Whether you're representing buyers, sellers, landlords, investors, or real estate agents, you’ll find different types of real estate contracts for specific purposes. So, choose an agreement based on your client’s property dealing needs to properly outline the rights, obligations, and terms between parties.
You can make informed decisions, protect your interests, and avoid potential legal complications when you create an accurate real estate transaction contract.
Let's explore each type in detail.
TLDR
- Real estate contracts are legally binding documents used in any kind of property transaction.
- Purchase Agreements - Used for buying/selling property.
- Rental Agreements - For short-term property rentals (days/weeks)
- Lease Agreements - For long-term rentals (1+ years residential, 3-25 years commercial)
- Power of Attorney - Transfers property decision rights to another party
- Assignment Contracts - Transfers transaction rights without transferring property title
- Partnership Agreements - For joint property ownership and management
What are Real Estate Contracts?
Real estate contracts are legally binding documents between parties that outline terms for purchasing, selling, transferring, or renting a property. This well-drafted agreement enforces local jurisdiction laws, ensuring all involved parties will adhere to compliance and obligations. In case not followed, one party can also seek litigation against another.
Also read: Maximizing Value: Key Insights for Efficient Real Estate Contract Management
Different Types of Real Estate Contracts
Since not all agreements serve the same purpose, understanding the types of real estate contracts should be your first step. Here are the five most common contracts used in the real estate industry.
Purchase Agreement
Source : https://www.etsy.com
Also called a sales contract, a purchase contract is a legally binding agreement between the buyer and seller with clearly defined contractual obligations.
It will contain all the details of your real estate transaction, including sale conditions, property description, purchase price, party identification, financing, contingencies, and disclosures. Thus, the parties involved and the for-sale property will be deemed “under contract” in this real estate agreement.
You can use SpotDraft’s Contract Management solution to easily customize, organize, and manage legal real estate purchase agreements in one place.
“We are able to draft and redline contracts inside the CLM tool. Therefore, we no longer need to rely exclusively on tools such as MS Word and Google Docs. Now, all stakeholders can view and access just one true version of the contract.”
~Igor Poroger, the Director of Legal (EMEA) at Vectra AI
How CLMs Empower Legal Teams in B2B SaaS Companies
You can choose from three types of purchase agreements depending on the property type.
Property-Specific Purchase Agreement:
You can use this customized property purchase agreement to buy or sell a property under unique conditions, such as existing leases, development restrictions, or environmental concerns.
General Purchase Agreement:
It’s a simple version of a purchase contract that you can use when you trust the seller or buyer during the property dealing.
State/Association Purchase Agreement:
A state professional or real estate commission outlines this contract, which consists of state-specific terms, standardized clauses, and language.
Also read: Everything You Need to Know About Purchase and Sale Agreements (+ Free Template)
Rental Agreement
Source : https://esahayak.s3.ap
This type of contract will serve you well if you want to rent or lease your property for a short period, i.e., a few days or weeks. To avoid legal disputes, this document defines the clauses between landlords and tenants regarding the use of a property, including the rent amount, security deposit, rental period, rent due date, liabilities, etc.
Lease Agreement
Source : https://bunnydoc.com
Like rental agreements, this real estate contract is also for rental properties between landlords and tenants with similar key terms and details. However, a lease agreement is for long-term rentals, i.e., a year for residential and 3-25 years for commercial places. Besides, you can modify your contract only when the lease term ends.
The types of real estate lease contracts will also vary for different leasing situations. Here’s a roundabout of those property lease contracts.
Commercial Lease:
You must prepare a commercial lease agreement when renting your property for business purposes, such as an office for a design studio startup or home business.
Source: Kashika Changulani via LinkedIn
Absolute or Full-service net lease:
Under this agreement, your tenant is liable for all property-related costs, including base rent, maintenance, interiors, repairs, insurance premiums, and property taxes.
Rent-to-own
This agreement allows the tenant to live in a property for a specific period and grants them the right to buy the leased property. Generally, it includes two contracts: a standard lease agreement and a property purchase agreement.
Sublease
Under this agreement, a renter can lease part or all of a leased property to another person (subtenant). It also includes a clause protecting the original renter if the subtenant damages the property or doesn’t pay the agreed-upon rent.
Single-tenant Triple-net Lease
Your tenant will pay taxes and take care of landscaping and exterior maintenance as long as the contract is in effect. This type of agreement is usually prepared for commercial properties, such as fast-food restaurants, gas stations, pharmacies, grocery stores, etc.
