

Focus on Liquidated Damages Clause

In any listing agreement or purchase contract, the “liquidated damages clause” is crucial because it determines the compensation if either party breaches the contract. This clause is especially important because it sets a clear financial expectation, avoiding costly and prolonged litigation. From my experience at Fritch Law Office, I’ve seen cases where this clarity in advanced agreements saved clients from financial distress when buyers backed out at the last minute.

In one case involving a commercial property in Indiana, the liquidated damages clause included a set amount that the buyer would forfeit if they failed to close. When the buyer backed out due to financing issues, my client quickly received compensation, allowing them to relist without dragging through lengthy legal proceedings. This not only preserved their cash flow but also maintained their market position.

Make sure this clause is carefully negotiated to protect your interests. An overly punitive clause could drive potential buyers away, while a negligible one offers insufficient protection. Crafting a balanced liquidated damages clause provides security and reflects mutual commitment in the transaction.

David Fritch, Attorney, Fritch Law Office

Understand the Price and Terms Clause

A clause I always recommend sellers pay close attention to in their listing agreement or purchase contract is the “Price and Terms” clause. This may seem obvious, but it is often overlooked or not fully understood by many sellers. The reason it’s so important is that it outlines not only the sale price but also the terms of the sale, including contingencies, financing details, and deadlines.

For example, a seller might agree to an offer, but the contract may contain a financing contingency, which means the sale is dependent on the buyer securing a loan. If the buyer is not approved, the contract could fall through, and the seller may have to start over. Similarly, the closing deadline is a key detail. If the buyer misses this, it could delay the sale and potentially cost the seller time and money, especially if they’ve already lined up their next move.

Having a clear understanding of this clause ensures that sellers agree to a price and are comfortable with the conditions under which that price is being offered. It provides peace of mind, knowing that both sides are on the same page about what must happen for the transaction to close smoothly.

As a top producer, I’ve seen many deals fall apart simply because a seller wasn’t fully aware of the contingencies or timelines in the contract. I always ensure my clients are well-informed and prepared to avoid surprises down the line. Understanding these details upfront is key to a successful and stress-free sale.

Betsy Pepine, Owner and Real Estate Broker, Pepine Realty

Review the Contingency Clause

As a real estate professional with years of experience in Phoenix, I always tell sellers to pay close attention to the “contingency clause” in their listing agreement or purchase contract. This clause is absolutely crucial because it sets out the conditions under which the buyer can back out of the deal or even demand repairs or price adjustments during the transaction.

For example, a common contingency is the home inspection contingency, which allows the buyer to conduct a home inspection and request repairs or renegotiate the price based on the findings. If the seller isn’t careful, this can lead to unexpected delays or the deal falling through entirely. Without understanding the full scope of these contingencies, sellers might be blindsided when the buyer requests repairs or decides to back out altogether, leaving the property off the market for longer than anticipated.

This is so important because it can affect the seller’s bottom line and timeline. In a competitive market like Phoenix, having the right contingencies or negotiating their terms upfront can mean the difference between a smooth transaction and an unexpected setback. Sellers must understand their rights and responsibilities within these clauses to avoid surprises and ensure they aren’t stuck in a holding pattern. At the same time, the buyer uses these contingencies as leverage.

So, my advice to sellers is simple: before signing any agreement, take the time to review and understand the contingency clauses fully. It’s a small step that can save you a lot of stress down the road, and I’m always happy to guide my clients through it to ensure their protection.

John Gluch, Owner, Gluch Group

Know the Timing and Deadlines Clause

I have seen that a clear understanding of the timing and deadlines clause is crucial for sellers to have a smooth and successful transaction. This clause outlines specific timelines that both parties must adhere to, such as when the home inspection should be completed, when repairs need to be made, and when closing should take place.

My best tip for sellers is to understand these deadlines so they can plan accordingly and avoid any delays or potential contract breaches. For example, if a seller fails to schedule a home inspection within the specified timeline, it could result in an extension of the closing date or even termination of the contract.

Look for specific timelines for completing key tasks, such as marketing the property, holding open houses, or submitting purchase offers. Clear deadlines ensure the agent remains accountable and proactive. According to Realtor Magazine, 62% of home sales experience delays due to contract deadlines not being met.

Luca Steinmetz, Founder & CEO, FarAwayHome

Pay Attention to Termination Clause

As a real estate professional with over a decade of experience, I always recommend that sellers pay close attention to one essential clause in their listing agreement or purchase contract, which is the “termination clause” or “exit strategy” provision. This clause outlines the circumstances under which either party-typically the seller or the listing agent-can terminate the agreement before the property is sold.

Understanding this clause is crucial because it offers both flexibility and protection for the seller. If the seller becomes dissatisfied with the progress of the sale, such as if the home isn’t attracting enough interest or the terms aren’t aligned with their goals, the termination clause can provide a way to part ways with the listing agent without significant penalties. This clause can also address what happens if the home sells under conditions less favorable than the seller had hoped, such as an offer with too many contingencies or an unusually low price.

