Articles Real Estate Information Contract of Sale vs Contract to Sell: What's the Difference?

Contract of Sale vs Contract to Sell: What's the Difference?

Property terminology can be confusing at times. Here's the difference between Contract of Sale and Contract to Sell.

The Contract to Sell and a Contract or Deed of Sale are two separate processes that must be completed in order to establish the terms of payment and transfer title to the property.

Although a Contract to Sell and a Deed of Sale are both legal documents, they have different objectives and may seem the same to the untrained eye. Given that both "contract" and "deed" refer to legal documents and both have to do with sales, it is understandable that they can be misleading. However, it involves more than just paying for and receiving the purchased item.

These paperwork deal specifically with transferring ownership of what was purchased. You can better understand the differences by looking at an example contract to sell and deed of sale. However, there are a few fundamentals concerning these two legal records that are employed in real estate transactions that you should be aware of:

Two people shaking hands above a wooden desk with a laptop and clipboard

How Do Contracts Work?

It's important to understand the components of a basic contract before delving into the two types of sales contracts. In accordance with Civil Code Article 1318:

Unless the following conditions are met, there is no contract:

  1. The parties to the contract's consent;
  2. The contract's subject content, which is an certain object;
  3. The reason why the contract was formed.

When the object offered is openly accepted, there is consent. The offeror must be informed of such acceptance within the time frame he has set. The contract's object should be clearly stated and possible to be fulfilled or delivered. This must be supported by a legitimate reason, which is understood to be the promise to provide a good or a service. A legal, binding contract requires all three of these conditions to be met.

What is a contract to sell anything in the Philippines?

To put it simply, a contract to sell is a legal arrangement between a buyer and a seller in which the buyer promises to purchase the property from the seller and the seller promises to sell it to the buyer.

There is no ownership change in this situation, to be clear. It is agreed that the seller will promise to sell real estate to the buyer, who then promises to purchase it. During your appointment, your lawyer ought to be able to give you a sample of a contract to sell. Additionally, you can find contract copies online in PDF format.

The parties are obligated as soon as the Contract to Sell is executed. To complete their portion of the agreement, each party must adhere to a set of requirements. Keep in mind that the seller does not have to be the owner of the item at the start of the Contract to Sell. The purchaser is also not obliged to have the financial means to pay the whole price. What matters is that both parties can carry out their obligations at the conclusion of the predetermined timeframe.

When this takes place, ownership of the real estate may be transferred. Think about the sale of a condo that was already on the market. The buyer offers to pay a specific price for the property in full or in installments, and the developer agrees to sell a specific unit that it has not yet constructed. It is understood that the condominium must be finished and the entire purchase price paid before the title can be transferred. The next step cannot be taken until both the seller and the buyer can fulfill their obligations.

How Do You Create a Sale Contract?

The contract, like all others used in real estate transactions, must contain all pertinent details. This comprises:

-Who the seller is

-Buyer's name

-Address of the selling property

-The property's description (lot dimensions in square meters)

-Title Transfer Certificate No.

-Name of the municipality or city in which the property is recorded

-Cost of the asset

-Rules and Regulations

What is A Contract or Deed of Sale?

A legal document that certifies and records the sale of a specific piece of property might be used to define what a deed of sale is in this context. It serves as written evidence of the contract between the buyer and the seller for the sale or purchase of real estate. In the event of future disputes or issues, the deed of sale safeguards both the buyer and the seller.

A legal, binding document indicating that the buyer and seller have agreed on the sale or purchase of property—in this example, real estate property—is another definition of a deed of sale.

It is the responsibility of the seller to be able to transfer ownership and deliver the property in accordance with the terms of the contract. The buyer can enter into a Deed of Sale if they were successful in paying the agreed-upon purchase price for the property. Even when the seller is already able to deliver the desired property, it is possible that the buyer is still unable to make the whole payment. The parties may agree that ownership will transfer in this situation subject to a resolutory condition. If the buyer doesn't make the agreed-upon payment, the seller has the right to reclaim the property under this resolutory clause. It might be wise to look at an example deed of sale with this particular clause.

Only when both parties can comply is it safer to enter into a Deed of Sale. Only after full payment is received shall ownership transfer. Sellers who transfer ownership of their property before being paid in full for it are unnecessarily at a disadvantage. When each party is prepared, the parties may move from a Contract to Sell to a Deed of Sale in order to further solidify their agreement.

Who Needs These Documents?

Both the buyer and the seller must agree to both. To process a buyer's loan, a lender bank will need a copy of the Contract to Sell. A certificate will be issued based on the Deed of Sale, which will be filed in the Registry of Deeds. As a result, title would actually pass from the seller to the buyer.

They're interchangeable, right?

They are not. A Deed of Sale is preceded by a Contract to Sell since the former acts as the foundation for the latter. When it comes to the Deed of Sale, there is an act of finality. The Contract to Sell, on the other hand, demands that the parties first fulfill the criteria they agreed upon. This essentially indicates that before a subsequent agreement is drafted, such conditions must be met. The procedure to actually transfer ownership of the property cannot be started until that point. Having said that, use sample contracts to sell and deeds of sale when drafting these legal documents and seek legal advice.

What distinguishes a contract of sale from a contract to sell? When a contract of sale is signed, the vendor forfeits ownership of the real estate and cannot regain it until the deal has been settled. However, in a contract to sell, the vendor retains ownership of the title up until the complete payment of the purchase price.

In the Philippines, Article 1458 of the New Civil Code discusses contracts of sale. Remember that a sale contract may be either unconditional or conditional. An agreement between two parties in which the seller or vendor is required to give something to the buyer or vendee who is required to pay a sum of money or its equivalent is known as a contract of sale.

Remember that in a contract for conditional sale, upon full payment of the purchase price, the buyer instantly obtains the title to the real estate property. The transfer of title to the potential buyer is not inevitable under a contract to sell, however. By signing an absolute sale contract, the potential seller must transfer title to the potential buyer.