A Real Estate Purchase Agreement is a contract between a buyer who wants to purchase a home (or another piece of real property) and a seller who owns that property.
A buyer usually proposes this form to begin negotiations on a real estate transaction (for a single-family primary residence or investment property), and the seller accepts or rejects the terms.
What is a Real Estate Purchase Agreement?
A Real Estate Purchase Agreement, also called a real estate sales contract, is a written agreement between a buyer and seller outlining the terms of the sale of real property.
Depending on the laws in your state, the person who writes a real estate sales contract can be the buyer or the seller.
The first step of the legal process of buying or selling a home involves creating a real estate purchase agreement.
The purchase agreement outlines the terms of the sale but does not transfer the property itself — more steps come afterward to finalize a legal transfer of property.
This agreement also goes by:
- Residential Real Estate Purchase Agreement
- Contract to Purchase Real Estate
- Home Sales Contract
- Real Estate for Sale by Owner Contract
- Home Purchase Agreement
Real Estate Purchase Agreement Example
In the following example, the buyer agrees to pay 1% of the purchase price in earnest money deposit at the time the agreement is signed:
What to Include in a Real Estate Purchase Agreement
A simple purchase agreement for real estate identifies the following basic elements:
- Buyer and seller details: The full names and contact information of the parties to the contract
- Property details: The address of the property and a legal description of the land to accurately identify the property’s location
- Purchase price: The total price to be paid for the property, including any deposits, down payments, or adjustments
- Personal property: Any items included in the sale of the property such as a refrigerator, washer and dryer, sofa, etc.
- Representations and warranties: Specific claims about the condition of the property (In a “buyer beware” state, inspection reports are crucial to uncovering material defects)
- Financing: Will the buyer finance the purchase through third-party or seller financing (for the first or second mortgage), or will the buyer assume the seller’s existing mortgage?
- Contingencies: Any actions or conditions that must occur for the contract to happen
- Title insurance: A form of insurance that covers loss of value in the property due to future discoveries of defects in the title
- Closing and possession dates: When will the legal transfer occur and when will the buyer be entitled to possession of the property?
- Lead-based paint disclosure: A mandatory disclosure for homes built before 1978
- Escrow agent or company: Preferred escrow agents or escrow companies (who will open and close the escrow account?)
- Contract expiration: How many business days does the other party have to respond to the real estate purchase contract offer
Contingencies in a Real Estate Purchase Agreement
Contingencies in a real estate purchase agreement define factors that could impact the sale. For the contract to be valid, the seller and buyer must meet these conditions.
Common contingencies in a purchase agreement include home inspection, mortgage, title, appraisal, and homeowner’s insurance.
A home inspection contingency allows for an inspection and the option to terminate if specific issues are present in the home.
Most buyers will have a professional, licensed home inspector examine the property to ensure no significant problems. The inspector draws up a report that the buyer can present to the seller.
The buyer can request that the seller fix any problems or leave the deal.
If the buyer decides to continue with the sale despite the issues, the seller may add an addendum to the contract that the buyer is aware of the existing problems revealed during the inspection.
A mortgage or financing contingency voids the purchase agreement and ensures the return of earnest money if the buyer cannot secure a home loan or get a loan at the interest rate noted on the purchase agreement.
Buyers usually have financing pre-qualification, but once they find a property, the home loan process has to go through underwriting to finalize the mortgage approval. This process can introduce issues that make it hard to close the loan.
If the buyer cannot secure financing, this clause allows them to get out of the deal without any penalties. Because many hiccups can occur during underwriting, this contingency is in most agreements.
The title contingency allows the buyer to terminate the agreement if any title issues exist that the title company or the seller cannot clear before closing.
The buyer has the right to run a title search to ensure there are no liens or other claims against the property.
If an issue comes up with the title, the seller can try to clear it. But if serious problems take time to fix, the buyer may use this contingency to back out of the purchase agreement.
The buyer may also decide to work the purchase of title insurance into an addendum if there is a question about potential issues in the title search.
