In real estate, a purchase agreement means you’re officially under contract on a home. Once the agreement is signed, the house is under contract and both parties (the buyer and seller) are committed to moving forward with the sale. It also means that both parties, the buyers and the seller, agree to the terms of the contract under which they’ll be operating as the sale is completed.
What is a purchase agreement?
The real estate purchase agreement is constructed by a real estate agent and/or lawyer on behalf of the buyer and seller, and it solidifies the terms and conditions of the exchange. A third party, typically the buyer’s real estate agent and attorney, will help make sure any negotiations are hammered out and captured, so both parties are operating under the same conditions going forward. This becomes the purchase agreement contract that the buyer and seller both sign before moving forward with the transaction.
The content of a real estate purchase contract
We know that a purchase agreement spells out the terms and conditions of a real estate exchange, but what exactly is in them? Here are some common examples of what’s typically covered in a home purchase agreement:
- Information about the buyer and seller: This includes names, contact information and anything else each party deems necessary to include.
- Purchase price: In short, the monetary value both parties have agreed upon for the purchase.
- Asset identification: Outlines information about the property, specifically regarding location and property descriptors.
- Insurance: This section lists out some insurance requirements necessary to the transaction.
- Financing: This includes details regarding the buyer’s mortgage or other way they plan on financing the purchase, earnest money and any other deposits.
- Contingencies: These are the key conditions that must be met before the purchase can officially go through.
- Inspections and due diligence: This section will typically outline the due diligence performed on behalf of both parties regarding the condition of the asset.
- Taxes: In this section, you’ll typically find information regarding property taxes.
- Important dates: These include the closing date and any other milestones of note.
- Interested party contributions (IPCs): These are costs that normally would fall on the buyer but are paid by someone else, either directly or indirectly, specifically by someone who has a financial stake in the property.
You’ll likely see other details about the property, such as its size, fixtures, inspection details and more, in a purchase agreement, as well as areas for signatures.
What happens after you sign a purchase agreement?
Once signed, the purchase agreement is legally binding, meaning both parties are expected to move forward under the terms of the agreement. Keep in mind, this doesn’t mean the sale is complete, the purchase agreement is simply the framework for the exchange. For example, the homeowner can’t attempt to increase the sale price once the contract is signed. Both the buyer and the seller are expected to take the necessary next steps toward a successful real estate transaction.
Can a buyer back out of a purchase agreement?
Although a real estate purchase agreement is legally binding, it’s valid within the terms put in place. If the purchase agreement has contingencies that ultimately aren’t met, that may leave grounds for the buyer to back out or renegotiate the terms. For example, if a mortgage contingency states the buyer only moves forward with the sale if they secure financing, and the buyer is ultimately not able to get a loan, then they may be allowed to back out of the purchase. If the buyer backs out and the reason isn’t covered by the purchase agreement, then the seller is often entitled compensation that covers the loss of their time and effort spent on a purchase that didn’t go through. In this case, the seller may get the buyer’s earnest money, which is a payment made at the beginning of the transaction on behalf of the buyer that essentially signifies the buyer’s commitment to purchasing the home and essentially put the home on “hold.”
Can a seller back out of a purchase agreement?
Although it isn’t common, a seller can back out of a purchase agreement if it includes an option to terminate, or if certain contingencies aren’t met. If the reason they want to back out isn’t written in the contract, then they may be required to pay monetary losses (like the cost of the buyer’s appraisal or home inspection) and be subject to other potential legal consequences.
A real estate purchase agreement is a legally binding document written by a third party on behalf of the buyer and seller that sets the framework for a real estate transaction. If either party breaches contract, then they are subject to monetary losses and potential legal action. Overall, the purchase agreement means the parties are in contract, and it helps ensure a successful real estate transaction.