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Real Estate Contracts

The Contract of Sale is the term used to describe the document prepared by a lawyer, and used to formalise the sale of real estate. However, the word "Contract" has more than one meaning:

1. Contract can mean an agreement; or

2. Contract can mean the document that sets out the agreement.

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For immediate access to the standard form Contract of Sale of Real Estate CLICK HERE. For immediate access to "How To Understand The New Standard Form Real Estate Contract" CLICK HERE.

"Contract of Sale" as an agreement

When a person makes a promise to do something, and is paid by another person to do it, this agreement may be regarded as a "Contract".

For example, when you pick up a newspaper at a shop, place a coin on the counter, make eye contact and "get the nod" from the proprietor as you walk out, you have both completed a "Contract" for the sale of the newspaper - a contract enforceable by law. Nothing has been written down anywhere to record the agreement, but the agreement itself is the "Contract".

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"Contract of Sale" as a document

Section 126 of the Instruments Act 1958 states that any Contract for the sale of real estate must be "in writing signed by the person to be charged or by a person lawfully authorised in writing by that person".

This means that a simple verbal contract is not enforceable if it relates to the sale of real estate.

To comply with the Instruments Act 1958, and to ensure that the parties involved in the sale of real estate know exactly what is being bought and sold, and the conditions by which the sale is to take place, a formal "Contract of Sale of Real Estate" document is used. This document is usually prepared by a lawyer, and is tailored to suit the parties and the circumstances of the sale. The document itself usually contains numerous conditions, that set out the "rules" by which the deal will proceed and eventually settle.

Once a contract has been signed by both parties, any variation or change to the contract must also be signed by both parties to transaction.

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What form should the Contract of Sale of Real Estate take?

Contract of Sale of Real Estate drafted by a lawyer or licensed conveyancer

Lawyers and Licensed Conveyancers are legally qualified to perform legal work associated with a real estate transaction, and this includes the drafting of a Contract of Sale of Real Estate and the terms and conditions it contains. Estate agents, on the other hand, are prohibited from drafting legal documents of any kind - they cannot draft contracts, nor can they draft terms and conditions. (It should be noted that the REIV openly defies this rule by supplying estate agents with draft "Special Conditions", however the use of these by estate agents still constitutes a criminal offence!)

Most lawyers and licensed conveyancers use the standard form Contract of Sale of Real Estate in order to ensure that there is some uniformity in the industry, allowing industry professionals and consumers to anticipate the rights and responsibilities they will assume in a real estate sale transaction.

Contract of Sale of Real Estate "filled in" by an estate agent

There is an exception to the rule against estate agents handling legal documents, and this is found at Section 53A Estate Agents Act 1980. An estate agent is permitted to fill in the blanks of the standard Contract of Sale of Real Estate, the form of which is prescribed in the Estate Agents (Contracts) Regulations 2008.

While it is common for estate agents to take control of the contract, the practices adopted by estate agents often lead to problems. For example, see "New Contract - Same Old Deception".

The standard form Contract of Sale of Real Estate

The standard form Contract of Sale of Real Estate has been in use since 1 October, 2008. This document did away with the unfair Contract Note document favour by estate agents (See "Contract Note Banned - Estate Agents Lose Deception Tool"), and with the old version of the Contract of Sale, replacing both with a more up-to-date standard document. The new Contract of Sale of Real Estate contains all of the standard conditions previously hidden away from consumers, although the meaning and effect of these can be difficult for the average consumer to understand. (For an easy to read guide to the meaning and effect of the standard conditions contained in the new Contract of Sale of Real Estate, see "How To Understand The New Standard Form Contract of Sale of Real Estate" at www.RealEstateDocuments.com.au.

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Who should prepare the Contract of Sale of Real Estate?

The contract should always be prepared by a qualified lawyer or licensed conveyancer for one party, and carefully checked by a lawyer or licensed conveyancer acting for the other. This is to ensure that both parties' interests are protected.

For reasons stated above, estate agents should not be permitted to handle real estate contracts. However, it can be difficult for a consumer to take an estate agent to task over the contract. To stay safe, neither party should sign any form of Contract of Sale of Real Estate until their legal representative has first checked it.

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Signing A Contract

The most important point to be made to both vendors and purchasers is that nothing is final unless and until a written Contract has been signed by both parties.

As a general rule, once the offer has been signed by the purchaser, and counter-signed by the vendor, a binding contract is created, and the matter is final. While it is possible to make changes to the Contract after it has been signed (for example, changing the settlement date, or extending a home loan approval condition) changes can be made only if BOTH parties (the vendors and the purchasers) agree. If either party disagrees, then the Contract remains as it was when first signed.

When it comes to the obtaining of legal advice, the best time is BEFORE the Contract is signed. If you buy or sell real estate through an estate agent, you will be encouraged to sign first, and seek advice later. This allows the agent to control the sale, but it places both the vendor and the purchaser at risk.

Vendors need to obtain legal advice before signing a Contract that has been altered or amended by the estate agent in any way. Purchasers should obtain legal advice on the Section 32 Vendor's Statement AND the Contract before signing anything, and before paying any money to the estate agent.

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