5 Important Real Estate Contract Terms Every Buyer & Seller Should Understand

Real estate contracts can feel overwhelming. They’re filled with legal language, deadlines, and fine print that most people don’t read every day. But understanding just a few key terms can make a huge difference in protecting your money, your timeline, and your peace of mind.

Here are five essential contract terms every buyer and seller should know:

1. Contingencies

What it means:
Conditions that must be met before the sale becomes final.

Common examples include:

• Home inspection

• Financing (mortgage approval)

• Appraisal

• Home sale or Home of Choice

• HOA or Condo docs review

Why it matters:
Contingencies are there to protect you. If a condition isn’t met, you may be able to renegotiate — or walk away — without losing your earnest money.

Agent tip:
In competitive markets, strong offers sometimes limit contingencies. However, removing them increases your risk. The key is finding the right balance between being competitive and protecting your interests. Be smart and reasonable.

2. Earnest Money Deposit (EMD)

What it means:
An earnest money deposit is an initial good-faith payment delivered shortly after a contract is ratified. It shows the buyer’s commitment to moving forward with the purchase. 

Typical amount:
Usually 1%–3% of the purchase price (this can vary by market).

Why it matters:
If the deal falls through because a contingency isn’t met, buyers typically receive their earnest money back. If a buyer walks away without a valid contractual reason, the seller may be entitled to keep the deposit.

Agent tip:
In a multiple-offer situation, a higher earnest money deposit can strengthen your offer and show commitment. An EMD may not be mandatory, but in today’s market, presenting an offer without one would likely raise concerns for a seller.

3. Purchase Price & Financing Terms

What it means:
The agreed-upon sale price and how the buyer plans to pay for the property. This includes:

• Down payment

• Loan type (conventional, FHA, VA, or other)

• Interest rate

• Cash or financed

• Deadlines for loan approval

Why it matters:
Financing delays or missed deadlines can jeopardize the entire transaction. Clear terms and strong lender communication help keep everything on track.

Agent tip:
A solid pre-approval letter — not just a pre-qualification — makes your offer stronger and helps ensure a smoother closing. Work with a reputable lender who communicates clearly and efficiently, as responsiveness can make a significant difference. In a competitive, multiple-offer environment, this level of preparation can help set your offer apart.

4. Closing Date & Possession

What it means:
The closing date (settlement) involves the transfer of the deed. Possession is the physical control of the premises. 

Key details include:

• The exact closing date 

• Whether possession is immediate or delayed

• Rent-back agreements if the seller needs to stay temporarily

Why it matters:
Misunderstandings around possession can cause major stress, moving complications, or even legal disputes. At settlement, the buyer legally owns the property. Until possession is taken, the seller may still be liable for maintenance, or, in the case of early possession, the buyer might assume risk prematurely. 

Agent tip:
Always confirm whether possession is “at recording” (immediately once the deed records) or at a specified time after closing. At the time the contract is written, ensure there is clear agreement regarding any rent-back arrangements — situations where the seller remains in the property temporarily and pays rent to the new owner.

5. Repair Requests & Credits

What it means:
After the home inspection, buyers may negotiate based on the property’s condition.

Common outcomes include:

• Seller completes repairs

• Seller offers a credit at closing 

• Seller offers a combination of repairs and credit

• Purchase price reduction

• No repairs or concessions

Why it matters:
This is the stage where many deals are renegotiated — and sometimes where they fall apart. Inspection reports can uncover unexpected issues, which may lead to requests for repairs or credits. If the buyer and seller can’t reach an agreement, the contract may be terminated under the inspection contingency. Staying focused on major concerns helps keep the transaction on track.

Agent tip:
Focus on significant safety, structural, or major system issues — such as the roof, foundation, plumbing, electrical, or HVAC — rather than minor cosmetic concerns. Keeping repair requests reasonable and proportional helps maintain goodwill and protect the transaction. 

Why Understanding These Terms Matters

Knowing these basics helps you:

✔ Avoid costly surprises
✔ Negotiate with confidence
✔ Protect your investment
✔ Reduce stress during the process

A great real estate agent will walk you through every clause — but being informed puts you in control.

Thinking about buying or selling? I’m happy to walk you through every step. Reach out to request your free Home Buyer or Seller Guide and feel confident moving forward.