If you’re thinking about remodeling your home this year, you’re not alone. As many shifted to working from home in the pandemic, quite a few homeowners decided that they want to make some changes, [...]
What is a purchase agreement?
A purchase agreement in real estate is a document outlining the purchase price and other conditions associated with the transfer of title. Real estate purchase contracts contain critical information, including the purchase price, mortgage contingency provisions, the earnest money deposit, down payment requirements, and many other terms that summarize the conditions of the transfer of title or sale.
A purchase agreement, commonly referred to as a purchase contract or sale contract, spells out the terms of a real estate transaction. In addition to basic information like the property’s asking price, the document outlines any contingencies that must occur before the sale becomes binding and specifies what rights the buyer has in regard to seller’s obligations, and vice versa.
Depending on the state, purchase contracts describe the terms of financing, since most homebuyers cannot afford the entire purchase price in cash, as well as who pays for the closing costs, any home inspection requirements, and the closing date. If a buyer must use the funds from the sale of an existing home to complete the transaction, the contract may contain contingencies on the sale of the buyer’s home.
Real estate purchase agreements also include the “possession” date, which specifies when the buyer can take control of the property. They also might dictate who holds the earnest money deposits during escrow and include language that clearly outlines cancellation of the agreement.
Purchase agreements protect both the buyer and seller from risk from a breach of contract. They generally spell out the repairs the seller has to make by the closing date, his responsibility to declare certain environmental hazards like lead, and his guarantee that there are no third-party security claims on the property, such as a lien. In return, the buyer is required by law to meet her financial obligations, and the purchase agreement outlines the ways a seller can seek legal remedies should the buyer neglect his end of the bargain.
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Purchase agreement example
Tim and Jill are buying a home. They find one they really like, and they begin to negotiate a price with the realtor. Everything looks good, so they decide to sign the purchase agreement. The agreement spells out that they’ll move in August 1 and how to pay for the home, with a contingency clause explaining that Tim and Jill need to sell their old home first and move the funds into an escrow account. The purchase agreement compels the seller to declare that the house is free of lead paint, and he does. Once Tim and Jill’s old house sells, and the escrow account confirms receipt of the money, the purchase is complete.