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, and the seller accepts or rejects the terms.
- What Is a Real Estate Purchase Agreement?
- Components of a Real Estate Purchase Agreement
- Contingencies in a Real Estate Purchase Agreement
- Purchase Agreement Addendums and Disclosures
- Buyer Beware
- Earnest Money Deposits
- A Typical Timeline for Buying a Home
- How to Write a Real Estate Purchase Agreement
- Real Estate Purchase Agreement Sample
- Frequently Asked Questions
Supplemental Forms
If you’re looking for a template to propose terms of a sale to a buyer before writing a formal contract, consider our letter of intent to purchase real estate.
Additionally, you may want to use a rent-to-own agreement to lease a property with the possibility of a future sale.
What Is a Real Estate Purchase Agreement?
A real estate purchase agreement or a real estate sales contract is a written agreement between a buyer and seller outlining the terms of the sale of real property.
The first step of the legal process of buying or selling a home involves creating a simple real estate purchase agreement.
The purchase agreement outlines the terms of the sale but does not transfer the property itself. Instead, it states what must occur for the sale to be successful.
IMPORTANT
When both parties sign this contract, they, along with the property in question, become “under contract.”
Components of a Real Estate Purchase Agreement
A simple purchase agreement for real estate identifies the following essential 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 the buyer will pay for the property, including any deposits, down payments, or adjustments.
- Appliances/fixtures: Any items that come with the property sale, such as a refrigerator, washer and dryer, sofa, etc.
- Property taxes: Any property taxes that the seller will impose on the buyer for the purchased property.
- Representations and warranties: Specific claims about the condition of the property.
- Financing: A description of the financing the buyer will accept (i.e., will the buyer finance the purchase through third-party or seller funding, or will they assume the seller’s existing mortgage?).
- Contingencies: Any actions or conditions that must occur for the contract to be valid.
- 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: A statement of when the legal transfer will occur and when the buyer will have entitlement to the property.
- Escrow agent or company: Preferred escrow agents (who will open and close the account?).
- Contract expiration: The number of business days the other party has to respond to the real estate purchase contract offer.
- Termination option: Clarification as to whether the buyer can retract their offer and end the contract until a certain date before closing on the property.
Contingencies in a Real Estate Purchase Agreement
Contingencies in real estate purchase agreements 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 the following:
- Home inspection: A home inspection contingency allows for an inspection and the option to terminate if specific issues exist. 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.
- Mortgage: 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.
- Title: 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
- Appraisal: An appraisal contingency lets the buyer have an appraisal of the property to determine if the home value and purchase price are comparable. If the home’s appraised value isn’t equal to or higher than the purchase price, they might be able to back out of the deal.
- Homeowner’s insurance: The homeowner’s insurance contingency comes from the seller or mortgage lender. It requires the buyer to obtain insurance coverage before closing.
Purchase Agreement Addendums and Disclosures
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.
Here are some common addendums within a real estate purchase agreement:
- Release of earnest money: States a seller must release the earnest money deposit to the buyer under certain conditions.
- Earnest money holdback: Governs the rules for money in an escrow account. Often, any earned interest must go to the buyer.
- Closing date extension: Pushes the closing date, allowing the buyer and seller more time to prepare.
Disclosures in a purchase agreement provide the buyer with information about potential property issues or other information they should know. The items outlined could impact the home’s value or legal mandates about specific safety or health problems. Some examples of disclosures include the following:
- Lead paint disclosure: Required for properties built before 1978.
- Property disclosure: Reveals any defects with the property, including foundational or structural issues.
- Boundary disputes disclosure: States if there have been prior boundary disputes.
- Death on property disclosure: Reveals if anyone has passed away on the property.
- Sexual offender disclosure: Discloses if a sexual offender has lived on the property.
- Environmental hazards disclosure: Clarifies if any environmental hazards exist that affect the property’s habitability.
- Condition of water/sewer systems disclosure: Reveals if the property’s water or sewer systems have serious issues.
Most purchase agreements include a disclosure section where the seller will answer questions about common issues to notify buyers.
Buyer Beware
Buyer beware or “caveat emptor” is especially important when the real property laws in your state don’t require the seller to disclose material defects in the real property. In a sense, the buyer purchases the property on an “as-is” basis.
Conduct due diligence and pay attention to the results of 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 repairs?
- If inspectors find unsatisfactory conditions, is there a date in the contract to resolve them?
Thorough inspections are always necessary, but they will be critical in the following buyer beware states:
- Alabama
- Arkansas
- Colorado
- Florida
- Indiana
- Massachusetts
- Missouri
- Montana
- New Hampshire
- New Jersey
- Virginia
- West Virginia
- Wyoming
Earnest Money Deposits
An earnest money deposit is a promise a buyer makes to a seller to go through with a transaction. It shows they’re serious about the purchase.