Multi-tenant Triple-net Lease
You’ll draft this contract when you’re leasing multi-unit property to different parties. As an owner, you’ll have total control over a property’s appearance and pay regular pro rata towards operating expenses under this agreement.
Power of Attorney
If you can’t make decisions due to unavoidable circumstances, you can transfer your rights to control the property to someone else. In such cases, you must prepare and sign a well-defined legal contract to assign a power of attorney. This authorized person or organization will make all the relevant decisions for the property transactions on your behalf.
Source : Shekar Jayaraman via LinkedIn
This type of real estate contract can be drafted if the property owner is:
- Hospitalized, elderly, or physically unfit for signing an agreement
- Mentally challenged (temporarily or permanently)
- Physically unavailable at the location like NRIs
Real Estate Assignment Contract
Under this agreement, you can transfer the rights to property transactions to a buyer or assignee without giving them the title to the property. The new buyer takes over the legal contract and obligations while the seller exits the deal. The contract will define clauses like party identification (assignor, assignee, seller), original purchase agreement, responsibilities, liabilities, a specific timeframe, assignment fee, and other financial terms.
This contract allows an assignee to purchase a property at a specific price while giving them the rights of selling real estate to another party at a higher value to earn profits. It simplifies the process and shifts responsibility for the real estate from you to an end buyer much faster.
For example, a real estate investor or wholesaler will get into a purchase agreement to buy a distressed property from the original owner. This investor will prepare an assignment contract and transfer those wholesaler rights and possession of the real estate to an end buyer at a higher price.
Source: Kien Boon Siew via LinkedIn
Real Estate Partnership Agreement
As the name indicates, this agreement happens between partners to buy and manage properties together. The partnership contract will define the parties involved, the ownership structure, obligations, capital contributions, profit/loss distribution, buyout clause, partnership terms, and amendments.
Need a partnership agreement? Download a free template here.
Key Elements of Real Estate Contracts
A well-drafted real estate agreement must clarify buyer and seller rights to avoid disputes.
“If you go through the hassle of creating definitions for key terms in the contract, stick with those definitions throughout the contract.”
~Sterling Miller, CEO and Senior Counsel Hilgers Graben PLLC
Ten Things: Making Contracts Easier to Sign
So, check out standard clauses and terms defined in different real estate contracts to be legally enforceable.
- Identification of Parties: Ensure your contract covers all the names of the buyer, seller, tenant, landlord, or any other involved parties.
- Assignor/Assignee: Parties transferring property transaction rights.
- Property Description: Clearly specify your real estate property details, such as address, size, and boundary.
- Rights and Obligation Clauses: Your real estate agreement should also outline each party's roles, including repairs, maintenance, and financial obligations.
- Restrictions: Clauses about subletting, pets, or property use.
- Financial Terms: Include the lease amount, rental amount, purchase price, deposit, mortgage details, and payment schedule in the agreement.
- Contingency: A contingency clause should be included regarding the financing, inspection, appraisal, title, and sale of the existing home.
- Disclosures: Include details about any property defects, lead paint, etc.
- Termination: Add notice periods, contract expiration, renewal options, and termination clauses until a specific time.
- Signatures: Make sure to get the signatures of all involved parties for the contract authentication. You can also get encrypted eSignatures to speed up the process if multiple parties are involved.
Also read: The Ultimate Contract Drafting Checklist: Your Path to Contract Perfection
Also read: What is a Contingent Contract (+ Free Template)
Draft The Right Real Estate Contract to Protect Your Interests
So, take time to familiarize yourself with the types of real estate contracts and their key components. Don’t forget to hire a qualified lawyer who can guide you through selecting and reviewing the appropriate contract for your specific situation. Choosing the right contract means you can avoid legal complications during and after a real estate deal.
FAQs
1. What are the 4 types of real estate?
The four basic real estate types are residential, commercial, industrial, and land.
2. What are the 4 types of contracts?
The main types of contracts include unilateral, bilateral, implied, and express.
3. What are the different types of real estate agreements?
Common real estate contracts are purchase agreements, lease/rental agreements, assignment contracts, and power of attorney.
4. What are the different types of construction contracts?
Construction agreements can be categorized into lump sum contracts, cost-plus contracts, unit price contracts, Guaranteed Maximum Price (GMP) contracts, time and materials contracts, integrated project delivery contracts, piecework contracts, and rate contracts.
