In real estate transactions, the Purchase and Sale (P&S) Contract serves as a binding agreement between the buyer and seller, outlining the terms, obligations, and expectations for both parties. This contract is critical for ensuring a smooth transaction and protecting the interests of all involved. Here, we’ll cover the essential elements that every P&S Contract should include and discuss the common contingencies designed to safeguard both buyers and sellers.

Key Terms in a Real Estate Purchase and Sale Contract

A well-drafted Purchase and Sale Contract should address several essential terms:

1. Parties Involved: The contract must clearly state the names of the buyer(s) and seller(s) involved in the transaction.
2. Property Description: The contract should provide a description of the property, including its legal address and any other unique identifiers.
3. Purchase Price: The agreed-upon purchase price is a core component of the contract. This section may also outline deposit terms or earnest money requirements, which show the buyer’s intent and good faith.
4. Closing Date: The P&S Contract specifies a closing date, the day when the title is transferred, and funds are disbursed. Both parties should mutually agree upon this date, and it should be realistic based on any financing or inspection requirements.
5. Title and Deed: The seller is responsible for providing a clear and marketable title. The contract should specify the type of deed that will be conveyed, often a warranty deed, which assures the buyer that the seller has the right to sell the property free from encumbrances.
6. Possession Date: While often the same as the closing date, possession may occur after or before closing in some cases. This section should outline when the buyer will take possession of the property.
7. Inspection and Disclosures: Sellers are typically required to disclose known defects, while the buyer reserves the right to inspect the property. The contract should address who is responsible for arranging and paying for inspections.
8. Financing Terms: If the buyer requires financing, the contract should specify the type of financing and outline any lender requirements. This section may include details on the buyer’s ability to secure a mortgage by a specific date.
9. Default and Remedies: The P&S Contract should specify what happens if one party breaches the agreement, including any financial penalties or conditions for recovering earnest money.

Common Real Estate Contract Contingencies

Contingencies are protective clauses within a P&S Contract that allow buyers and sellers to withdraw from the agreement under specific conditions without facing legal repercussions. Here are some typical contingencies and how they work:

1. Financing Contingency: This common contingency allows the buyer to withdraw if they cannot secure financing by a specified date. It protects the buyer from being obligated to close on the property if they cannot obtain the necessary mortgage loan.
2. Inspection Contingency: The inspection contingency allows the buyer to have the property inspected within a set period. If the inspection reveals significant issues, the buyer can negotiate repairs or a price adjustment, or, in some cases, withdraw from the contract without penalty.
3. Appraisal Contingency: This contingency is typically used in financed purchases. It allows the buyer to cancel or renegotiate the contract if the property’s appraised value is less than the agreed-upon purchase price, protecting the buyer from overpaying for the property.
4. Title Contingency: This contingency requires the seller to provide clear and marketable title. If there are title defects, such as liens or encumbrances, the buyer may either request resolution or withdraw from the contract if these issues cannot be cleared.
5. Sale of Buyer’s Property Contingency: In situations where the buyer must sell their current home to purchase a new one, this contingency allows them to back out if they cannot sell their home within a set timeframe. This is especially helpful in ensuring that buyers are not financially overextended.
6. Insurance Contingency: For some properties, especially those in high-risk areas, the buyer may include a contingency that allows them to withdraw if they are unable to obtain adequate homeowner’s insurance.

How Contingencies Operate in a Real Estate Contract

Each contingency within the contract has a timeline for completion. If the buyer or seller fulfills the contingency, the transaction proceeds as planned. If the contingency cannot be met within the specified timeframe, the party with the contingency can choose to waive it, request an extension, or exercise the right to terminate the contract.

Contingencies serve as safety nets, providing buyers and sellers with flexibility and security in the real estate transaction process. They require careful monitoring, as missing a contingency deadline or failing to meet its requirements can affect the enforceability of the contract or lead to a loss of deposits.

Final Thoughts



The Purchase and Sale Contract is a cornerstone document in any real estate transaction. Understanding its key terms and knowing how contingencies work are crucial for both buyers and sellers. As real estate transactions often involve significant financial and emotional investment, a well-crafted P&S Contract can make a substantial difference in ensuring a smooth and fair process for all parties involved.

For personalized advice on drafting or reviewing a P&S Contract, working with a qualified real estate attorney can help ensure that all critical terms are included and contingencies properly structured, creating a foundation for a successful transaction.