Understanding the Difference Between Contract of Sale and Contract to Sell

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contract of sale vs contract to sell philippines, contract to sell, rfo meaning in real estate, rfo house and lot meaning, how to be a broker

Owning a house and lot or a condominium unit is a dream come true for many. It can be regarded as your 'trophy' in exchange for your hard work and effort. Everyone dreams of owning a property someday.

But before you get the keys to opening the doors of your dream home, you still need to undergo through the whole home buying process, and that includes acquiring all the necessary documents and papers to own the property legally.

Now that we've mentioned the important documents, today we'll be looking at the two common fine prints you might hear or encounter during a real estate transaction-- the contract to sell and contract of sale.

At first glance, it might not be obvious to determine the difference between the two. In fact, some people use them interchangeably, thinking that they are the same at all. However, there's a huge difference in terms of meaning and effect that you need to take note of.

Read on through the article to distinguish the difference between the two and why it is important for you to know such!

What is a contract to sell?

contract of sale vs contract to sell philippines, contract to sell, rfo meaning in real estate, rfo house and lot meaning, how to be a broker

In essence, a contract to sell is a bilateral contract wherein the seller agrees to sell something to the prospective buyer while the buyer promises to buy it. Simple right? However, there's a catch.

Even though the prospective seller explicitly reserves the ownership or transfer title to his prospective buyer, the vendor loses ownership the moment the buyer has fulfilled his or her obligations, which in this case, is the full payment of the purchase price, and not during the signing of the contract.

Once the contract to sell is signed, that's when the obligation of both parties commences. Note that the seller isn't obligated to transfer ownership of said property right away nor does the buyer has to pay the purchase price in full at the beginning of the contract. What's important is both parties are able to fulfill their obligations at the end of their agreed bargain period.

Upon completion of the bargaining conditions, it is the prospective seller's obligation to transfer ownership to the buyer.

In real estate transactions, conditions stated in a contract to sell may include the following:

  • The seller promises to build the structure;

  • The seller promises to sell the project to the prospective buyer;

  • The buyer promises to buy the project. Payment depends on their arrangements

  • The transfer of ownership only happens when the buyer has fulfilled his or her payment duties

To better understand the context, let's take a pre-selling condominium unit as an example. In this agreement, the property developer agrees to reserve the subject property to the buyer while the buyer consents to pay the total purchase price via installments or in full. The condominium should be built in completion and the full payment of the price should happen first before a transfer of ownership can occur.

A contract to sell is somehow similar to a conditional sale or conditional contract-- transfer of ownership will not commence unless there is a fulfillment of suspensive conditions.

What is a contract of sale?

contract of sale vs contract to sell philippines, contract to sell, rfo meaning in real estate, rfo house and lot meaning, how to be a broker

Similarly, a contract of sale is an agreement between the seller and the buyer where the seller reserves the goods or property exclusively for the buyer. However, in this kind of agreement, the ownership thereto automatically transfers upon the delivery of goods. The seller sells, the buyer pays, and the transfer of ownership commences.

However, the seller and buyer may enter into a type of agreement wherein the seller transfers ownership of a property even if the buyer hasn't completed full payment of the purchase price. This is called resolutory condition. In the event that the buyer fails to fulfill his end of the agreement, the seller has the right to take back his personal property.

In real estate transactions, a contract of sale is usually issued when the buyer is ready to pay the full purchase price and the property is ready to be turned over by the seller.

Are they interchangeable?

The simplest answer is no.

While it's very easy to mix or interchange these two documents, it's important for both the property seller and buyer to know their difference to avoid discrepancies and disputes.

To summarize, signing a contract to sell doesn't automatically transfer ownership. The bargaining conditions of the contracting parties should be fulfilled first. Whereas in a contract of sale, ownership is automatically transferred upon its signing or execution.

What is a Deed of Absolute Sale?

And since we're talking about the fine prints of real estate transactions, let's chip in the deed of absolute sale.

Provided that the bargaining conditions have been fulfilled by both of the contracting parties, the property seller has to convey title to the buyer by partaking in a deed of absolute sale.

In a real estate transaction, a deed of absolute sale states that the seller transfers property ownership rights to the buyer and the buyer has now the right to utilize the property by his own means! In a deed of sale, there is an act of finality in the real estate transaction.

The deed of sale should contain, of course, the name and address of the buyer and the seller, the definitive features of the property, and the date and filing of the said contract. It should be signed by both of the contracting parties in front of a notary public to be deemed as valid.

This document also protects both the buyer and seller the moment a discrepancy or disagreements arise in the property in the future.

The Importance of Knowing these Fine Prints

Consider it as an unwritten rule to read the documents handed out to you before signing anything. But, when you have a piece of prior knowledge about the fine prints of the transaction, you'll already know what you're getting into upon looking at the title of the document

There are buyers who think that they already own the property after signing a contract to sell, even if they haven't paid the purchase price in full, and may demand for the transfer title already. During cases like this, disputes may arise. Knowing the purpose of these documents beforehand prevents such unwanted events.

Final Takeaway

The home buying process isn't as simple and straightforward as someone may think. Aside from finding an affordable house and lot or condominium unit in the most strategic locations, you still have legal obligations and documents that you need to fulfill.

While it is beneficial to equip yourself with the knowledge and basics of the home buying process, finding a reputable real estate agent to guide you through the whole process or a real estate attorney to assist you on the legal side is a great decision as well.

After all, you are dealing with a hefty sum of money so it won't hurt to find someone who is knowledgeable enough to ensure that every transaction is done successfully and under legal terms.


Looking for an affordable property? Contact us today

A lot of Filipinos dream of owning their first apartment or house and lot. With today's booming real estate opportunities, there are so many options to choose from.

Here at Vistaland International, we have a roster of affordable property listings from several locations across the country. Whether you're looking for a place to live in Manila, Cebu, Davao and etc, we've got you covered. So contact our real estate agents today!

contract of sale vs contract to sell philippines, contract to sell, rfo meaning in real estate, rfo house and lot meaning, how to be a broker

contract of sale vs contract to sell philippines, contract to sell, rfo meaning in real estate, rfo house and lot meaning, how to be a broker

Vistaland International was primarily created to bring OFW closer to their dream of finally acquiring a home in the Philippines. And with the rising cost of living in the country, OFWs and their families are looking for ways to earn extra cash flow to support their daily needs. Luckily, you can also join the global network of Vistaland International as a real estate professional and earn a commission!

contract of sale vs contract to sell philippines, contract to sell, rfo meaning in real estate, rfo house and lot meaning, how to be a broker

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