An appraisal contingency allows the buyer to have an appraisal of the property to determine if the home value and purchase price are comparable.
Buyers may need help securing financing if the purchase price significantly exceeds the property’s value.
The buyer may use an appraisal as leverage to lower the asking price.
But the seller may decide to hold out, especially in a seller’s market when other buyers may be willing to pay the asking price despite it being more than the home’s value.
The homeowner’s insurance contingency comes from the seller or mortgage lender. It requires the buyer to obtain insurance coverage before closing.
Issues can arise that stop the buyer from securing insurance, which could cause problems with financing.
Sellers understand the potential for problems and may want the assurance that securing coverage will not impact the sale’s closing.
Purchase Agreement Addendums
Addendums are additions to the purchase agreement and are terms that aren’t found elsewhere in the document.
Contingencies are one type of purchase agreement addendum. Other standard terms added to a purchase contract include:
- Receipt for earnest money paid
- Homeowners association (HOA) details
- Additional property included in the sale
- Extension on the closing date
- Seller financing details
- Termination option
- Contingency for the sale of the buyer’s home
- Clause for increasing the buyer’s offer if there are competing bids
- Verification of current rental leases
Real Estate Purchase Agreement Disclosures
Disclosures in a purchase agreement provide the buyer with information about potential property issues. The items outlined could impact the home’s value or legal mandates about specific safety or health problems.
State and federal laws usually require disclosures about hazards or circumstances concerning the home that could impact the resale value.
For example, federal law requires all sellers to inform buyers about lead paint in the home due to the health risks the substance can pose to specific individuals.
Some states require telling potential buyers about any deaths that occurred in the home.
Disclosures can cover a range of situations, including:
- Foundation or structural issues
- Roof problems
- Past damage and repairs
- Condition of water and sewer systems
- Plumbing, electrical, heating, and air conditioning issues
- Mold problems
- Environmental hazards
- Sexual offender notice
- Boundary disputes
Most purchase agreements will include a disclosure section where the seller will answer questions about common issues to notify buyers.
These are usually yes or no questions that also offer space for further explanation.
When to Use a Real Estate Purchase Agreement?
A real estate purchase agreement is appropriate when purchasing a property, whether the property is a house, condominium, townhouse, or real estate structure.
You should use this agreement if:
- You’re a potential buyer of real property
- You’re a potential seller of real property
- You need to define the legal rights of each party to the sale
- You need to outline respective duties before the transfer of legal title
This purchase agreement can be used for any residential property purchase or sale as long as the home’s construction is completed before the contract’s closing date.
Pros and Cons of a Real Estate Purchase Agreement
There are plenty of good reasons to write a real estate sales contract, as well as some drawbacks to consider:
Having only basic contingencies covered can be risky. Make sure you review common real estate purchase agreement provisions and seek legal advice if you’re not sure.
Consequences of Not Using a Real Estate Purchase Agreement
If you don’t have a basic purchase agreement, you and the other party won’t clearly understand your rights, possible risks, or any financial implications of those risks.
It’s also much more difficult to negotiate the scope of each party’s liability and enforce your legal rights without a legally binding contract.
A real estate purchase agreement can help prevent lost time, money, and property. The following consequences can affect both buyers and sellers who don’t take the time to create a purchase agreement:
|Consequences for seller:||Consequences for buyer:|
|Appearing in court to clarify ownership and title||Appearing in court to clarify ownership and title|
|Lawsuit to get the full purchase price||Lawsuit for possession of property or money back|
|Contingencies not met before closing||Transfer of title not clear|
|Liable for fees and breaches||Contingencies not met before closing|
|Will not be paid on time||Liable for fees and breaches|
|Penalties for improper sale||Will not receive possession on time or at all|
How to Write a Real Estate Purchase Agreement
Tips for Writing a Real Estate Purchase Agreement
If you are wondering how to write a real estate purchase contract, follow these useful tips:
Include all clauses
Include all available clauses in the template, even if you think you may not need them. Attorneys have crafted these templates to minimize risks and protect the buyer and seller from a potential dispute.
