Real Estate Purchase Agreement: A Brief Guide

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A real estate purchase agreement is a legally binding document that specifies the terms and conditions of a house sale or property between a buyer and a seller. It serves as an outline for the complete real estate transaction, describing each party's obligations. Let us delve deeper and learn more about a real estate purchase agreement below.

A real estate purchase agreement is the legal document that protects seller rights when working with a homebuyer. Some specific terms and conditions protect the rights of both parties when engaging in a significant transaction such as this one.

It is essential that you get your real estate purchase agreement right to avoid future complications. Real estate law is often highly variable depending on your jurisdiction. This article is written in a more general sense. If you have any further questions after this article, it is recommended to consult with a local real estate lawyer.

What is a Real Estate Purchase Agreement?

Real estate purchase agreements, also called real estate contracts, home purchase agreements, real estate purchase contracts, and house purchase agreements, are legal contracts between a buyer and seller for a home sale of real property.

A real estate purchase agreement doesn’t transfer the title of a property. Rather, it is the document that builds and creates a framework of the responsibilities of each party during the transaction so that the title can be transferred in a way both parties are happy with.

Who Needs a Real Estate Purchase Agreement?

You need a real estate purchase agreement if you are selling or buying a house. Depending upon your situation, the person who provides the real estate purchase agreement may vary. You generally have two options when selling a home:

• Represented by Agent: If the home seller is represented by an agent or Realtor, then the agent is generally responsible for drafting the agreement and arranging for a signing. Typically, the registered agent will go through their attorney to get a copy of the real estate purchase agreement initially since they do not have the authority to give legal advice.
• For Sale By Owner: If the seller decides to forgo the added cost of a real estate agent, then the seller is directly responsible for handling the real estate purchase agreement. This strategy allows you to maximize your profits and returns by not paying traditional commissions. However, you are still liable for ensuring that your real estate purchase agreements are legal and valid at the local, state, and federal levels.

Here is an article about for sale by owner (FSBO).

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Who Provides the Real Estate Purchase Agreement?

It is more common for the real estate lawyers of the seller draft the real estate purchase agreement, but the buyer’s lawyers can also draft the agreement. Since real estate agents are not licensed to practice law, they cannot legally create contracts by or for their clients – but may provide a seller with a form template. If this is the case, it is recommended the buyer or seller should not take legal advice from the real estate agent. Only a licensed attorney in your specific state can offer legal advice when it comes to contracts.

Benefits of a Real Estate Purchase Agreement

A real estate purchase agreement is necessary for all kinds of property sales and purchases in the United States. Here are some benefits associated with the agreement that everyone must know:

• Provides Clarity and Legal Protection: The terms and circumstances of the sale are made clear in the purchase agreement. It leaves little possibility for misunderstandings or legal issues.
• Promotes Transparency: To promote transparency and lower the possibility of post-sale litigation over concerns that were not reported, the agreement may compel sellers to reveal any known flaws or problems with the property.
• Shields Against Buyer's Remorse: Buyers are shielded from having buyer's remorse by a well-structured purchase agreement with proper stipulations. If certain requirements still need to be completed, it offers a method for customers to leave the agreement without losing their earnest money investment.
• Enables Negotiation: A real estate purchase agreement lets buyers and sellers negotiate terms and conditions. They can also specify pricing before finalizing the deal, which allows both parties to reach a mutually agreeable arrangement.
• Provides Legal Recourse: It provides a legal recourse for either party in case of a breach of some contract. If either party fails to meet their obligations, the other party can seek legal remedies outlined in the agreement.
• Ensures Timely Closing: By specifying timelines and deadlines, the agreement helps ensure a timely closing of the real estate transaction, reducing the risk of delays or uncertainty.
• Allows Contingencies: The agreement allows for contingencies, such as home inspections, financing, or appraisal contingencies, which protect buyers by allowing them to withdraw from the deal if specific conditions are not met.
• Protects the Deposit: It protects the earnest money deposit by outlining the circumstances under which it may be forfeited or refunded, providing security for both parties.
• Establishes Financing Terms: The purchase agreement can establish the financing terms, including the type of mortgage, interest rate, and down payment, providing clarity to both the buyer and seller.
• Defines Property Inclusions: It specifies which fixtures, appliances, or furnishings are included in the sale, avoiding disputes over what is considered part of the property.
• Establishes Closing Costs Responsibility: The agreement outlines who covers closing costs, ensuring both parties know their financial obligations.
• Protects Seller's Interests: The purchase agreement can include provisions that protect the seller's interests. It also consists of the provision that allows the seller to retain possession until a specific date or condition is met.
• Promotes Accountability: It holds both parties accountable for fulfilling their obligations, contributing to a smoother and more trustworthy real estate transaction.
• Enables Property Appraisal: The agreement enables the property to be appraised, ensuring that it meets the agreed-upon value and preventing overpayment by the buyer.
• Allows for Addendums: It allows for the inclusion of addendums or modifications to the agreement if both parties agree to changes or updates during the transaction.
• Establishes Closing Location: The agreement specifies where the closing will occur, providing clarity on where the final paperwork and transfer of ownership will occur.
• Safeguards Investment: Ultimately, a well-crafted real estate purchase agreement safeguards the investment of both buyers and sellers. It offers a structured and legally binding framework for property transactions.