A buyer’s failure to follow through with their end of the deal will result in the seller keeping the deposit. Some cases will call for the return of the deposit to the buyer, like if a seller doesn’t meet an agreed-upon contingency.
A third party will hold the earnest money deposit in escrow to avoid issues. If it earns any interest, the interest will typically go toward the closing costs or down payment.
A Typical Timeline for Buying a Home
If you’d like to purchase a home, it can help to understand the typical timeline. Here are the common stages:
Stage 1 – Mortgage Pre-Approval
The first step is to meet a lender to get pre-approved for a mortgage. This way, you can learn the loan amount you qualify for. Knowing this figure can give you an advantage when making an offer.
Stage 2 – Offer and Acceptance
Schedule property showings to find your ideal property. Have a licensed real estate agent walk you through each one and explain the features/advantages.
Once you find a property you like, set up a meeting with the seller. During this meeting, you can present your purchase agreement. Allow for negotiations so you and the seller can be content with the deal.
Stage 3 – Inspection Period
Get the property inspected by professionals to ensure it doesn’t have any major defects. If the inspectors discover a major issue, the seller can create a plan to repair it.
Depending on the results of the inspection, you may be able to demand repairs or ask for a lower purchase price.
If the inspection reveals dire issues, prospective buyers may be eligible to withdraw from the arrangement.
Stage 4 – Mortgage Appraisal
Submit the purchase agreement to the lender. They’ll organize an appraisal to confirm the property’s value aligns with the agreed-upon purchase price.
An appraisal is necessary for the final loan approval.
Stage 5 – Financing Review and Finalization
The lender will review your financing information and approve you for your loan.
Stage 6 – Closing
Attend the closing for the property you’re buying. Sign the relevant paperwork, including a deed or mortgage note.
Once the seller records the deed, you officially receive property ownership.
At this point, you can take possession of the home and schedule a move-in date.
How to Write a Real Estate Purchase Agreement
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 the Buyer and Seller Information
1. Seller. Write down the seller’s full name. 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. 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, bounds, or lot and block. You can find the legal description in the property’s deed or through the county assessor.
Step 3 – Identify Personal Property
4. Included. Summarize what the sale will include. The purchase includes all real estate, buildings, improvements, appurtenances, and fixtures. You have the option to include additional personal property items in the sale.
5. Excluded. You can choose whether to exclude certain fixtures and items from the sale. If you do, provide a list of those items so the buyer isn’t confused when they don’t receive certain items.
Step 4 – Provide the Purchase Price and Details
6. Purchase Price. Fill in the total purchase price for the property.
7. Earnest Money Deposit. Write the total amount of the earnest money deposit (or the “good faith deposit”), which is the 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 1 to 3% 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 the buyer will take over the seller’s mortgage. If yes, provide the following mortgage details:
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- 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 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 called a home contingency. If yes, provide the street address of the property the buyer must sell first.
Step 9 – Fill in Representations and Warranties
14. Standard Seller Representations and Warranties. The purchase agreement provides for these standard sellers’ representations and warranties regarding title, authority to sell, and the property not violating government rules, codes, permits, and regulations.
15. Additional Seller Representations. You can 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 inspection. The buyer can request the seller fix or repair any unsatisfactory conditions. You can choose whether 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 report. Enter the days the seller has to correct or address the complaints 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. 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 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 the 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 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. If there are disputes, choose whether the 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 16 – 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 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 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. Suppose an agent is involved in the transaction. In that case, the agent must initial and sign the lead disclosure/warning statement, acknowledging the agent informed the seller of the seller’s obligations under 42 USC §4852d.
Real Estate Purchase Agreement Sample
Download a real estate purchase agreement template in PDF and Word format below.
Frequently Asked Questions
How do I terminate a real estate purchase agreement?
Review the agreement to determine under which circumstances you can terminate without consequences.
If you’re terminating for a disallowed reason, communicate with the other party. You might be able to terminate the agreement without consequences if both of you agree to it through negotiation.
How binding is a purchase agreement?
This document is a legally binding contract as long as both parties meet the outlined conditions and fulfill their assigned duties.
It will also be dependent on any contingencies, and it could become void if one of these contingencies isn’t true.
In case of a breach, the non-breaching party can pursue legal remedies.
How do I finance a real estate purchase?
Depending on your credit score and other factors, you have several financing options for a real estate purchase. You can apply for traditional loans with or without government backing. Other sources of real estate funding include the following:
- Cash financing
- Self-directed IRA accounts
- Seller financing
- Lease-to-buy options
- Hard money lenders
- Fixed-rate mortgages
- Adjustable-rate mortgages
- VA loans
- FHA loans
- USDA loans
Note that all financing options have unique eligibility requirements and ongoing terms.