A sale contract covers not just the basics — price and handover timing — but also a number of clauses that carry real weight for the seller: earnest-money cancellation, liability for non-conformity, the loan contingency, and more. Rather than trying to absorb everything on the day of signing, reviewing the content in advance alongside the important matters explanation lets you go into the signing with confidence. Here are the main clauses sellers should check.
- A sale contract includes clauses sellers should understand in advance, such as earnest-money cancellation, liability for non-conformity, and the loan contingency.
- Once the deadline for earnest-money cancellation passes, it becomes harder to cancel the contract without the other party's agreement.
- The scope and duration of liability for non-conformity are set out in the contract, and this is an important clause tied to disputes arising after handover.
- Cross-check the contract against the equipment schedule and disclosure statement to confirm there's no mismatch with the property's actual condition.
- If you don't understand a clause, it's important to ask your agent or raise it during the important matters explanation before signing.
The Earnest-Money Cancellation Clause
Sale contracts typically include an earnest-money cancellation mechanism: within a set period after signing, the buyer can cancel by forfeiting the earnest money, and the seller can cancel by returning double the earnest money to the buyer. The contract specifies the deadline for this cancellation right, and once it passes, neither side can cancel without the other's agreement. Check first when that deadline falls.
The Scope of Liability for Non-Conformity
Liability for non-conformity is the responsibility a seller bears if the property delivered doesn't match what was agreed in the contract. The contract sets out the period and scope of that liability, along with any exemptions. In a sale between individuals, a special clause is sometimes included to reduce or waive part of this liability, so it's important to check the contract's wording to understand exactly how much liability you're taking on.
The Loan Contingency: Content and Deadline
If the buyer is using a mortgage, the contract will include a loan contingency clause. This provides for the contract to be voided if the buyer's loan application is rejected, and a deadline is set for when this cancellation right applies. It's a clause that affects the seller too, so check both the content and the deadline. What sellers can do to prepare if a contract is voided under the loan contingency is a separate topic worth understanding in its own right.
Consistency with the Equipment Schedule and Disclosure Statement
Alongside the contract, you'll also exchange an equipment schedule and disclosure statement, which record the condition of fixtures being left behind and any defects or history of the property. Checking, before signing, that there's no mismatch between the contract and what's recorded in the equipment schedule and disclosure statement helps prevent misunderstandings after handover.
Penalty Clauses, Risk of Loss, and Other Provisions
The contract also includes provisions such as a penalty for breach of contract, and how risk of loss is allocated if the property is damaged by a natural disaster before handover. Contracts tend to run long, but rather than leaving a clause you don't understand as-is, it's important to ask questions during the important matters explanation or a pre-contract meeting and sign only once you understand the content.
FAQ
Is it okay to sign even if I don't fully understand every clause?
It's best to avoid signing while a clause you don't understand remains unresolved. Ask your agent about anything that concerns you during the important matters explanation or the pre-contract meeting, and sign only once you understand it.
Can liability for non-conformity be fully waived?
The scope and duration of liability for non-conformity are set individually in each contract, and there are limits to how far it can be waived. Review the specific terms in the contract, and consult a professional if needed.
What happens if the earnest-money cancellation deadline passes?
Once the deadline for earnest-money cancellation passes, it becomes difficult to cancel the contract without the other party's agreement. Confirm the deadline in the contract in advance.
Summary
A sale contract includes a number of clauses that matter to the seller — earnest-money cancellation, liability for non-conformity, the loan contingency, and more. Review the content one clause at a time before signing, and ask questions on anything unclear so you can sign with confidence.