What Is a Real Estate Purchase Agreement?
A Real Estate Purchase Agreement - also known as a Real Estate Sales Contract or a Real Estate Bill of Sale - is a legally binding contract between the seller of a home and the buyer of a home that lists the agreed-upon terms of the sale.
These agreements must be outlined in writing and signed by both parties before being notarized. The agreement protects the interests of both the buyer and the seller and helps facilitate an easy closing of the deal.
If you are ready to draft your own house purchase agreement, look to our library of state-by-state templates and locally-issued forms.
A land contract is a related type of agreement used when the seller grants the buyer with a real estate loan with the deed transferred only after the debt is paid in full.
Is a Real Estate Purchase Agreement Binding?
The parties identified in a contract for the purchase and sale of a home are subject to conditions called contingencies - or contingency clauses. These clauses describe certain conditions that can allow the buyer to change the agreed-upon details or back out of the sale without any legal consequences.
There are three main types of contingency clauses:
- The subject-to-financing clause, which allows the buyer to back out of the sale if they cannot secure the loan, the desired mortgage terms or interest rates.
- The subject-to-inspection clause, which allows the buyer to change their offering price if the results of a professional inspection of the home prove the property to be worse for wear than originally described by the seller.
- The sale-of-home clause, which allows the buyer to back out of buying a new home if they are unable to sell their current home for its asking price.
If the buyer decides to back out of the sale with all contingency clauses satisfied, they will - at the very least - lose their deposit money. The buyer will also then be liable for any monetary damages the seller may suffer, including attorneys' fees and the difference in price if the seller is forced to sell the property at a lower cost.
What Does a Real Estate Purchase Agreement Look Like?
Besides some state-specific clauses, any simple real estate purchase agreement should include the following information:
- The names and signatures of both parties.
- A description of the property and included fixtures being sold.
- The rights and obligations of the parties.
- The deposit amount, insurance, and the asking price for the property.
- The financing and actions regarding the seller’s existing mortgage.
- The prospective date of closing.
- The terms of possession.
- Conflict resolution.
- An option to terminate (contingencies) - as described above.
- A lead-based paint disclosure. This clause is mandatory for all homes built before 1978 and is meant to protect the buyer from lead hazards within the home.
An agreement with the aforementioned clauses can be used for the purchase or sale of any residential property, as long as the house is ready for sale before the closing date specified in the contract. Consider consulting an agent or an experienced real estate attorney if you decide to handle the sale on your own.
What to Look for in a Real Estate Purchase Agreement?
A real estate purchase contract must meet the following basic requirements:
- The U.S. Statute of Frauds requires a real estate sales contract to be done in writing, otherwise, it will be considered non-enforceable and non-binding. A real estate rental agreement, on the other hand, may be verbal and enforceable as per the law in several U.S. states.
- The contract must be physically signed by both parties - the buyer and the seller.
- The contract must feature the full legal names of both the buyer and the seller.
- The contract must explicitly state the agreed-upon purchase price.