Key Terms for Real Estate Purchase Agreements

There are several key terms in a real estate purchase agreement that you should include and understand to guarantee that your transaction goes as smoothly and quickly as possible. You will also want to ensure that your contracts are enforceable and valid to avoid future disputes.

Key terms in a real estate purchase agreement include:

• Buyer and Seller Details: Get the contact information of the other party, including their address. This information should match the information on file with the court clerk’s office. For more than one buyer involvement, they should determine if they will purchase as joint tenants or joint tenants in common.
• Property Details: Properly identify the property being sold, as well as the exact address, legal description, and other necessary information. You can obtain copies of these through the county court clerk’s office. They can provide you with the copies of documents that you need for a real estate purchase agreement, such as a warranty deed, deed of trust, or quitclaim deed.
• Purchase Price: You must also negotiate the purchase price with the buyer beforehand as well. The terms and conditions must include how much they will pay, including real estate tax, as well as how they will be paying. Popular methods of homebuying include cash payments, down payments with a mortgage, or a new mortgage.
• Representation And Warranties: You must also give the buyer reassurance that the claims you are making in the real estate purchase agreement are accurate. After all, they are making a major purchase, and buyers have a legal right to specific assurances. Your real estate purchase agreement will need to guarantee that the statements contained within are true and accurate. Some examples may include ownership authority, no liens, no pending litigation, condition of the property, no leases, and tax compliance.
• Financing: If the home buyer is financing the home with a loan through the seller or HUD financing, you will need to include the specifics of the transaction related to the loan, including:
  • Annual percentage rate (APR)
  • Balloon mortgage payment
  • Default terms and conditions
  • Debt-to-income ratio requirements
  • House flip terms and conditions
  • Closing costs and title insurance fees

  You are assuming several risks if you offer seller financing. However, you can stand to gain a massive return on your investment. The most practical way to ensure that a buyer does not get away with violating your rights, is to create specific financing terms that are flexible enough for the market without taking away from your rights as a seller.

  You may need to insert additional language into your contract depending upon the transaction and geographical locations. Laws in home sales vary from state to state, which means that you will need to incorporate relevant requirements into your real estate purchase agreements. Get help with a real estate purchase agreement by working with a legal professional.

  Final Thoughts on Real Estate Purchase Agreements

  Every real estate transaction must include the real estate purchase agreement, a fundamentally important document. The purchase agreement gives sellers protection and peace of mind since it guarantees that the buyer will buy the property on the agreed-upon terms and at the agreed-upon price. Contingencies are frequently included in the agreement to allow buyers to perform due diligence procedures like home inspections and assessments. This allows buyers to evaluate the property's value and condition and make educated investment selections. Disclosure of real estate information encourages openness and lowers the possibility of post-sale conflicts.

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  ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.

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  Real Estate Purchase Agreement

  Asked on Jun 19, 2022

  Deed

  I am on a deed with my brother. He took a loan out on the home and fallen behind on payments. What can I do to protect my half of the deed and keep from losing our home.

