A purchase agreement is a contract between the buyer and seller of a home. It contains all the rules that apply to the sale. The contract starts with an offer from the buyer, but both the buyer and seller can suggest changes.
The purchase agreement isn’t binding until both sides sign it. As a buyer, you’ll want to look at it closely. It’s a good idea to have a real estate attorney review the contract before signing.
You might hear the purchase agreement called a real estate sales contract, home purchase agreement, or real estate purchase contract. No matter the name, it has the same meaning. Once it is agreed to, both the buyer and seller must follow it. If you are a first-time homebuyer, this information is very important to understand.
The First Draft
As the buyer, your real estate agent usually writes the first draft of the contract. It isn’t binding unless the seller signs. Real estate agents don’t write these from scratch. They start with a template that has standard wording. That helps protect everyone. It also makes the whole process simpler.
A seller usually won’t sign a purchase agreement right away and there’s often some negotiation. Offers and counter-offers might go back and forth. The seller may suggest changes to the contract.
As the buyer, you don’t have to agree to anything you feel is unfair. You can walk away. If you decide to go forward with buying and back out later, though, it may cost you.
Earnest money is an amount of money that you’ll put up to show you are serious about buying. Walking away means giving up that money, and it’s usually a few thousand dollars.
What Does a Standard Purchase Agreement Include?
A standard purchase agreement includes this information:
- Name and contact information for the buyers and sellers
- The property’s address, description, and other key details
- The total purchase price, including any fees and deposits
- Statements of fact from the seller about the property’s condition
- Specific details about how the buyer will finance the purchase
- Any fixtures or appliances to be included in the sale
- Whether title insurance is required and who will pay
- Information on the annual property taxes
- Conditions that must be met by the buyer or seller
- Details about the earnest money deposit (if any)
- Option to terminate (allowing the buyer to back out before a certain date)
Purchase Agreement Possible Red Flags for First-Time Homebuyers
- Home Offered “As-Is”
If a home is offered “as-is” it means the seller will not pay for any repairs to the property. That’s even true if the home isn’t safe to live in. When a home is offered as-is, you should always get a complete home inspection. Don’t buy an “as-is” home without one.
Contingencies are a way for one party to back out of a transaction without penalty.
There are three common contingencies:
- Financing: The contract is canceled if the buyer cannot get financing.
- Appraisal: The contract is canceled if the home’s appraised value is lower than the sale price.
- Home Inspection: The contract is canceled if major problems are found during the home inspection.
Other contingencies can be added, but they are unusual. They might be considered red flags.
- Failure to Address Condition Precedent
A condition precedent is a step the seller agrees to take to make the property sellable. For example, they might agree to repair the roof if an inspection finds out it is damaged. A contract should spell out these conditions and note that failure to address them in a timely way allows you to stop the sale.
TruePath Mortgage is an excellent avenue to achieve homeownership. With the guidance of our Community Loan Officer, we will be by your side at the signing of the purchase agreement, all the way to the closing of your new home.