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Real Estate Contracts Terms and Examples

By Edited May 12, 2015 0 0

1) Integration Clause-

Definition: A statement at the end of a contract that declares all agreements are included in the contract.

Example: Joe is a realtor who signs a contract with Bill his broker. The contract states that Joe’s commission will only be paid if it is collected from the seller. Joe tells Bill he is concerned and Bill says do not worry I always get the money from the seller. Joe’s first transaction closes and Bill is unable to get the commission money from the seller.             Joe claims that he is going to sue Bill for the money, but Bill informs him there is no guarantee in the contract he will receive his commission.


a)     Contract- Joe and Bill sign a contract.

b)    Statement- Joe’s contract says he will only get commission if it collected from the seller.

c)     No extras guaranteed- Joe is not entitled to commission from his first transaction because it says in the contract he can only get paid if his commission is collected from the seller.

2) Extender Clause-

Definition: A clause that states a client needs to pay commission to a broker for any past clients of the broker’s that buys a property for a specific period of time after a listing expires.

Example: Bob showed Richard Sid’s home on July 5th. Sid’s listing agreement with Bob expired on July 11th  with a written agreement that Bob has the right to commission 30 days after the expiration of the listing.  On July 20th Richard decided to put an offer on Sid’s house and Sid accepts. Richard and Sid are still responsible for getting Bob commission for the sale of the house because Bob showed Richard Sid’s house before the listing expired.


a)     Clients belong to brokers even after the expiration of a listing- Richard is still Bob’s client after the listing expires because he showed him Sid’s house first.

b)    The right to commission- Bob is still owed commission for the sale of Sid’s property because Bob’s client bought the property.

c)     Specific period of time- Sid receives an offer from Richard 9 days after the listing expires from Bob, which makes Bob still entitled to the commission because it is under 30 days.



3) Right of Preemption-

Definition: The right to buy a house from a seller if and when a “seller” decides to sell their home.

Example: Robby has the right to buy Sam’s house if he decides to sell it. If Sam never decides to sell his house then Robby does not have a right to buy it. If Sam lists his house for sale, then Robby has rights to buy it over anyone else.


a)     Right to buy- Robby has the right to buy Sam’s house.

b)    Seller cannot be forced to sell- Sam does not have to sell his house, but if he does it goes to Robby first.

c)     Privilege over other buyers- Robby has first priority if Sam decides to sell his home.

4) Independent Contractor Agreement-

Definition: An agreement that states a person will do a service for a specific amount of money, often in terms of a percentage, and a second party agrees to pay them this money if the service is completed.

Example: Tiffany signs a contract with Tarbell realtors to sell property for them. Tiffany’s contract states she will only get paid at the close of escrow once the properties are sold. Tiffany’s contract states is entitled to 3% of all the sales she makes. Tiffany will not be paid for the hours she puts in unless she successfully sells property.


a)     One party agrees to pay another- Tarbell agrees to pay Tiffany commission on the property she sells.

b)    Payment at end of service- Tiffany will only get paid by Tarbell if she successfully sells a property.

c)     Specific amount of money- Tiffany will be paid 3% of the sales she makes.

5) Acceptance of Offer-

Definition: The point when a seller accepts a buyer’s offer and agrees to pay any compensation to the broker(s).

Example:  Ron puts an offer of Holly’s home. Holly accepts Ron’s offer and signs papers agreeing to sell the house to Ron and pay all brokers involved commission.


a)     Offer made- Ron puts an offer on Holly’s house.

b)    Agreement to accept offer- Holly signs papers to accept Ron’s offer on her house.

c)     Agree to pay- Holly signs papers to agree to pay all brokers involved commission.


6) Listing Agreement-

Definition: An agreement between a seller and a broker that entitles the broker to commission if the property is sold during a specific time.

Example: Barry signs a contract to sell Mindy’s house within the next 6 months. The contract states Barry is entitled to commission if the house sells within the 6 months and up to 30 days after the expiration date if one of his clients purchases the home.


a)     Contract between a broker and seller- Barry and Mindy sign a contract to try to sell Mindy’s house.

b)    Entitles broker to commission- Barry has the right to commission if he sells Mindy’s house.

c)     Specific period of time- The house must sell within 6 months or 7 months depending on the client for Barry to receive commission.

7) Purchase Agreement-

Definition: An agreement that states a buyer agrees to buys a home and the seller of a home agrees to sell it to the buyer and all commissions will be paid to the brokers involved.

Example: Terry looks at Selma’s home and three days later puts an offer on it. Selma accept the offer and signs papers to say she agrees to sell the property to Terry. Both Selma and Terry’s brokers are entitled to 3% commission in the contract.


a)     Buyer agrees to buy a specific home- Terry signed papers to purchase Selma’s house.

b)    Seller agrees to sell their home to specific buyer- Selma signs papers to sell her home to Terry.

c)     Commission is stated- Both Terry and Selma’s brokers will receive 3% commission.

8) Mediation of Disputes-

Definition: When an agreement or settlement between the broker and seller over a dispute is made before court or arbitration occurs.

Example:  Ronda sells Gary’s house for him and Ronda’s contract states that she has the right to 3% commission. The house closes and Ronda does not receive her commission. She calls Gary requesting her commission and he says he does not have it. Ronda threatens to sue him for her commission. The next day Gary pays Ronda her commission and she says she will not take any legal action against him.



a)     Dispute- Gary does not pay Ronda her commission when it is due.

b)    Agreement- Gary pays Ronda her commission about she complains.

c)     No legal action- Ronda agrees to not take any legal action because Gary paid her the next day after she complained.

9) Option-

Definition: A contract that gives a person a right to do something without them be obligated to it.

Example: Tory signed a contract to lease Bill’s condo for one year with the opportunity to buy it after the year lease is up. If Tory decides to buy the condo 1/3 of her rent each month will go towards a down-payment on the condo.  If Tory decides she wants to go elsewhere in a year she is able to do so freely.


a)     Contract- Tory signed a contract to lease Bill’s condo for a year.

b)    Right to do something- Tory signed a lease with Bill that gives her the right to buy the condo after a year.

c)     No obligation- Tory does not have to buy the condo after a year.

10) Sale of buyer’s home-

Definition: When a sale is contingent on if the buyer can sell his or her own property before purchasing a new property.

Example: Polly put an offer on a new property in June and was set to close escrow on her old home by July 25th. Polly can only purchase the new home if her old home closes escrow by July 25th so she can have the down payment for her new home.


a) One house must be sold to buy another- Polly must sell her old home.

b) Sale will only happen if old house is sold before new house is bought- Polly has wait to buy her new home until the old house is sold.

c) Sale is contingent- Polly will only have the money for a down payment for a new home if she sells her old house first. 



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