Real Estate Purchase Agreement

What is a real estate purchase agreement?

A real estate purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions of a property sale, including the purchase price, earnest money deposit, closing date, contingencies, and specific obligations of both parties.

This critical document serves as the foundation for the entire real estate transaction, establishing the rights and responsibilities of everyone involved while protecting both the buyer’s and seller’s interests throughout the purchase process. Purchase agreements are essential documents in real estate transactions. The agreement typically includes essential details such as property description, financing terms, inspection periods, title requirements, and what fixtures or personal property will be included in the sale, as well as the effective date, which marks when the agreement becomes legally binding and contractual obligations begin. Including specific terms in the agreement is vital to ensure clarity, legal compliance, and enforceability, making it one of the most important documents in any real estate transaction.

When to create a real estate purchase agreement

A real estate purchase agreement should be created immediately after a buyer and seller have verbally agreed on the essential terms of a property sale—including purchase price and basic conditions—but before any money changes hands or the transaction moves forward, as this document formalizes the deal and legally protects both parties throughout the entire buying process.

The agreement is typically drafted after the buyer has viewed the property and made an offer that the seller has accepted (either as-is or after negotiations), and it must be executed before important next steps like home inspections, appraisals, title searches, and mortgage applications begin, since these contingencies and timelines are specified within the purchase agreement itself and govern how the transaction will proceed toward closing. Certain actions, such as notifying the seller of survey problems or title objections, must be completed within a specified number of business days prior to closing. If such event as a contingency not being met occurs, the agreement may be canceled or renegotiated according to the terms outlined in the contract.

Real estate purchase agreement help guide

A real estate purchase agreement helps you state all of the important details, including the full names of the parties, the location of the property, a clear description of the real property being sold, the purchase price, the closing date, mortgage and escrow specifications, and any other specific promises of the parties.

A strong real estate purchase agreement should include protections for the parties at every step of the way. Besides the standard clauses, the parties should be able to customize the following terms according to their preferences:

• Whether a party is an individual, a married couple, a business entity, or a trust, as this affects how the deed transfer will proceed

• An itemization of the personal property that the seller agrees will remain on the property and which fixtures the seller will remove before closing

• The purchase price and earnest money deposit, including how seller credits may be applied toward the buyer's down payment or closing costs

• The buyer’s assumption of any leases for tenants living on the property

• The buyer’s contingencies required for the deal, including how it will be financed (third-party lending, seller financing, loan assumption, all-cash deal, or other financing), whether the property must be appraised, whether the property must be inspected, and whether the deal is contingent on the buyer first selling his or her primary residence or other property first; proceeds from the sale of a primary residence can be used for the down payment

• Any repairs required before closing

• Any special terms agreed to by the parties

The agreement should also specify the seller's responsibilities for disclosures and property condition. It should outline which party pays for specific expenses in the transaction, such as stating that the buyer pays earnest money, contract fees, and closing costs.

Party Details

First, you will add basic information about each party, including the names, party type, and addresses. Parties may be married individuals, unmarried individuals, businesses, or trustees.

Buyer Contingencies

Buyers will often include specific contingencies in the agreement. These are the conditions that the buyer requires to be met before closing can occur. In the event that a contingency is not met, the buyer may terminate the agreement and be refunded the earnest money and any other deposits made. However, the buyer may always choose to disregard a contingency later on if it is no longer required. The buyer always has the option to waive a contingency later on if it is no longer needed. LegalNature’s agreement includes options for adding the standard contingencies, including contingencies for receiving financing, property appraisal, inspection, and prior property sale contingencies.

A financing contingency requires that the buyer receives financing in order to close the deal. You will select the appropriate type of financing required, such as through a third-party lender, a mortgage assumption, seller financing, an all-cash transaction, or another form. A third-party lender is a traditional lending institution. A mortgage assumption is when the buyer agrees to take responsibility for the seller’s mortgage, thereby becoming liable to repay the seller’s loan. Seller financing is when the seller and buyer create a private loan contract. Lastly, all cash financing is when the buyer will finance the deal by itself. The funds do not actually need to be in the form of cash, as electronic wire transfers are normally accepted.

Under an appraisal contingency, the property must receive a professional appraisal at a value of at least the amount of the purchase price. If this does not occur, then the buyer can choose to cancel the agreement or try to renegotiate a lower purchase price. LegalNature’s agreement requires that the appraisal occur within 10 business days of signing, but you may change this if the parties agree. You will also indicate which party is responsible for covering the cost of the appraisal.

Likewise, an inspection contingency requires that a professional inspection of the property occur prior to closing. If it does not occur or if an inspector discovers a material defect, then the buyer may either cancel the agreement or require the defect to be repaired. Again, our agreement requires the inspection to happen within 10 business days of signing, but you may change this if needed.

Finally, the buyer may require that the deal is contingent on the sale of the buyer’s home or other property prior to closing.

Required Repairs

Your agreement should also indicate whether the property will need any repairs for any issues with the foundation, walls, support structures, roof, water and electrical systems, plumbing, or mechanical systems. Unless the buyer agrees otherwise, the seller will be responsible for fixing all such issues.

Executing the Agreement

To formally make the agreement effective, the parties must sign and date it in front of a notary and/or witnesses. In the majority of states, only a notary is required. You will need two witnesses to sign in Connecticut, Florida, Louisiana, and South Carolina, but you can use a notary to stand in for one of the witnesses if needed. Some lenders may still require additional witnesses. Witnesses must be at least 18 years old, hold no interest in the transaction, and have no blood relation to the parties.

State and Federal Disclosure Requirements

Federal law requires the parties to sign a lead paint disclosure statement for properties being sold that were constructed prior to 1978. LegalNature includes this disclosure with your agreement. Sellers need to store their signed copy of the disclosure for at least three years.