Buyer beware, also known as “caveat emptor,” is especially important when the real property laws in your state do not require the seller to disclose material defects in the real property. In a sense, the buyer is purchasing the property on an “as-is” basis.
This does not mean you should take your chances, though. Especially in real estate for sale by owner, pay particular attention to inspections.
Ask yourself the following questions when reviewing your purchase agreement:
- Exactly what types of inspections do I need to perform?
- Is the purchase contingent upon inspection?
- Is there a right to terminate the sale if the seller does not perform specific fixes?
- If inspectors find unsatisfactory conditions, is there a date in the contract to resolve them?
Thorough inspections are always important, but they will be critical in the following buyer beware states:
- New Hampshire
- New Jersey
- West Virginia
If you are unsure how to write the document on your own, our template and document builder will help you create your real estate purchase contract step-by-step.
Before filling in the details of your real estate purchase agreement, identify the state where you will execute the contract.
Additionally, provide the effective date of the agreement.
Step 1 – Fill Out Buyer and Seller Information
1. Seller. Write down the full name of the seller, the individual or entity selling the property. Indicate if the seller is an individual or entity, such as a corporation, LLC, or trust. Provide the seller’s street (physical) address.
2. Buyer. Enter the buyer’s full name, the individual or entity purchasing the property. Indicate if the buyer is an individual or entity, such as a corporation, LLC, or trust. Provide the buyer’s street (physical) address.
Step 2 – Describe the Property
3. Property. Fill out the street (physical) address of the property the buyer is purchasing. Include any unit or apartment number, if applicable. Enter the legal description of the property.
A legal description is a geographical description of the property, commonly identified by a government survey, metes and bounds, or lot and block. You can find the legal description in the property’s deed or through the county accessor.
Step 3 – Identify Personal Property
4. Included. Summarize what is included in the sale. The purchase includes all real estate, buildings, improvements, appurtenances, and fixtures. You have the option to include additional personal property items in the sale.
If you do so, provide a list of those items.
5. Excluded. You can choose whether or not to exclude certain fixtures and items from the sale. If you do, provide a list of those items.
Step 4 – Provide the Purchase Price and Details
6. Purchase Price. Fill in the total purchase price for the property. Specify the amount in U.S. dollars.
7. Earnest Money Deposit. Write the total amount of the earnest money deposit (also called a good faith deposit), a deposit the buyer makes showing good faith and commitment to purchase the property. At closing, the earnest money deposit shows as a credit toward the purchase price.
The earnest money deposit amount varies depending on several factors but is generally 103% of the purchase price.
8. Payment Method. Enter the payment method (how the buyer will pay the seller).
Step 5 – Describe Disclosures
9. Disclosures and Defects. You can specify seller disclosures, such as environmental hazards, flooding or drainage issues, etc.
Step 6 – Write Assumption of Loan Details
10. Assumption of Loan. State whether or not the buyer will take over the seller’s mortgage. If yes, provide the following mortgage details:
- Name of financial institution
- Date of mortgage and current balance
Also, choose whether the seller or buyer will pay the fees related to the mortgage transfer.
Step 7 – Identify Financing Contingencies
11. Terms of Mortgage. Choose what you want the terms of the mortgage to be.
12. Buyer’s Obligations. Write whether you want the agreement to be contingent upon an appraisal with a value equaling or exceeding the purchase price.
Step 8 – Enter Sale Contingencies
13. Sale of Another Property. State whether the agreement is contingent upon the buyer first selling a property, also referred to as a home contingency. If yes, provide the street address of the buyer’s property that must be sold.
Step 9 – Fill in Representations and Warranties
14. Standard Seller Representations and Warranties. The purchase agreement provides for these standard seller’s representations and warranties regarding title, authority to sell, and the property not violating governmental rules, codes, permits, and regulations.
15. Additional Seller Representations. You can choose to add any additional seller’s representations and warranties listed on a purchase agreement and add your own.
