A contract is an agreement between two or more persons or entities that creates specific obligations and promises for each of the parties, which are legally enforceable or otherwise recognized by law.  Although some contracts may be binding upon the parties even when they are oral, most formal legal agreements, including those related to real property, require a written contract to be binding.

For a contract to be valid as written, it must be valid under the law of the jurisdiction in which the party seeking to enforce the contract is a resident.  There are four main requirements to ensuring a contract is valid.  These include the following:

1. The parties to the contract must be "competent"-that is, they must be of at least the legal age dictated by the law of a particular jurisdiction, and must be mentally capable of understanding the terms of the agreement and consenting to them.
2. There must be a valid consideration.  Consideration is something-an act, the voluntary giving up of something (forbearance), or a return promise-that is given in exchange for the other party´s promise; for consideration to be valid, the party accepting it in return for his or her promise must personally feel it is sufficient and acceptable, and courts usually refuse to get involved regarding the subjective nature of the question of whether consideration is appropriate in a given situation.
3. There must be some property that is the subject matter of the contract, and the subject matter may not be illegal.  Contracts for illegal activities, such as crimes, are not valid and will not be enforced; in addition, most contracts that limit a person´s ability to get married are not enforceable.
4. There must be a mutual agreement among or between all parties involved as to the terms and conditions of the contract; this is commonly known as a "meeting of the minds."  Parties must generally have equal bargaining power with respect to contract negotiations so as to avoid the possibility of undue influence or duress imposed by a more powerful party over  party who is less powerful in the context of the agreement, financially or otherwise.

Many types of contracts exist.  In the real estate context, some of the most common contracts include a construction contract, a contract for deed, a contract for sale, a cost-plus contract, an escrow contract, and a guaranteed-sale contract.

A construction contract is a contract which sets forth the details and specifications for the construction of a house or other building.  The contract involves the builder´s performance in constructing the required structure according to specifications in exchange for payment by the party requesting the construction.

A contract for deed is a conditional contract for the sale of real property.  Also called an installment land contract, land sales contract, or simply land contract, a contract for deed is conditional in that it is only enforceable if some other agreed-upon obligation is performed or when a specified prerequisite or condition is satisfied, such as the ability of a home buyer to secure financing, or a real estate transfer dependent on the sale of the buyer´s former home.

A contract for sale is a contract between  buyer and seller of property to transfer the property upon payment of a mutually agreed-upon price.  It is also known as a contract of sale or a contract to sell.

A cost-plus contract is a contract in which payment for performance of some action is based on a fixed fee or on a percentage of the actual cost of performance.  A cost-plus contract is common in construction, with the amount due to a builder for erection of a structure dependent on the final cost of labor and materials.

An escrow contract is a contract formed between a buyer, a seller, and the holder of escrow.  Escrow contracts, normally included in real estate transactions, set out the rights and the financial obligations of each of the three parties regarding the funds used to transfer a property from the seller to the buyer.

Contact an attorney on all legal questions or legal issues. A real estate agent is not qualified to give legal advice or tax advice and is not licensed to give legal advice or tax advice. 

GBrey