A purchase agreement is a legal document detailing the specifics of a transaction. This transaction could be for a variety of goods and services, including real estate. This legal document should outline the specific terms and conditions for the transaction. This will ensure both the buyer and the seller know the exact agreements before the purchase agreement is finalized.
This type of agreement may be legally binding, so it is important to look over the specific terms and conditions before signing anything. Failing to meet these terms and conditions can render the purchase agreement null and void. This could lead to legal disputes between the buyer and seller, so it is important to fully understand the agreement beforehand.
There are various templates and forms that allow parties to create their own real estate purchase agreements, but parties should consider consulting a real estate law firm/attorney for legal advice or an experienced real estate agent.
A real estate purchase agreement is a legal, binding contract between a home buyer and seller that details the conditions of a home sale/residential property sale. The agreement does not transfer the title of a home; it does not represent a transfer of ownership. Rather, the sale agreement stipulates the rights and responsibilities of each party before the legal transfer of title can take place. A real estate purchase agreement is also known as a real estate purchase contract, real estate sales contract, home purchase agreement, or house purchase agreement.
The buyer proposes the conditions in the real estate purchase agreement, including the buyer's offer price. The seller will then agree with the offer, make a counter offer/negotiate, or reject the offer. Counter offers can include the following issues:
A higher price for the property.
Higher earnest money requirements.
Refusal to cover or help cover closing costs.
Refusal to adopt certain contingencies.
Revised time periods for dealing with contingencies.
Excluding personal property from the agreement.
The buyer can accept the counter offer, make a second counter offer/negotiate (referred to as a counter-counter offer), or reject the counter offer. In most states, unlimited counter offers can be submitted between the buyer and the seller. If the parties reach an agreement on the purchase price and conditions, and both sign the real estate purchase agreement that has been customized to reflect the agreed-upon terms, they are deemed "under contract."
While real estate transactions vary, every real estate purchase agreement should include certain items. The following items should be included in the terms of this agreement:
Buyer and Seller Identification/Information: If there are multiple buyers, they should decide whether they will be joint tenants or tenants in common and include that information in the purchase agreement. Joint tenants have the right of survivorship; if one tenant dies, the property immediately passes to the other without going through probate. With tenancy in common, each tenant owns a share of the property; shares are not always equal and may be transferred to someone other than the other tenant.
Description of the Property (including Condition): This section should include the exact address of the property and a clear legal description.
Price and Terms: Information about how the home will be paid for, including the offered price accepted by the seller, as well as how it will be paid -- paying in full with cash, a cash down payment and a new mortgage, or an arrangement involving an existing mortgage.
Financing: If the buyer will not be paying in cash, they will require financing/a loan to buy the home and will become a borrower. The contract should specify if the buyer is obtaining a mortgage to purchase the property, assuming the current mortgage on the property, or using seller financing. If a buyer must use funds from the sale of an existing home to complete the transaction, the contract may contain contingencies on the sale of the buyer’s home (see below).
Fixtures and Appliances Included/Excluded in the Sale: The real estate purchase agreement should detail all items included in or excluded from the sale and should include structures and fixtures attached to those structures, including light fixtures, heating and cooling equipment, windows, window treatments, doors, built-in kitchen appliances, and bathroom fixtures. Items on display when the property was shown, but not intended to be included in the sale should also be detailed in the real estate purchase agreement.
Closing Date/Possession Date: The sale's closing date should be included in the real estate purchase agreement, as well as a stipulation that any changes in closing must be agreed to in writing. Possession of the property generally transfers to the buyer on the closing date and time. The closing date also marks the conveyance of the real property's title from the seller to the buyer.
Earnest Money (Good Faith) Deposit Amount: Earnest money is used to confirm the contract. The earnest money amount is generally 1–3% of the home's sale price; it shows the buyer is serious about purchasing the home. The money is held in escrow until closing by a third party, such as the seller's real estate attorney or a title company. The earnest money generally goes toward the eventual down payment. Some sellers add contingencies requiring the forfeit of earnest money if the sale does not go through due to financing issues (see below). In other scenarios, the earnest money is fully refundable to the buyer if key conditions are not met.
Closing Costs/Responsible Party: At closing, there are certain fees and costs that must be paid; closing costs include agent commission, appraisal and inspection fees, taxes, lenders fees, and insurance. The real estate agents' commission is an additional closing cost and generally amounts to approximately 6% of the purchase price. How much each party is required to pay depends on the terms agreed upon by buyer and seller. For buyers, closing costs may be 3% - 6% of the purchase price. Closing costs may be somewhat higher for sellers.
Conditions under which Contract can be Cancelled/Terminated: Buyers and sellers have multiple opportunities to cancel a real estate purchase agreement, but cancellation may only take place as specified in the terms of the agreement. A default warranting cancellation may occur if the buyer does not pay the earnest money in a timely manner, the buyer or seller fails to return signed disclosure forms in a timely manner, the buyer or seller cancels the sale after all contingencies have been eliminated, the seller does not complete contractual repairs or other work on the property, the seller prevents access for inspection or final walk-through, or the seller does not move out when obligated to do so.
