Bilateral contracts in real estate made easy (+ Examples)

The contract is the backbone of any transaction. From the sale of a home to a lease, knowledge regarding the different types of these contracts cannot be undermined, as they are particularly important for the real estate exam. Probably the most common type of contract you will encounter is the bilateral one. It’s some sort of agreement whereby both parties promise to perform some act, thereby creating mutual obligations.

For instance, the seller promises to give you ownership of the house when you agree to buy it, and you agree to pay the price already agreed upon. That is a bilateral contract in operation.

This view will explain what a bilateral contract is, how different it is from other contracts, and why such an important concept in real estate. We’ll even give some tips and examples to clarify things a bit more so that you feel confident in acing this part of your exam.

What is a bilateral contract in real estate?

A bilateral contract in real estate is an agreement between two parties in which each party makes a promise to the other, thereby creating a mutual obligation. This could be an agreement between individuals, groups of persons, companies and a person, or companies and groups of persons.

In real estate bilateral contracts find their application in property purchases and in letting out on rent. One major instance could be a purchase agreement where a vendee would promise to pay the price of sale and the vendor promise to transfer the property. Here, both parties have to perform the promises to complete the contract.

That’s because they clearly stipulate the responsibilities of both parties, hence allowing each side to know what they are getting themselves into when sealing the deal.

Key characteristics of bilateral real estate contracts

Understanding the main features of bilateral agreements real estate will help you recognize them in real estate transactions:

1. Mutual Promises: Both parties make binding promises to perform specific actions. For example, a seller promises to sell a property, and the buyer agrees to pay for it.
2. Legal Obligations: Once both parties sign the contract, it becomes legally enforceable, meaning either party can seek legal recourse if the other fails to uphold their end of the deal.
3. Clear Terms: Bilateral contracts include detailed terms, such as price, closing dates, and any contingencies, ensuring that both parties understand their rights and responsibilities.
4. Enforceability: Since these contracts are legally binding, breaching them can result in legal consequences. For instance, if a buyer backs out without valid grounds, they might lose their deposit or face legal action.

Common types of bilateral contracts in real estate

In real estate, several types of bilateral contracts play an important role in property transactions. A few common ones are:

• Purchase agreements: Probably the most common type of bilateral contract, which the buyer and the seller agree upon for a certain sum of money, whereby the seller promises to transfer ownership in property. These agreements will contain purchase price terms, financing information, and property condition prerequisites, among others, which are proposed for the purpose of securing both parties’ commitments.
• Tenancy agreement: The landlord, under the tenancy agreement, covenants that during the tenancy, the premises are in a living condition while the tenant agrees to pay rent and respect the rules of the premises. These continuing duties make both parties aware of what is expected of each during the tenancy.
• Sales contracts: The real estate sales contract is like a purchase agreement, stating the terms on which the real property is being sold, including payment terms and conditions of inspection and transfer.

These contracts are foundational in real estate transactions, clearly defining the expectations and commitments of each party and promoting fair, legally enforceable dealings.

Bilateral vs unilateral contracts: What’s the difference?

A bilateral contract differs from a unilateral contract in one major way: mutuality of obligation. In a bilateral contract, both parties make promises to perform. In a unilateral contract, only one party makes a promise, which is fulfilled only if the other party completes a specified action. For example:

• Bilateral Contract Example: In a home purchase, both buyer and seller make promises—one to pay, the other to transfer ownership.
• Unilateral Contract Example: A real estate agent offers a reward for finding a specific buyer for a hard-to-sell property. Only the agent is obligated to pay the reward if a buyer is found; the other party is not obligated to act.

This distinction matters because bilateral contracts create binding obligations for both parties from the start, while unilateral contracts only become binding when the specified action is performed.

Why are bilateral contracts important in real estate?

Bilateral contracts are essential in real estate because they create security and trust. Since both parties are legally obligated to fulfill their promises, there’s a sense of predictability and commitment. For instance, when a seller signs a purchase agreement with a buyer, both know what to expect in terms of payment, property condition, and transfer timing.

Besides, bilateral contracts lessen the probabilities of misunderstanding or disputes since clear obligations are known to each party. Should one party fail to meet their obligations, the other has legal grounds to enforce the contract or seek compensation.

Real-world example of a bilateral contract in real estate

To bring this concept to life, imagine that the buyer of a house, Sarah, who is buying for the first time, signs a purchase agreement with the seller, who promises to transfer the title of the house against a given agreed price; in return, Sarah will promise to get financing and pay the full amount of money on the closing date.

These are legally binding promises on the part of both Sarah and the seller: failure to fulfill these promises by either party entitles the other to seek any available legal remedies.

This is characteristic of mutual commitment in real estate transactions and underlines the fact that property dealings are based on bilateral contracts.

Wrapping-up

Bilateral contracts go to the core of real estate and provide a format that maintains the transaction safe, clear, and lawfully binding. Grasping these types of contracts could be highly beneficial to anyone studying for their real estate license or starting a career as a real estate professional since it makes agreement handling much easier. 

We hope this guide clarifies bilateral contracts and how they work in real estate. For more practice and resources, explore Lexawise’s exam prep tools to deepen your understanding and boost your confidence as you prepare for exam day.