In residential real estate, the purchase agreement is the key document in the process of buying and selling property. It contains a number of important terms that govern the transaction and the title and closing process.
It is important to understand how these agreements function, what their key terms are, and where to focus your time as you move through them. In this article, we’re going to look at purchase agreements from a high level, before taking a more in-depth approach in future articles.*
A real estate purchase agreement is the binding legal document that represents the contract for the sale of real property from the named seller to the named buyer.
In almost all situations, a verbal agreement is not enough to meet the legal requirements for a real estate contract. Because of this, the purchase agreement will almost always be a written document.
The agreement is typically prepared by one of the parties or their legal counsel. Many states also publish standard form real estate purchase agreements that are often used by real estate professionals. Once the purchase agreement is completed, it is generally sent by the preparing (or offering) party to the other party who can then accept the offer, reject the offer, or modify the terms through a counteroffer. If a counteroffer is used, the original offering party must accept the counteroffer before a binding contract is entered.
A real estate purchase agreement contains a number of both simple and complex terms, each of which deserves its own discussion. For now, here are key terms that you can likely expect to see:
Buyer and seller information: the names and contact information for each party to the transaction.
Property information: the address or other identifying information of the property being sold (for example, the parcel number or legal description), as well as any other important information about the property.
Price and earnest money: the purchase price of the property as agreed to by the buyer and seller and any earnest money required to be deposited to open escrow.
Representations and warranties: the statements of fact that the buyer or seller warrant are true and material to the contract.
Financing contingency: how the purchase price will be paid by the buyer.
Inspection contingency: a period of time for the buyer to inspect the property for any hazards, defects, or other issues that would cause the buyer to reject the property and allow the buyer to back out of the purchase agreement.
Other contingencies: any additional conditions that must be met before closing.
Disclosures: any disclosures regarding the property the seller is required to make by the law of the state or county where the property is located.
Fixtures and/or appliances: anything attached to the property that is not the property itself that will convey with the property.
Title insurance: the obligation to obtain title insurance on behalf of the buyer, seller, and/or lender.
Property taxes: information regarding the property taxes to be paid by the buyer and/or seller when the transaction closes.
Closing date: the date by which all conditions need to be met in order for the seller to deliver the property and the buyer to pay the purchase price.
Option to terminate: the ability for the buyer or seller to back out of the agreement before closing.
Default Terms: the parties’ rights and obligations in the event of a default or breach by the other party.
Signatures: the parties named as buyer and seller in the purchase agreement who sign the contract to make it a binding legal agreement.
Date: the date each party signs the agreement, typically noted with the signatures. This is important, as oftentimes actions required by the contract must be undertaken within a set number of days from the date the contract is signed.
Real estate purchase agreements contain several very important terms and conditions related to the purchase of the property. Understanding these terms helps both the buyer and seller understand their respective rights and the process that will occur after the contract is signed.
The information provided in Peak Title Professionals, does not, and is not intended to, constitute legal advice. All content is for general informational purposes only and is not intended to provide a complete description of the subject matter. Specific processes will vary based on applicable law. The title and closing process will be handled by a third-party attorney to the extent required by law. Product offerings vary by jurisdiction and are not available or solicited in any state where we are not licensed.
