For most people, buying or selling a home is the largest financial transaction of their lives. The purchase agreement is the central legal document in that transaction. Understanding what a purchase agreement covers and what to look for can protect you in a real estate deal.
What Is a Purchase Agreement?
Purchase Agreement Definition
A real estate purchase agreement (also called a purchase and sale agreement or contract of sale) is a legally binding contract between a buyer and seller for the purchase of real property. Once signed by both parties, it obligates both the buyer and seller to complete the transaction on the agreed terms.
Key Provisions
Purchase agreements typically include: the property address and legal description, purchase price, earnest money deposit, financing contingency, inspection contingency, appraisal contingency, closing date, items included in or excluded from the sale, property disclosure requirements, and default and remedy provisions.
Contingencies
Contingencies are conditions that must be met for the sale to proceed. Common contingencies include: financing contingency (the buyer must secure a mortgage), inspection contingency (the buyer can inspect the property and potentially negotiate repairs), and appraisal contingency (the property must appraise at or above the purchase price).
Role of Real Estate Agents and Attorneys
In most US states, real estate agents (and their brokers) use standard forms approved by their state's realtor association. Some states (e.g., New York) traditionally require attorney involvement in real estate transactions. Real estate transactions are complex — professional assistance is strongly advisable.
✓ Key Takeaways
- A purchase agreement is a binding contract — read it carefully before signing
- Contingencies protect buyers but may weaken offers in competitive markets
- Real estate law varies significantly by state
- Always have a real estate professional and/or attorney involved in real estate transactions
Frequently Asked Questions
Earnest money is a deposit made by the buyer when submitting a purchase offer. It demonstrates serious intent to purchase. If the buyer backs out without a valid contingency, the seller may keep the earnest money.
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