Here's What You'll Find in this Purchase Agreement Template:A simple, well-designed contract template that's easy to customizeClearly demarcated sections for easy referenceWritten (and vetted) by legal experts
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A purchase agreement is a type of contract that outlines various terms and conditions related to the sale of goods and is a legally binding agreement between the buyer and seller. Generally, these contracts are used for buying and selling goods instead of services, and they cover transactions involving just about any kind of product. Purchase agreements enumerate the purchase price as well as other factors under which the title will be transferred.
A purchase agreement is usually used when the cost of the purchase exceeds $500, but it can also be used in cases of smaller transactions. In the real estate and housing industries, they are common. Telecommunication companies also use them extensively and customers may purchase several different communications packages in one agreement. In the event of a contract breach, purchase agreements protect both the buyer and seller.
A residential real estate purchase agreement is a legally binding document or contract that outlines the transfer of real estate from a seller to the buyer for a stipulated sales price. It defines the terms and conditions under which the real estate is being sold and the conditions must be met until the closing has proceeded successfully. A purchase agreement can be amended before the sale is finalized.
All relevant information about a transaction should be included in a well-written purchase agreement. To avoid misunderstandings regarding the various terms, it should be clear and specific.
This is what a basic agreement ought to include:
Names, addresses, and phone numbers of buyers and sellers
A description of the goods or property involved
A description of the sale
Names and contact information for witnesses and cosigners
Price of the product, property, or service
The number of items
Date of agreement
Terminology related to duration
Terms of delivery and shipping, if any
Completion dates of various requirements
Amendments or revisions to the agreement
Dispute resolution options
Invoices and purchase agreements are generally much more complex than receipts. These agreements typically list the different conditions each party needs to meet for the sale to go through.
The following terms can be found in purchase contracts:
The terms of financing if applicable (for example when buying a home)
The person responsible for closing costs
Time and date of closing
Both sellers and buyers have the option of making certain requirements a condition of the sale and these are known as contingency clauses. Some of the more common contingencies include:
1. A home inspection performed by a third party of the buyer's choice will typically be a condition of a purchase agreement.
2. Lenders require an appraisal for purchases financed by a mortgage. An appraised value that is less than the purchase price of the property means that the buyer must pay the difference or negotiate a lower price.
3. In the event of delayed mortgage financing, a financing contingency protects the buyer. Buyers who cannot secure the necessary financing can pull out of the purchase.
4. Upon closing, a title contingency ensures that the buyer will receive the property's title. Possibly, a title report has to be completed before closing under this contingency.
5. Disclosures: The seller is required to disclose information about the property that could affect its value or safety. Some states require disclosures that are specific to their laws and statutes which such purchase agreement would be tailored to.
Buyer beware, or “caveat emptor”, occurs when the state laws don’t have a provision forcing the seller to disclose any material defects associated with the real estate. The property is being purchased by the buyer ‘as-is’
Caveat emptor states include Alabama, Arkansas, Colorado, Florida, Indiana, Massachusetts, Missouri, Montana, New Hampshire, New Jersey, Virginia, West Virginia, and Wyoming. Keep this in mind when doing your due diligence and make sure to perform the necessary inspections.
Buying residential real estate, whether to live in or to rent out, is a long and sometimes complex process. The purchase agreement used to express an offer is far from the first step but it is an important one. In this section of the guide, you’ll learn the process of buying a house, what to consider, how to create a quality purchase agreement, and what to do after that.
There are countless resources available that’ll help you narrow down your search to homes that are openly on the market. Of course, the first port of call should be a simple internet search that looks for properties in the locality you’re targeting.
For example, a ‘single-family home for sale in Marietta’ will bring back all the houses that match those conditions. You can also go directly to popular websites like Zillow, Trulia, Realtor, etc.
If you’re looking for homes that may not have hit the market yet then working with a real estate agent is key. Some sellers are only playing with the idea and have not listed in earnest but will engage a real estate agent to test the waters. There are many deals to be found this way but make sure you’re using a licensed real estate agent.
Another way to find a home for sale is to tap into your personal and professional network. Though this is less common, it can also unearth some diamonds in the rough. Unfortunately, it can be a bit hit and miss if you’ve not developed a network specifically for finding real estate deals.