Step 10 – Provide Inspection Details
16. Inspection Contingency. The agreement provides that the purchase is contingent upon the buyer’s property inspection. The buyer can request the seller fix or repair any unsatisfactory conditions. You can choose whether or not to include a date by which the buyer and seller must agree on repairs.
Step 11 – Write Down Title Insurance Details
17. Title Insurance Policy. This section pertains to a title insurance policy. You choose who pays for the title insurance, who selects the insurance company, and whether or not you want to include any allowable exclusions or exceptions to the policy.
18. Dates for Objections. Provide the days the buyer has to notify the seller of any objections to the title after receiving the preliminary title report. Enter the days the seller has to correct or address the objections after receiving the buyer’s notice.
Step 12 – Enter Closing Details and Deliverables
19. Closing Date and Location. Provide the date and location (street address) of the transaction’s closing.
20. Seller Deliverables. The purchase agreement provides for some standard seller closing deliverables. You can add any additional seller closing deliverables on a purchase agreement form or identify your own.
21. Buyer Closing Deliverables. The purchase agreement provides for some standard buyer closing deliverables. You can choose to add any additional buyer closing deliverables of your own.
22. Seller Closing Costs. Choose the closing costs the seller is responsible for.
23. Buyer Closing Costs. Identify the closing costs the buyer is responsible for.
24. Delayed Closing. Decide whether or not to allow the buyer to delay closing due to the buyer’s lender requiring additional documentation or information. If yes, provide the days the buyer can extend the closing.
Step 13 – Write Down Property Possession Date
25. Possession of Property. Provide the date the seller must deliver possession of the property.
Step 14 – Identify Assumption of Leases
26. Lease Information. Write whether or not the seller is currently leasing the property. If yes, provide the name and date of the lease agreement as well as the name of the lessee.
Step 15 – Fill in Governing Law, Disputes, and Miscellaneous Information
27. Governing Law. Choose the state’s laws that will govern the construction of the purchase agreement.
28. Disputes. In the event there are disputes, choose whether buyer and seller will resolve disputes through court litigation, binding arbitration, mediation, or mediation then arbitration.
Miscellaneous. You can include additional provisions to the purchase agreement.
Step 15 – Fill in Lead-Based Paint Disclosures
29. Seller’s Disclosure. If the property was built before 1978, the seller must disclose the presence of known lead-based paint or lead-based paint hazards present in the property. The seller must also provide any available records and reports about lead-based paint and lead-based paint hazards.
30. Buyer’s Acknowledgement. The buyer must initial and sign the Lead Disclosure/Warning Statement, acknowledging that the buyer received copies of all information about lead-based paint and lead-based paint hazards. The buyer must also acknowledge receiving a pamphlet titled “Protect Your Family from Lead in Your Home.”
31. Agent’s Acknowledgement. If an agent is involved in the transaction, the agent must initial and sign the Lead Disclosure/Warning Statement, acknowledging the agent informed the seller of the seller’s obligations under 42 U.S.C. §4852d.
Real Estate Purchase Agreement Sample
Below you can find what a real estate purchase agreement typically looks like:
Real Estate Purchase Agreement
Purchase Agreement Frequently Asked Questions (FAQs)
How to Send a Real Estate Purchase Agreement
When signing a contract to purchase real estate, the format should be professional and include all the necessary information to move the purchase forward.
It should clearly outline the parties involved, the purchased property, and the sale’s contingencies.
How Much Does it Cost to Create a Contract for the Purchase of Real Estate?
It typically costs nothing to write your real estate purchase agreement. However, you may want to use our document builder to create your form and ensure you include all essential details for your purchase.
Using our step-by-step document builder, you can also create your entire real estate purchase agreement online. Download, print, and sign.
Where to Get a Real Estate Purchase Agreement Form
Real estate purchase agreements are typically drafted based on the requirements of the individual sale, so there’s no set document. You can write it yourself using our template as a guide or use our document builder to create a customized real estate purchase agreement.