The reason I emphasize the importance of this clause is that it can safeguard sellers from feeling locked into a deal that isn’t working for them. It gives them a clear exit route if things aren’t progressing as expected, allowing them to pivot or adjust as needed. In a competitive market like Metro Atlanta, it’s critical to have the flexibility to make informed decisions and avoid being stuck in an agreement that no longer serves your best interests. Ensuring that the termination clause is fair and well understood will give sellers peace of mind and allow them to navigate the process confidently, knowing they can act in their best interests at any time.

Justin Landis, Founder, The Justin Landis Group

Highlight the Title Contingency Clause

Having bought over 147 properties, I’ve learned that the title contingency clause deserves way more attention than most sellers give it. Recently, I dealt with a complicated sale where undisclosed liens almost derailed the whole deal, but our clear title contingency clause helped us navigate the situation and define who was responsible for clearing those issues. I recommend sellers thoroughly understand this clause and ensure it spells out exactly how title problems will be handled and who will pay for any necessary fixes.

Carter Crowley, Owner, CB Home Solutions

Clarify Dual Agency Disclosure

At my company, we’ve seen sellers get confused about the dual agency disclosure, which is when the same agent represents both buyer and seller. I always explain this clause thoroughly because it affects how information gets shared and negotiations are handled – just last month, a seller wasn’t aware their agent was also working with the buyer, which created some awkward moments during price negotiations.

Bennett Heyn, CEO, Sell House Columbus Ohio

Check Commission Structure

Real estate listing agreements must include a commission structure, which sellers should pay particular attention to. Typically, this clause outlines how much the seller will pay the real estate agent, expressed as a percentage of the sale price. Understanding this clause is crucial because it directly impacts the seller’s net proceeds from the sale. For instance, if the commission is set at 6%, and the property sells for $500,000, the seller would owe $30,000 in commission fees. As part of this clause, it is also specified whether the commission will be divided between the seller’s agent and the buyer’s agent. Negotiations and the cost of selling the property can be affected by this. Keeping the commission structure clear helps sellers avoid unexpected charges and ensures that they are aware of their financial obligations.

Sal Dimiceli, Owner/Broker, Lake Geneva Area Realty

Consider Staging and Presentation Clause

In my experience, the staging and presentation clause is often overlooked by sellers, but can greatly impact the success of their home sale. This clause outlines the expectations for how the property should be presented to potential buyers during showings and open houses.

Ensure the contract specifies whether the agent will assist with or cover the costs of staging and preparing the home. This clause may include details such as decluttering, depersonalizing, and making necessary repairs or updates before listing the property. According to the National Association of Realtors, a staged home can sell for 17% more on average and spend less time on the market compared to a non-staged home.

I would mention that sellers may face unexpected out-of-pocket expenses without this clause in place. For instance, if the home is not properly staged, it may not attract as many potential buyers or receive competitive offers. This could lead to a longer time on the market and potentially result in price reductions.

Alex Locklear, Founder, NC Cash Home Buyers

Note the Execution Date

The execution date of a real estate contract is one of the most important parts of any real estate agreement, and here’s why:

The execution date marks the start of the agreement and sets in motion all the contractual obligations for the parties involved.

This includes timelines for critical tasks such as inspections, appraisals, financing approval, and earnest money delivery.

For example, let’s say the execution date for a contract is December 28th. Many contracts specify that the earnest money must be delivered within 3 days of the execution date. If the buyer fails to deposit the earnest money by the deadline, the seller may have the right to terminate the contract.

Andrew Reichek, Broker, Bodebuilders

Inspect Maintenance and Condition Requirements

I recommend sellers pay close attention to the maintenance and condition requirements clause in their listing agreement or purchase contract. This clause outlines the expectations for the state of the property at the time of sale and can have a significant impact on the final negotiations and closing process. According to the National Association of Realtors, issues related to property maintenance and condition are among the top reasons for contract delays or cancellations.

Clarify expectations for repairs or cleanliness to avoid disputes with agents or buyers. For instance, if the buyer believes that certain appliances or systems are included in the sale and they are not, it could lead to disagreements and potentially jeopardize the entire transaction. You see, many buyers tend to assume that certain items, such as appliances or fixtures, are included in the sale unless specifically excluded in writing.

I would point out that this clause protects sellers from potential liability if any issues arise after the sale is complete. I suggest sellers fully understand and disclose the true condition of their property to potential buyers. Failure to do so could result in legal action and damage a seller’s reputation. Well, understanding the maintenance and condition requirements can help sellers accurately price their home and avoid any surprises during the inspection process.

Jonathan Faccone, Founder, Halo Homebuyers

Identify Who’s Paying Closing Costs

Make sure you know who’s paying closing costs is a non-negotiable. We almost missed that a buyer had us covering over $3,000 in closing costs in the agreement! Thankfully, our broker pointed it out in time.