  Jason Q.

  Answered Jul 8, 2022

  A joint owner of real estate can generally encumber the property, such as by mortgaging their interest, without permission of the other joint owner. If your brother falls behind on payments, the lender could foreclose on his interest in the property. They could then probably force a sale of the property in an action for partition. To prevent this, one option would be to pay off or assume the loan and buy out your brother's interest in the real estate. Since he is behind on his loan, you could probably drive a pretty hard bargain. If you do nothing, the lender could eventually take your brother's interest in the property and force a sale.

  Real Estate Purchase Agreement

  Asked on Jun 8, 2024

  Can a seller back out of a Real Estate Purchase Agreement after signing it?

  I am in the process of purchasing a property and have signed a Real Estate Purchase Agreement with the seller. However, the seller has recently expressed hesitation and is considering backing out of the deal. I have already invested time and money in inspections and due diligence, and I am concerned about the legal implications of the seller reneging on the agreement. Can a seller legally back out of a Real Estate Purchase Agreement after signing it, and what are my rights and options in this situation?

  Melissa T.

  Answered Jun 18, 2024

  In short, yes, a seller can back out of a Purchase and Sale Agreement after signing it. However, a seller can only do this under certain circumstances. These conditions differ whether it is a commercial or residential property. Generally, a seller of property will need a legitimate legal or contractual reason to withdraw from the Purchase and Sale Agreement. Regarding residential properties, during the attorney review period (commonly three days), the seller is able to back out of the agreement without consequences. Additionally, a seller may cancel a home sale without breaching of the contract or incurring legal penalties in the instances of there being in the Purchase and Sale Agreement (i) a home sale contingency (if they cannot find a suitable new home); (ii) an appraisal contingency (if the appraisal comes in lower than expected and the buyer is unwilling to lower the price and the seller will not make up the difference in cash, the contract could be void); (iii) home inspection contingency (if the seller is unwilling to issue credits or make repairs, the seller could end negotiations and the home sale); and (iv) a clause about breach of contract by the buyer that has continued beyond the specific time period in the contract, such as a missing deposit or buyer not securing a mortgage). Moreover, the buyer could enter into a separate agreement with the seller to let them cancel the contract without any liability. For commercial properties, a seller may cancel a Purchase and Sale Agreement also for specific reasons. These include the buyer not funding the purchase price (after the deducting the prorations and adding in of credits as outlined in the Purchase and Sale Agreement), inaccuracy(ies) of the buyer’s representations and warranties, buyer not signing and delivering of the closing documents. In addition, the seller could cancel the contract without a legal penalty if the buyer is unable to obtain financing or assumption of the mortgage, the buyer and seller cannot agree on a price reduction with the buyer after an appraisal or an issue revealed during the due diligence period, and the buyer has breached the contract and it is continuing past the time allotted to cure the default. If a seller of a commercial or residential property withdraws after signing a Purchase and Sale Agreement for a personal reasons then they could face legal and financial consequences. A seller could face a lawsuit from the buyer to make the seller perform (this remedy is called specific performance). A buyer could also sue a seller for the damages of incurring unreasonable and unexpected expenses due to the seller backing out of the purchase and sale agreement, such as storage costs, temporary housing costs, lost deposits, and legal fees. If remedies are not permitted under the Purchase and Sale Agreement, the buyer may be able to collect from the seller liquidated damages (the amount stated in the Purchase and Sale Agreement). The seller may also face a lawsuit from the real estate agent or broker for not being able to collect the commission under their agreement. Like with anything, you should have an attorney review the Purchase and Sale Agreement to know for sure what rights the seller has to cancel a contract after signing.

  Real Estate Purchase Agreement

  Asked on Apr 19, 2023

  Can the purchase price be negotiated and, if so, how?

  I am interested in purchasing a piece of property, and am curious if the purchase price can be negotiated. The seller has listed the property for a price which is slightly above what I am willing to pay, and I would like to know if it is possible to negotiate the price lower. I have had experience in negotiating prices in the past, but am uncertain of the legalities involved in this particular situation.

  Thomas L.

  Answered May 19, 2023

  Always. The purchase price is an offer. You can always make a counter-offer.