An analysis of this form shows that it is similar in many respects to the contract of sale, except that the price is paid wholly or partly in property instead of cash. The instrument is dated and contains the names of the parties just as the contract of sale, except that for convenience they are termed "party of the first part" and "party of the second part." Usually the person who pays no cash whatever is designated as the first party.

Since the properties are being exchanged and no cash or only a small amount passing, the parties may set any value they wish upon the properties to be exchanged. They may agree on any values just so they do not affect the cash difference to be paid. They might recite a nominal value for each property. Usually the values agreed upon are inflated. Following the names of the parties, are set forth the agreed value of the first party's realty, its description and the encumbrances subject to which it is sold. Then follows a similar statement with reference to the second party's property. As in the contract of sale the description and enumeration of encumbrances should be full and accurate.

Financial Statement

Here is set down the amount of difference in value agreed upon, and which party shall pay it and how. For example: The first party owns X which it is agreed is worth $25,000, and which he is to convey subject to a $15,000 mortgage. The second party owns Y agreed to be worth $20,000 which he will convey subject to a $14,000 mortgage. In this case the first party's equity or value over the encumbrance is $10,000 while that of the second party is $6,000 the difference being $4,000 which the second party will pay. A part of the difference may be paid on the signing of the contract, but quite often no payment is made till the closing of title.

Following the closing clause, which is like a contract of sale, is the brokerage statement. Since this is an exchange, there may very likely be a broker representing each party. The contract should contain the name of each broker, the amount of commission to be paid him, and by whom to be paid. Since the values stated may be and often are inflated and the commission is usually a certain percentage of the actual value, it is always wise to agree on a definite amount of commission, so that no subsequent claim of a percentage amount based on the value stated in the contract be made by the broker.

The remaining provisions are similar to the contract of sale but being worded to apply to each party as each is conveying realty.