Paying attention to closing costs can save (or cost) you thousands of dollars. You need to make sure you know who is paying the costs for the title search, title policy, any realtor fees, and taxes. Oftentimes, a buyer will want a new survey and may even add a provision that the seller will provide one and even has to pay for it.

Use something like ChatGPT to review the contract and explain it to you in simple English, and ask it to tell you what closing costs you as the buyer or seller will be needing to pay.

Andy Rouse, Owner, Haystack Land Company

Understand the Protection Period Clause

The clause that I recommend sellers pay close attention to is the protection period clause, sometimes called the “broker protection” or “extension” clause. This clause is included in listing agreements to protect the agent’s commission if a buyer they introduced to the property during the agreement period ends up purchasing the home after the agreement has expired. It ensures that the agent is compensated for their efforts even if the transaction takes place outside the formal agreement timeline.

This clause is important because it addresses a common scenario where a buyer shows interest in the property but does not finalize the purchase until after the listing agreement ends. Without this clause, the agent might not be compensated, even though they played an important role in connecting the buyer and the seller. Sellers need to be clear about the specific terms of this clause to avoid misunderstandings or disputes later.

Shaun Bettman, Chief Executive Officer, Eden Emerald Mortgages

Clarify Real Estate Commissions

With the change in rules this summer around real estate commissions, I make sure that my clients understand who is paying what real estate commissions. There was a lot of drama about the change, but I find that in reality, the market works pretty much the same way it did before August.

What’s most important, though, is that everyone understands where those commissions are coming from. I’ve worked with buyer clients who paid their own commissions, and I’ve worked with sellers who have still agreed to pay buyer agent commissions. The language in the contract needs to be crystal clear about who is paying, though, otherwise a seller may unexpectedly pay more through the transaction than they realize.

The way I bring this information to my clients’ attention, especially if there are multiple offers, is to lay out all the numbers on a Net Sheet that details what they can expect to pay. Sometimes a higher offer where the seller is paying the buyer agent commissions can net them less than another offer where the buyer is paying their own agent, so it is critical not only to ensure what the language says in the contract, but also to make an apples-to-apples comparison so that my seller clients truly understand what their financial outcome will be.

Michael Hinchliffe, Owner, Hinch Knows Homes

Review Agent’s Commission Guarantee Clause

Many “standard-form” MLS-issued real estate Listing Agreements have a clause that guarantees the agent’s commission after an agreement has been reached, even if the Seller is unwilling or unable to close. Sellers should be aware of the implications here…if a transaction falls apart after becoming binding, the Seller may be on the hook for one or both of the agent’s commissions…even if the transaction does not complete. I recommend careful review of the Listing Agreement and speaking with your representative about the implications of this clause, and how scenarios may unfold, before agreeing to list a property.

Baron Alloway, Broker of Record, Alloway Property Group

Consider the Inspection Period

One of the most important clauses for sellers to carefully consider in a purchase agreement is the inspection period. This clause specifies the time frame the buyer has to inspect the property and decide whether to proceed with the purchase. If the buyer decides not to move forward during this period, they are typically entitled to a full refund of their earnest money deposit (EMD).

Although the inspection period is designed for identifying issues with the property, buyers can technically back out for any reason during this window without facing repercussions. This creates potential risks for the seller. For example, agreeing to a 10-15 day inspection period locks the seller into a contract with a buyer who has no obligation to stay committed for that length of time.

For single-family homes, a standard inspection can usually be completed within five days. Accepting an offer with an inspection period exceeding 10 days is generally unnecessary and increases the risk of delays or complications. Sellers should aim for a shorter inspection period to minimize uncertainty and ensure a smoother transaction.

Parker McInnis, Owner, Speedy Sale Home Buyers

Understand Earnest Money Deposit Clause

One of the most important details that sellers should pay close attention to is the “earnest money deposit” clause. This clause outlines how much the buyer is required to deposit as a show of good faith when making an offer, and it plays a crucial role in ensuring both parties are committed to the transaction.

Understanding the earnest money clause is key because it protects the seller if the buyer backs out without a valid reason. In many cases, this deposit can be forfeited if the buyer fails to follow through on the deal, giving the seller some compensation for the time and effort invested. For sellers, it provides a level of security, especially in a market where offers can be volatile or uncertain.

The earnest money deposit also sets the tone for the buyer’s seriousness about following through with the sale. A larger deposit typically indicates a more committed buyer, which can give the seller confidence in moving forward with the deal. Conversely, a smaller deposit might raise red flags, prompting the seller to consider whether the buyer is truly ready to close.

It’s also important to understand what happens to the earnest money if issues arise during the transaction, like an inspection problem or appraisal discrepancies. If the buyer decides to walk away for reasons not covered by contingencies, the seller may be entitled to keep the earnest money as compensation for lost time. Ensuring this clear clause can help the seller avoid unnecessary risks and set the foundation for a smoother, more reliable sale process. At Carolinas House Buyers, we work to eliminate these concerns by offering straightforward cash offers that remove the guesswork from the equation.

Manuel Roman, Spokesperson, Carolinas House Buyers

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