Acquiring property is a process that is known for its long, complicated paperwork. It can be confusing and overwhelming to keep track of it all throughout the process. However, it’s essential for you to know the differences of each one to ensure that you don’t make any mistakes. Two documents that one might assume are the same are the ‘contract to sell’ and the ‘contract of sale.’
While they sound similar, they are certainly not interchangeable. Knowing the differences early on will make the property transaction process much easier for you later. Here’s what you need to know about the Contract to Sell and the Contract of Sale.
What is a Contract to Sell?
A contract to sell is a bilateral contract, meaning both parties involved have agreed to fulfill their part of the deal. In this case, the seller has agreed to sell his/her property to the buyer, and the buyer has confirmed his/her intent to buy it.
However, the property is not immediately put under the new buyer’s name. The transfer of ownership will only occur when certain conditions that are agreed on by both parties are met. This contract reserves ownership of the property for the buyer until both parties are able to fulfill their respective conditions.
Examples of conditions that one or both parties must fulfill before the actual transfer include:
- The seller must first build the house or condominium building;
- The buyer must first completely pay off the property, either in installments or in full cash; or
- Both conditions at once, in which the seller must first build the house or condominium building and the buyer must completely pay off the property before the transfer can occur.
Once these conditions are met, the buyer and seller can then proceed with the transfer of ownership.
What is a Contract of Sale?
A contract of sale is also an agreement between the seller and buyer, whereby the seller has agreed to sell his/her property to the buyer and the buyer has agreed to pay for it. Unlike a contract to sell, however, the transfer of ownership occurs immediately once the contract of sale is signed, the buyer has fully paid, and the seller has given the property to the buyer.
Take note that while it is possible to sell items or properties that are non-existent at the time of sale, such as a pre-sold condominium unit in a condominium building that has not yet been built, you likely won’t encounter a contract of sale for such a situation. It’s more common for contracts of sale to pop up if the property already exists.
A buyer and seller can agree to a transfer of ownership before the buyer has fully paid, under the condition that if the buyer fails to complete his/her payment, the seller has the right to take back the property.
What are the main differences?
The main way you can differentiate these two documents is remembering how it handles the transfer of ownership. Under a contract to sell, the transfer is withheld until both parties fulfill the conditions given to them. Under a contract of sale, the transfer is immediate. However, the seller can take it back if the buyer fails to pay.
It’s important to understand the differences between the two if you’re planning on dealing with property, either as a buyer or seller. Otherwise, you could run into misunderstandings with the other party, which could then snowball into unnecessary legal disputes. It’s also important to have a trustworthy real estate attorney to help you throughout the transaction process.