A Real Estate Purchase Agreement is a contractual agreement between a buyer and a property seller. It usually includes the terms and conditions for sale, the location, and the condition of the property in question.
Common reasons for using a real estate purchase agreement are to ensure fair business practices by both the seller and buyer, protecting the interests of both parties. In addition, the agreement acts as evidence of the agreed business terms between the seller of the property and the buyer. It can also be used to sue in case one party violates the terms.
Another reason for using a real estate purchase agreement is when the seller wants to sell their property privately. Therefore, a signed agreement by both parties acts as sufficient proof of transactions between the parties.
A real estate purchase agreement is also used when the seller funds the buyer by extending credit to the buyer. The buyer makes regular installments until they complete payment within the timeframe stipulated in the agreement.
When a seller sells a property to a family member, it is often advisable to use a real estate purchase agreement. Notably, this agreement can be used in transactions involving any form of a residential building, as long as the property has had an owner or the construction is deemed to be complete by the closing date of the agreement.
Some of the alternative names for the real estate purchase agreement include the following:
- Purchase and sale agreement
- Purchase and sale contract
- Residential real estate purchase contract
Types of Real Estate Purchase Agreement
There are several types of real estate purchase agreements, and they include the following:
Asset Purchase Agreement
Asset purchase and sale agreement is a type of residential purchase agreement that spells out how the assets of a property will be sold to a potential client.
Download: Microsoft Word (.docx)
Business Bill of Sale Purchase Agreement
It is an official document that serves to spell out the terms of sale and purchase of a business entity.
Download: Microsoft Word (.docx)
Commercial Real Estate Purchase Agreement
It is an official document that spells out the terms of sale and purchase of property in an estate setup.
Download: Microsoft Word (.docx)
Land Purchase Contract
A land sale and purchase agreement is an official document that pertains to a piece of land being sold.
Download: Microsoft Word (.docx)
How to Write a Real Estate Purchase Agreement
There are essential components that need to be incorporated when writing a real estate purchase agreement, such as the parties involved, property details, financing details, price, and much more. Below is a complete step-by-step guide on writing a real estate purchase agreement.
Introduce the parties
The introduction of the parties involved in a sale and purchase agreement is one of the first steps involved in creating a purchase and sale agreement. The main parties in such a transaction include the seller of the property and the buyer. Each party’s details must be highlighted in the agreement, including their name, address, and contact information.
Description of the property
The property is the main item of transaction in a real estate purchase agreement, and therefore its descriptive information should be detailed in the agreement. Under the description of the property, the legal description and details of personal properties have to be provided to show the property’s actual location.
The legal description of a property in a real estate purchase agreement details the nature and purpose of the specific property, for example, a single-family home, duplex, condominium, etc. The next part of the legal description should present the property’s physical location in question by naming the street address, city, county, state, and zip. Lastly, the legal description section requires entries of the tax parcel details of the property with details such as the tax map, parcel ID, or Lot Number. If this information is not available in the agreement, the buyer or seller can contact the county’s records department within which the property is situated to obtain the information.
Personal property includes any other item that is sold together with the house, for example, storage cabinets or air conditioners. Under this section, all such personal properties should be listed in the blank spaces in a real estate purchase agreement.
Some of the financial engagement terms used in a real estate purchase agreement include earnest money deposit, escrow, purchase price, and all-cash offer. How and when these terms are applied in the agreement is described below:
Earnest money deposit
The earnest deposit is defined as the initial deposit required to make the purchase. The ownership documents do not get transferred during this period, but it displays a willingness to purchase from the buyer. A buyer is expected to make a non-refundable earnest money deposit ranging between 1% to 3% of the property’s sale price.
Escrow is a cash transfer service that protects the buyer and seller during the sale of a property. It is an online platform that allows the buyer to deposit and release the funds after satisfying offline purchase conditions.
Purchase price and terms
The purchase price and terms are also stipulated in the description part of a real estate purchase agreement. It includes the entire cash price of the property in question and any terms of half cash payments.
The all-cash offer segment in a real estate purchase agreement allows the seller to indicate how the buyer will make payment. For example, the buyer can tick the first checkbox under the All Cash Offers section to indicate that they will make cash payments and not require a loan or seller financing to purchase the property. Then, after a few business days, the seller can get back to the buyer to notify them if their payment option is acceptable. If not acceptable, then the agreement is automatically terminated.
A residential real estate agreement must discuss the sources of financing that the buyer will use to purchase the property. Commonly used financing sources include third-party financing, seller financing, and mortgage assumption.
Third-party financing refers to any third-party financiers that the buyer of a property in real estate may have. They may include banks, investors, or loan sharks.
Seller financing refers to any sort of financing that the seller may have had to buy or build the property. It stipulates the terms and conditions of their financial plan and indicates if it was completed or if there were any pending balances.
If a property is still under the mortgage loan, the buyer can assume the mortgage as a purchase method. Therefore, the residential real estate purchase agreement should note under the financing section if the buyer will be assuming the loan responsibilities of the property and confirm their qualification for the loan based on the lender’s specifications.
No financing in a real estate sale and purchase agreement refers to the seller not using funds to buy the property from any third party. They are independent in this case and therefore free from any future financial implications.
A contingency refers to any condition that may lead to the termination of a residential sale and purchase agreement. Examples of contingencies that may lead to contract termination include failure to make an earnest money deposit.
Sale of another property
A buyer may depend on finances from selling some of their personal properties to buy a residential property. The sale of another property in a residential sale and purchase agreement is a clause that prevents the buyer from using the document to sell another property apart from the one stipulated in the agreement.
