California Real Estate Contract: Different Types and Key Terms to Include

What is a California Real Estate Contract?

A real estate contract in California, often referred to as a real estate purchase and sale agreement, is a contract that is executed by a party selling a property and a party who is offering to purchase the property.

The contract is initiated when the buyer makes an offer. Once the seller accepts the offer and the terms of the contract are negotiated, the parties will sign the contract making it legally binding and enforceable.

Common California Real Estate Contracts

There are several types of real estate contracts that can be used in California. The three most popular contracts are:

• Purchase agreement. The most common type of real estate contract that is used for the transfer of property between a buyer and a seller.
• Real estate assignment contract. Used when purchasing “distressed properties” as a wholesale investment strategy. This contract allows the buyer to assign the contract to a second buyer.
• Lease agreement. Used when a landlord wants to rent their property to a tenant for use in exchange for a monthly rent.

4 Essential Elements of a California Real Estate Contract

All contracts must include specific essential elements to be valid and legal. In California, a real estate contract must have the following four essential elements:

1. The contract must be executed by parties who are legally capable of entering a contract
2. There must be mutual consent
3. The contract must have a lawful objective
4. The terms must include consideration (an exchange of things of value)

If the real estate contract is missing any of these elements, it will be deemed invalid and will not be legally enforceable under California law.

What Must Be Included in a California Real Estate Contract?

A California real estate contract lays out the terms and conditions surrounding the purchase of real property. This contract should include the following essential information:

• Purchase price. One of the most important parts of a real estate contract is the negotiated purchase price that the buyer has agreed to pay the seller.
• Closing date. This is the date that the sale is finalized and when payment must be made for the property. The timeframe for a closing date is usually 30 to 60 days out from signing the real estate contract.
• Agent commissions. Most buyers and sellers hire real estate agents to help facilitate the sale of the property. Both agents are entitled to commissions in this process.
• Earnest money deposit. The deposit made by the buyer when the contract is signed to show the seller they are committed to purchasing the property. In California, the standard deposit is 1%-3% of the total purchase price.
• Contingencies. Contingencies are the conditions that must be met by either the buyer or the seller to complete the deal. Common contingencies include the buyer selling their previous home or the home passing a home inspection.
• Contingency removal period. The date that contingencies will be removed to show that the buyer intends to close escrow.
• Disclosure requirements. Disclosures are conditions about the property that could lower the property value that the seller must reveal to the buyer before closing the sale. California requires 12 different disclosures that must be included in the real estate contract.

Do Real Estate Contracts Have to Be in Writing in California?

Yes. Real estate contracts in California must be in writing. In California, the Statute of Frauds governs which contracts must be in writing and which contracts are valid as oral agreements. Under this law, any contract used to purchase or sell land must be in writing. In addition, any property lease lasting for more than one year must also be in writing.