What Is a Real Estate Purchase Agreement?

An attorney reviewing a real estate purchase agreement.

A real estate purchase agreement is a document used in property transactions. It serves as a binding contract between buyer and seller, detailing all the essential terms and conditions of the sale like purchase price and closing date to contingencies and specific responsibilities. This agreement ensures that both parties are on the same page, paving the way for a smooth and clear transaction process.

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Key Elements of a Purchase Agreement

The real estate purchase agreement typically includes several key components:

Property description: A detailed description of the property being sold, including its legal description.
Purchase price: The agreed-upon amount that the buyer will pay for the property.
Payment terms: The structure of the payment, including any deposits or earnest money.
Contingencies: Conditions that must be met for the sale to proceed, such as obtaining financing or passing a home inspection.
Closing date: The date when the transaction will be finalized, and ownership of the property will be transferred.

Who Prepares a Real Estate Purchase Agreement?

A couple meeting with a financial advisor to review a real estate investment plan.

A real estate purchase agreement can be prepared by different parties involved in the transaction. These can include:

Real estate agents: Real estate agents are often the first point of contact for preparing a purchase agreement. They use standardized forms that comply with state-specific laws and regulations. These forms include all essential elements required for a valid contract and are designed to be comprehensive and user-friendly.
Real estate attorneys: In many cases, involving a real estate lawyer is beneficial, especially for more complex transactions. They can draft custom agreements or review standard forms to ensure all legal requirements are met and adequately protect their client’s interests. They can add specific clauses to address unique aspects of the transaction and provide legal advice on the implications of various terms.
Real estate brokers: Some buyers and sellers might also use the services of a real estate broker or agent to prepare the agreement and facilitate negotiations. Brokers bring a wealth of experience and can offer valuable insights into market conditions and negotiation strategies. They can make sure that the agreement aligns with current market practices and address the specific needs of both parties. Brokers often work in conjunction with attorneys on different legal aspects.

Customizing the Agreement

While standard forms are commonly used, the purchase agreement can be tailored to address specific aspects of the transaction. Customizations might include specific terms regarding the possession date, any repairs to be made before closing, or personal property that will be included in the sale. Some common details added to a purchase agreement include:

Specific needs: Every real estate transaction is unique, and the agreement should reflect the specific circumstances and needs of the buyer and seller. For example, if the buyer wants certain appliances or fixtures to remain with the property, this can be stipulated in the agreement. Similarly, if the seller needs additional time to move out after closing, a provision can be included to accommodate this requirement.
Contingencies: Customizing the agreement often involves adding contingencies that protect the interests of the buyer and seller. Common contingencies include the buyer obtaining financing, the property passing a home inspection, and the property appraising at a value equal to or greater than the purchase price. These contingencies allow the buyer to back out of the agreement without penalty if certain conditions are not met. Custom mortgage contingencies might also be added based on the specific needs of the parties involved.
Legal language and specific clauses: Legal language can be adjusted to address unique scenarios that may not be covered by standard forms. For example, if the property is part of a homeowner’s association, specific clauses regarding HOA fees and rules might be necessary. If the property has unique environmental features, clauses addressing these aspects can be included to ensure both parties are aware of their rights and responsibilities.

Bottom Line

Real estate investors reviewing investment options with an advisor.

A real estate purchase agreement is more than just a formality. This document can help you carry out a transparent and legal property transaction. Whether you’re a buyer or seller, having a well-crafted purchase agreement can protect your interests and lay a foundation for a successful real estate deal. A real estate advisor or lawyer can help you manage real estate transactions with confidence and peace of mind.

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Financing plays a central role in real estate financing. Use SmartAsset’s mortgage calculator to estimate and break down the details of the monthly payment your next deal will involve.