There are no two ways about it. Real estate is expensive and not everyone can afford it outright and that’s why the mortgage industry exists. A prequalification letter can open doors because it shows that the bank has already approved the buyer for financing. That reduces the chances that there will be issues with financing the property once the closing process starts.
The traditional open house may have evolved due to the pandemic but alternative arrangements are starting to come about. There are more personal tours, virtual walkthroughs, and more. The goal with this step is to get a feel for the homes available and the market as a whole. It can also be fun to see the differences in housing and what makes a house more expensive. After doing a few walkthroughs, the buyer will get a better idea of what they want and start to narrow their choices.
Once the buyer chooses one or two homes that they’d like to purchase, they can contact the seller and arrange a private viewing. After arriving at the home, the seller and their agent will leave and allow the buyer to walk through the property themselves. This can last for anywhere from 15 minutes to an hour.
If the buyer is satisfied with the private viewing, they’ll make an offer on the property using a purchase agreement.
When it comes to real estate transactions, the purchase agreement doubles as the offer letter used to express the intent of the buyer. The seller can accept the offer, reject the offer, or produce a counter-offer. This is similar to the process a company and a hiring candidate follow for the hiring process.
If the purchase agreement is accepted by the seller then it’s signed and the buyer will put their down-payment in escrow (if applicable). This down payment can be refunded based on the clauses added to the purchase agreement.
You can use our purchase agreement creator on this page to make this process much easier and protect yourself.
There are multiple disclosures that a seller would need to make (assuming they’re not in buyer beware states). These include any structural issues on the property, hazardous materials, repairs needed. Keep in mind that the seller may not be aware of all the issues with a property so even with disclosure statements, it’s necessary to do an inspection. The following documents will be needed:
An earnest money deposit receipt which is given to a buyer after making the downpayment which is held in escrow
A lead-based paint disclosure is required for any home built in the 1970s or before.
Property disclosure statement which gives the buyer an understanding of the issues on the property. It’ll mention all parts of the property and note whether or not there are any issues.
Irrespective of what the seller says or fills in on the property disclosure statement, get a certified local inspector to do a thorough investigation. The reason you want someone local is that they will have an idea of the issues houses in the area have and will be able to spot them more easily.
If it’s a property that was constructed in the seventies or earlier, you may also want to get a lead paint specialist to do the rounds and identify any issues with the inside of the home. Lead paint can be deadly - to children especially - because it can chip or crack over time and release a toxic substance into the air.
Don’t leave it all to the pros, take the time to walk around the property yourself and look out for the following things:
Signs of termites (very expensive to treat is the infestation is advanced)
Look for signs of previous flooding (especially after rainfall)
Financing should be a contingency of the purchase agreement. The buyer will need to go to the bank or other financial institution and put forth a mortgage application to purchase the home. Many factors influence the interest rate, down payment amount, etc. of a loan but the initial deposit can be up to 20% of the mortgage value.
One of the common conditions that a financial institution will require is that the buyer gets an appraisal done on the property. If it’s valued below the loan amount then the buyer may need to increase their down payment or look for alternative financing methods. This clause is there because the financial institution wants to protect its interests in case the buyer defaults on payments.
Closing is carried out with the cooperation of a title company. It will do a deed search for the buyer and ensure that the seller can go through with the agreement. It’ll pull up any liens or covenants on the property. Once everything checks out then the closing can be carried out with confidence on both sides.
Right at closing, which is a big event, everything will be transferred from the buyer to the seller and from the seller to the buyer. These are the relevant documents, funds, disclosures, etc. This process can last for a long time if there’s a lot of complexity involved. After everything has been settled, the buyer will get a deed with their name on it.
The deed is one of the most important documents related to owning property. It’s a legal document that clearly states who owns what. It’s signed at closing and most states have notary public requirements. After the closing has finished, it can be filed at the local deed registry office.
When registering the deed, transfer taxes may be required and must be paid before the deed can be registered. Once the buyer has officially registered their property ownership, the transaction is complete.
An addendum is a document that’s attached to the residential real estate purchase agreement that will describe contingencies in the agreement. Contingencies are conditions that either the buyer or seller must meet or the agreement may be rendered invalid. Common contingencies include an inspection, mortgage financing, earnest money deposit receipt, termination letter to purchase, and many more.