Factors relevant to the closing
Some of the factors that are relevant to the closing of a real estate sale and purchase agreement include the following:
The closing date refers to the final date of the buyer and seller finalizing the deed of sale and purchase. It involves confirmation of any payment balance that the buyer may have had and checking the finer details of the property by the seller.
Clarifying closing costs
Clarifying closing costs involves a breakdown of the payment balance that is left for the buyer to clear. It involves giving a step-by-step valuation process of the entire property for sale.
Additional factors affecting the closing
Some of the additional factors affecting the closing of a real estate sale and purchase agreement include the following:
A survey refers to a land surveyor’s valuation of a property on real estate. It involves a breakdown of its location, map, and value according to the certified land surveyor’s audit.
The title is an official document that shows the owner of a piece of land. It is bestowed to the buyer of a property in a real estate sale and purchase agreement after they pay the final balance for the property in question, as it also includes the land it sits on.
The title insurance in a real estate sale and purchase agreement refers to the cash paid for the safekeeping of a title for a piece of land. It is also stipulated in the final part of the real estate sale and purchase document.
The condition of the property refers to the physical state of the property during the sale and purchase. In a real estate purchase agreement, the property condition is given in detail in the final parts of the document. The date and time when the buyer went for inspection to confirm the viability of the physical state of the property should be mentioned, along with attached copies of inspection reports. If there are some faults that the buyer suggests to the seller for rectification on the property, in that case, a few business days will be set out to allow the seller to include in the agreement all modifications done on the property. If the rectifications are not made by the agreed date or a solution is not met, the agreement can be terminated and a full refund of the earnest money deposit is sent back to the buyer.
Appraisal refers to the expected return on investment that a buyer will earn after buying a property in a real estate sale and purchase agreement. If, after appraisal, the property value is lower than the appraised value, then the buyer can request renegotiation. If an agreement cannot be met, the contract can be nullified.
The closing statements in a real estate sale and purchase agreement spell out the additional finer details that the buyer will have to abide by if they live there. It may include modification policies, pet policies, or even how to abide with their fellow neighbors in the long run.
The state and federal laws concerning real estate are also mentioned in the residential sale and purchase agreement. They show that the transaction is valid under law and what they say about each party’s responsibility.
The real estate sale and purchase agreement should also include the expiration date for the buyer to meet to validate their purchase.
An addendum is an additional clause in a residential sale and purchase agreement that stipulates the contingencies involved in its purchase. They include the following:
- Closing date extension addendum
- Condominium association addendum
- Escrow hold back Agreement addendum
- Earnest closing money receipt
- Estoppel certificate addendum
- Release of earnest money
- Inspection contingency addendum
- Seller financing addendum
- Short sale addendum
- Termination letter to purchase agreement
Buyer beware is a clause in a real estate purchase agreement that instigates buyers to be keen on the property’s value, nature, and condition before buying. However, depending on the different regions, some laws do not specifically demand that sellers be honest about the defects of the property they are selling. Therefore, while reviewing the agreement, one should consider whether the sale can be nullified if the seller has not made the requested modifications. Also, the buyer should consider getting a refund if they are not satisfied with the property after inspection. Again the buyer should always think about the necessary inspections needed when purchasing a property to ensure they do not buy damaged or low-value property.
Disclosure refers to a statement on the state of a property that appears as part of a residential sale and purchases agreement. It is usually mandated by law unless the state has a buyer beware clause. They include the following:
Lead-based paint disclosure
A lead-based paint disclosure is a disclosure of prohibition for the buyer to notify the seller of any peeling, worn out, or scratched paint that the property may have. The law behind this was formulated in 1973, where property owners were required to notify the buyer of any cracks or peels in the paint of their houses.
Property disclosure statement
A property disclosure statement is a message indicating that a property has a disclosure clause as part of its residential sale and purchase agreement. It is needed in every state except those that have a buyer beware clause.
Additional terms and conditions
Some additional terms and conditions for inclusion in a residential sale and purchase agreement include the following:
The dispute resolution is a clause in a residential sale and purchase agreement that stipulates how the buyer can effectively dispute it in the event of a conflict with their neighbor. In addition, it indicates any persons or places of interest that can help with this as well.
Option to terminate
A real estate purchase agreement can be terminated when the buyer or seller breaches the terms stipulated in the agreement or if both parties mutually decide to terminate the agreement. Some of the reasons why a purchase agreement is terminated include faults identified in the building during the inspection, lack of financing, termination during the contingency period, failure of the buyer to make the required deposit, and lastly, mutual agreement. If the contract cancellation is consented to by both parties, then each party would have to present a termination letter before any funds held in escrow are released.
Representations and warranties
In the real estate sale and purchase agreement, the two parties must also have representatives and warranties affirming the sale and making it legal.
Once both parties fully meet all the details of a real estate sale and purchase agreement, they also place their signatures in the final part of the document. The signatures also include the witnesses and any official involved in the property’s sale or valuation process.
Real Estate Purchase Agreement Templates
Following are some free downloadable templates for you.
Frequently Asked Questions
What form is used in a real estate purchase agreement?
The real estate sale and purchase form are used in a real estate purchase agreement.
Is the purchase contingent upon inspection?
The purchase can be contingent upon inspection if the conditions do not meet the expectations of the buyer.
When can a real estate contract be terminated?
Yes, a real estate contract be terminated if one of the parties violates the terms and conditions stipulated in its writing. The breach can happen as a result of both the buyer and seller.