Avoid Costly Mistakes With a Clear Understanding of Your Real Estate Contract

Buying a home is one of the biggest financial decisions most people will ever make. While the process can feel fast-paced and overwhelming, one document deserves your undivided attention: the purchase agreement or purchase contract

This legally binding real estate sales contract outlines the terms of your real estate transaction and can have serious consequences if misunderstood or rushed. Before you sign, here are the key elements to review—and potential red flags to watch out for.

1. Accurate Property Description in the real estate purchase agreement

A “Property Description” is a formal, detailed way to describe exactly what piece of land is being bought, It's not the same as a street address—instead, it uses specific measurements. Think of it like a blueprint or GPS coordinates for a property—it tells the county, courts, surveyors, and future buyers exactly where the property begins and ends.

The purchase and sale agreement (real estate purchase contract) should clearly identify the property being sold, including the legal property description, address, and any included fixtures or personal property. Double-check that everything you expect to receive (e.g., square footage, appliances, lighting, outdoor structures) is explicitly listed.

One example would be that you're purchasing a house with a spacious backyard that includes a side yard and extra parking area. But, months later you find out that a portion of the side yard and parking was legally part of the neighbor's lot, not yours. The accurate boundaries in the Property Description were listed in the Purchase Agreement—but not reviewed carefully before signing. As a result, you may lose legal use of the land you thought you owned and maybe even overpaid on the property's price thinking it was much larger than it actually was.

Although there may be options to correct this error, resolving the issue cost thousands in legal and surveyor fees, so its always best to understand clearly what the Property Description is before signing a purchase agreement.

2. Buyer's Purchase Price and Earnest Money Deposits

Make sure the contract accurately reflects the agreed-upon price and states how much earnest money you're paying. Earnest money is the down payment that shows your seriousness as a buyer—but read the conditions under which you could lose it, such as missing a deadline or failing to secure financing.

If an unplanned life event happens, like loosing your job,  or a medical emergency, and you have to back out of the sale or no longer qualify for your loan, make sure you understand the conditions you signed in the contract and consequences of backing out.

3. Purchase Agreement Contingencies

Contingencies protect you by making the deal dependent on certain conditions. Common ones include:

Financing contingency – allows you to back out of the home purchase if your loan falls through

Inspection contingency – lets you renegotiate or cancel if major defects are found. Some defects may not be obvious can only be identified by an expert appraiser.

For example an appraiser might be able to find termites or mold in the attic that even the seller wasn't aware of, which would  have costed you thousands of dollars in repairs if not identified before you agreed to buy the property.

Appraisal contingency – protects against overpaying if the home appraises for less than the sale price.

Ensure these clauses are in place—or understand the risks if they are waived.

4. Sale Closing Timeline

The agreement should specify a closing date, and may include deadlines for inspections, loan approval, and other key milestones. Missing one could be considered a breach of contract, so make sure the timeline is realistic.

5. Who Pays for What? closing costs

Costs like escrow fees, title insurance, transfer taxes, notary fees, and repairs can add up. The contract should clearly outline which party is responsible for each expense. Don't assume someone else will pay for it—it's always better to clarify now than dispute it later.

Ask your real estate agent or escrow officer to give you a realistic estimate on what your closing costs are.

Also keep in mind as a potential buyer the property taxes, whatever amount the seller in paying now in property taxes most likely not be the same amount you will start paying as the home buyer. Every time a home is sold, its "reassessed" the county tax assessor will assign a new value to the property—which could be significantly higher than the previous assessed value. This means: The property taxes may increase substantially after a reassessment.

6. Disclosures and Legal Notices

California law requires sellers to disclose known defects and certain conditions, such as lead-based paint or flood risks. Review all disclosures carefully and make sure they are referenced in the agreement.

These designations aren't just labels—they carry real financial and legal consequences.

If a home is in a high fire risk area (common in many parts of California) or a flood-prone zone, buyers may face:

• Increased insurance premiums – Standard homeowners insurance often excludes flood coverage, meaning you may need to purchase separate flood insurance through FEMA's National Flood Insurance Program (NFIP) or a private insurer.
• Limited coverage options – In high-risk wildfire zones, some insurers may refuse to issue new policies entirely or limit coverage.
• Lender requirements – If you're financing the home with a mortgage, your lender may require you to maintain specific insurance policies as a condition of the loan.

This can have unexpected costs and even jeopardize your ability to close if you can't secure the necessary coverage in time.

Always check the property's Natural Hazard Disclosure (NHD) report and consult with an insurance broker to understand what protections you'll need—and what they'll cost.

7. Seller and Buyer's Default and Remedies

If the deal falls apart, what are the consequences? The purchase contract should state what happens if either party defaults on the sale —whether that's forfeiting the deposit, legal action, or specific performance (forcing the sale to go through).

If you are buying most likely you will want to be able to have your deposit back in case the deal falls through, speak to your real estate agent or an attorney to make sure you understand what the terms are.

Final Thoughts: Don't Sign the Purchase Contract Blindly

Real estate agents can explain the basics of a purchase agreement, but they cannot give legal advice. A purchase agreement is a legal contract that can significantly impact your rights and finances.

At the Law Office of Steve Lopez, APC, we help buyers and sellers understand what they're signing and avoid costly mistakes. If you're entering into a real estate transaction, for a commercial purchase agreement or home sale transaction and have questions, contact us at (562) 904-1193 for a contract review or legal consultation.