Contingencies/Conditions for Sale to Go Through: Sellers and buyers can require certain conditions to be met before the property is sold. Common contingencies include third-party home inspection issues, lender appraisal requirements and/or buyer's credit issues, successful buyer financing/sale of buyer's home, and seller's title verification.
Disclosures/Warranties and Representations of Seller: Sellers are legally obligated to disclose information that may impact the property's safety or value; a disclosure may be included in the actual real estate purchase agreement or in an addendum attached to the real estate purchase agreement. Sellers must verify that they possess clear title to the property in question, free of all liens, special assessments, easements, reservations, restrictions and encumbrances. Some states require sellers to disclose the location and status of any wells on the property—or whether the seller has no knowledge of existing wells. Due to the significant health risks associated with lead paint, sellers of older homes (built prior to 1978) notify buyers about the risk of exposure. In many states, sellers are required to disclose any knowledge of prior methamphetamine production on the property for sale. If the seller is aware of previous methamphetamine production, removal and remediation status should be detailed in the real estate purchase agreement. Other commonly required disclosures are termite damage, personal interest, subsurface sewage disposal system, adequate facilities taxes, radon gas, and potential annexation. Note: If a warranty disclaimer is included in the purchase contract, the seller is able to avoid giving many representations and warranties associated with the property -- and the buyer should obtain legal advice regarding the disclaimer.
Signatures: Delivery of the signed real estate purchase agreement may take place in person, via email, or by fax. Digital signatures and those delivered via fax or photocopy are considered valid.
After both parties agree in writing to the terms and conditions of the real estate purchase agreement, the next step could be a waiver -- a separate document that is signed when the buyer consents to remove a condition (or conditions) and move ahead with the sale. By signing the waiver, the prospective buyer gives up the right to make any claims in the future with regard to issues that may have been uncovered under the condition. The waiver clears the seller/lessor from potential liability.
Courts are divided on the issue of who bears the risk of loss -- the risk that the real estate will be damaged or destroyed between the time of execution of the real estate purchase agreement and transfer of legal title. The majority of states hold that the buyer bears the risk of loss because the doctrine of equitable conversion has given the buyer equitable title. A minority of states hold that the seller bears the risk of loss until legal title is transferred to the buyer. A third group of states hold that the risk of loss is borne by the buyer only if the buyer is in actual possession of the property or has received legal title.
A real estate sales contract is another term for a real estate purchase agreement. A real estate purchase agreement is a legal, binding contract between a home buyer and seller that details the conditions of a home sale/residential property sale. The agreement does not transfer the title of a home; it does not represent a transfer of ownership. Rather, the sale agreement stipulates the rights and responsibilities of each party before the legal transfer of title can take place. A real estate purchase agreement is also known as a real estate purchase contract, real estate sales contract, home purchase agreement, or house purchase agreement.
A rental agreement, also known as a lease, is an agreement between a lessor (owner/landlord) and a lessee (tenant) regarding the rental of residential rental (real) property. Residential rental property yields income for its owner from rental payments made by a tenant.
A rental agreement allows a tenant to rent a residential property in exchange for regular payments to a landlord; it details the rights and obligations of both a landlord and a tenant during the rental term, including fees and payments, property use, and maintenance. A rental agreement is a binding, legal document that serves to protect both the landlord and tenant.
Residential rental properties include:
Vacation rental property
A rental agreement is generally presented after a credit check has been completed and the property management has decided they will accept the applicant as their tenant. A rental agreement generally includes the following sections:
Deposit and fees: This section details the payments that must accompany the first month's rent. It also details the charges the tenant must pay for credit and background checks, as well as the fees for violating the terms of the rental agreement.
Limits of Occupancy: This section includes the number of tenants allowed to reside in the unit.
Maintenance: This section details the types of repairs in the unit that are the responsibility of the management, and which repairs the tenant must make.
Pets: Some buildings do not allow any pets. Some will allow pets under a particular size or weight. This section will explain those regulations and how to obtain approval for a pet
Rent: The amount of money to be paid at regular intervals by the tenant and when those payments are due, generally on the first day of the month.
Rules/Regulations: This section details miscellaneous policies for the building in question, including smoking, evening "quiet hours," and trash disposal.
Terms of tenancy: The length of time that a tenant may remain and continue making rent payments, generally month-to-month or one year. This section also describes how and when a landlord may give a notice to vacate, a written notice given by a landlord to a tenant in order to terminate their tenancy. A landlord notice to vacate can be given before the end of a fixed-term lease if the landlord does not intend to renew it, to terminate a month-to-month tenancy, or to remove a tenant who has not vacated the property after the rental agreement has expired.
Utilities: This section describes the utilities that are included in the rent and the ones the tenant must pay for.