Types of Real Estate Contracts: All You Need for Your Exam

Selling or buying real estate can be complicated. Significant sums of money are at stake, regulations must be followed, and everyone’s interests must be protected. Everything must be discussed and written to close a deal that benefits all parties. That’s when real estate contracts step in to ensure a smooth and lawful process.

However, these legal documents often have their fair share of confusing jargon and intricate clauses. Even so, they are classified depending on several aspects of the agreement, like the terms of possession or the parties involved.

At its core, every real estate contract helps transfer part of the bundle of rights: the rights to possess, control, enjoy, exclude others, and dispose of property. A purchase agreement transfers all five rights. A lease transfers possession and enjoyment for a limited time. An option contract reserves the right to purchase for a set period. This framework helps you answer exam questions about the nature of each agreement.

For a real estate contract to be enforceable, it must be valid, meaning it includes offer, acceptance, consideration, legal capacity, and legal purpose. A contract that lacks these elements may be void, meaning unenforceable from the start, or voidable, meaning valid but cancelable by one party.

Contracts can also be express or implied. Express contracts state the terms clearly, either in writing or orally. Implied contracts arise from conduct. Under the Statute of Frauds, real estate contracts generally must be in writing and signed to be legally enforceable.

In this blog, we’ll review the real estate contract types you are most likely to see on the licensing exam, including purchase agreements, listing agreements, lease contracts, option contracts, land contracts, assignment contracts, and powers of attorney. Let’s dive in!

Different Types of Real Estate Contracts

Real estate contracts are legally binding agreements between two or more parties regarding the purchase, sale, exchange, lease, or use of property. The contract type depends on the goal of the agreement, the rights being transferred, the parties involved, and the financial terms.

Sales and Purchase Agreement (SPA)

A Sales and Purchase Agreement (SPA) is the most common type of real estate contract. It is a deal between a buyer and a seller to transfer ownership of a specific property. It includes several details regarding the purchase, such as the property’s description, the parties’ identities, purchase price, closing date, contingencies, and terms of possession. Every purchase agreement must comply with the statute of frauds — the legal requirement that real estate contracts be in writing and signed by the parties to be enforceable.

A verbal agreement to buy or sell property, no matter how specific the terms discussed, is generally not legally binding. This is one of the most frequently tested contract concepts on the licensing exam. Suppose there are appliances, furniture, or anything else that goes with the property’s sale. In that case, it should also be stated in the document. One of the most common terms in a purchase agreement is the earnest money deposit — a good-faith payment the buyer makes to show they’re serious about the transaction. The contract must specify the amount, who holds it in escrow, and under what conditions it’s refundable. Earnest money disputes are among the most common reasons real estate transactions fall apart.

Contract law varies more than most people realize. Louisiana is the only state in the U.S. that operates under a civil law system derived from French and Spanish civil law traditions — its contract rules, property law, and inheritance procedures are fundamentally different from the common law used in the other 49 states. The Louisiana real estate broker exam tests Louisiana Civil Code provisions rather than common law contract principles. The Minnesota real estate broker exam follows the more standard common law framework.

Listing Agreement

A listing agreement is a contract between a property owner, usually the seller, and a real estate agent or brokerage. It authorizes the agent to market and sell the property on the seller’s behalf. The agreement defines the listing price, commission rate, duration of the listing period, and the agent’s marketing obligations.

The exam often tests four main types. In an exclusive right-to-sell listing, the agent earns a commission regardless of who finds the buyer. In an exclusive agency listing, one broker markets the property, but the seller may sell independently without paying a commission. In an open listing, multiple agents can list the property, but only the one who produces the buyer earns the commission. In a net listing, the agent keeps any amount above a minimum seller price. Net listings are prohibited or heavily regulated in many states because they create conflicts of interest. Understanding these differences is critical because the exam often tests which listing type protects the broker’s commission.

Land Contract or Contract for Deed

Land contracts are an alternative for people who cannot afford to buy a property with a mortgage. They are a type of seller-finance; in this case, the buyer won’t get credit from a bank or any other financial institution; they borrow the money directly from the seller. This way, the buyer’s loan payments go to the seller until all is paid.

This type of real estate contract has different names depending on your location. It’s also called installment land contracts, contracts for deeds, or bonds for title.

Contracts may also reference deed restrictions that limit how the property can be used, even if the contract itself does not create those limits. A lease agreement in an HOA community, for example, must comply with the subdivision’s CC&Rs, which may restrict rental duration, pet ownership, or commercial activity. A land contract in a deed-restricted development requires the buyer to accept those restrictions as a condition of the purchase.

Lease Agreement

These are contracts for rental properties. With them, a landlord agrees to rent a place for a tenant at a fixed monthly rate. Depending on the agreement between the parties, it can also include utility payment, security, or any other benefits.

One common exam point is whether a lease agreement can be changed during the lease term:

• Can a landlord change the lease agreement? As real estate rents increase over time, people wonder if a landlord can change the lease agreement as they please. In this case, like any other, a real estate contract can only be changed in the middle of the lease term if both landlord and tenant agree.

Option Contract

An option contract gives the potential buyer the right, but not the obligation, to purchase a property at a specified price within a set period. The seller, called the optionor, cannot sell the property to anyone else during the option period. The buyer, called the optionee, usually pays an option fee, and that fee is typically non-refundable if the buyer chooses not to exercise the option. On the exam, option contracts are unilateral contracts until exercised because only the seller is obligated. Once the buyer exercises the option, the agreement becomes bilateral.

Bilateral vs. Unilateral Contracts

A bilateral contract obligates both parties to perform. A purchase agreement is bilateral because the buyer agrees to pay and the seller agrees to convey the property. A unilateral contract obligates only one party. An option contract before it is exercised is the classic example because the seller must keep the offer open, but the buyer does not have to buy. Most real estate contracts are bilateral.

Assignment Contract

In an assignment contract, a property owner grants a real estate investor the right to purchase a property but not the property’s title itself. Then the investor can sell that right to another buyer. When a buyer finally buys the property, that buyer pays the investor a fee. Assignment contracts became especially common in fast-appreciating markets like Portland, where Oregon’s real estate boom made wholesale assignments profitable — the Oregon real estate broker exam tests contract and agency concepts that help brokers understand assignment-related duties. Arizona, as a community property state, adds a layer of complexity to purchase agreements: both spouses must sign when selling community real property. The Arizona real estate broker exam covers how community property law affects contract validity.

Power of Attorney

The power of attorney exists in all 50 states, allowing a person to represent another in legal contracts. For example, when someone cannot sign the agreement or participate in the negotiations because they are overseas, hospitalized, or not sound of mind, they can allow someone else to sign for them.

In this case, the word attorney may be confusing, but you don’t need to be a lawyer to have a power of attorney contract; anyone can have one as long as the represented person assigns them.

The power of attorney is limited to what is agreed in the contract. For example, it may authorize someone to sell a property but not to manage or make other decisions.

Learn these aspects about this type of real estate contract:

• Can a real estate agent be a power of attorney? Yes, a real estate agent can be named power of attorney. This decision could be beneficial because they can manage and close the deals signing by themselves instead of waiting for their client.

• Who can override a power of attorney? The only person who can override a power of attorney is the principal, who gave it in the first place. However, if the principal is not of sound mind for some reason, a legal guardian or loved one can override it.

Summarizing

Understanding every contract type is essential for the licensing exam — from purchase agreements to listing agreements to option contracts. Our real estate exam prep covers every contract law concept your state exam tests.