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Real Estate Purchase Agreement

2021.11.16 11:26

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Real Estate Purchase Agreement




What Is A Real Estate Purchase Agreement?

In real estate, a purchase agreement is a binding contract between a buyer and seller that outlines the details of a home sale transaction. The buyer will propose the conditions of the contract, including their offer price, which the seller will then either agree to, reject or negotiate. Negotiations may go back and forth between the buyer and the seller before both parties are satisfied. Once both parties approve the terms and have signed the purchase agreement, they're considered to be "under contract." You may have also seen purchase agreements referred to as any of the following:

  • Real estate sales contract
  • Home purchase agreement
  • Real estate purchase contract
  • House purchase agreement

Who Prepares The Real Estate Purchase Agreement?

Typically, the buyer's agent writes up the purchase agreement. However, unless they are legally licensed to practice law, real estate agents generally can't create their own legal contracts. Instead, firms will often use standardized form contracts that allow agents to fill in the blanks with the specifics of the sale.


What’s Included In A House Purchase Agreement?

Every real estate transaction is different, so not all real estate purchase agreements will look the same. However, there are some basic items that should be included in every purchase agreement.

  • Buyer and seller information
  • Property details
  • Pricing and financing
  • Fixtures and appliances included/excluded in the sale
  • Closing and possession dates
  • Earnest money deposit amount
  • Closing costs and who is responsible for paying
  • Conditions under which the contract can be terminated
  • Contingencies or conditions that must be met for the sale to go through

Understanding The Components Of A Real Estate Purchase Contract

While many parts of your contract are fairly straightforward, like what price you'll pay and when closing will happen, other parts of the purchase agreement might be a little confusing, especially for first-time home buyers. Make sure you fully understand the entire purchase agreement before you sign it. 



Your real estate contract will include information about how the home will be paid for. If the buyer isn't paying in cash, they'll need some sort of financing (like a mortgage loan) to buy the home, the specifics of which will be written out in the contract. For example, the contract will specify if the buyer is obtaining a mortgage to purchase the property, or if they're using an alternative, such as assuming the current mortgage on the property. Another option is seller financing, where the buyer makes payments to the seller rather than a traditional mortgage lender.


Earnest Money Deposit

Earnest money, sometimes also referred to as a good faith deposit, shows that a buyer is serious about buying the home. Sellers don't want to waste their time; they want to know that a buyer is going to stick with the contract through closing. The earnest money deposit gives them that confidence. If, between the time you sign the purchase agreement and close on the home, the buyer decides they want to back out for a reason that isn't stipulated in the contract, they lose their earnest money, and the seller gets to pocket it. However, a buyer can get their earnest money back if they back out due to a reason stipulated in the contract. Earnest money is typically held in escrow by a third party and is credited toward the down payment or closing costs at closing.



There are many different types of contingencies that can be included in real estate contracts on both the buyer's and seller's side, and it's important to understand any contingencies that are included in your purchase agreement.

  • Contingencies are conditions that must be met before the sale can go through. Here are some of the more common contingencies you may see in home sale contracts:
  • Financing contingency: The sale is contingent on the buyer being able to obtain financing. This protects the buyer in the case they are unable to secure a mortgage.
  • Inspection contingency: The buyer is able to back out of the sale without penalty if they aren't satisfied with a professional inspector's assessment of the home.
  • Appraisal contingency: This contingency states that the home must appraise at a value equal to or higher than what the buyer agreed to pay.
  • Home sale contingency: The home purchase is contingent on the buyer's ability to sell their current home.

Closing Costs

At closing, there are certain fees and costs that will need to be paid. How much each party will pay will depend on what was negotiated in the contract. Closing costs can include things like the real estate agent's commission, appraisal and inspection fees, taxes, lenders fees and insurance. For buyers, closing costs may be 3 – 6% of the purchase price. Closing costs may be slightly higher for sellers.


Can A Real Estate Purchase Agreement Be Cancelled?

The best time to back out of a real estate purchase is before you’ve signed the purchase agreement. After that, you’re under contract, and you may be penalized if you back out for reasons that aren’t stipulated in the purchase agreement. Before signing a purchase agreement, make sure it includes information about the conditions under which the contract can be terminated.


How to write a real estate purchase agreement

The purchase contract is typically prepared and written out by a real estate agent, not a buyer or a seller. As discussed above, a purchase agreement should contain buyer and seller information, a legal description of the property, closing dates, earnest money deposit amounts, contingencies and other important information for the sale.


How to legally bind a purchase agreement

A purchase contract is as legally binding as is stated in the agreement itself. A purchase agreement should stipulate acceptable reasons for a buyer backing out of a purchase. Otherwise, once it’s signed, you stand to lose your earnest money deposit should you break your contract. A seller can back out of a contract for several reasons, such as complications that arise from contingencies in the purchase agreement.


Purchase Agreement Expiration Date

Expiration dates should be clearly outlined in the purchase agreement.


Important to understand the legal and contractual aspects of home sale or purchase

Buying or selling a home is a big deal, and you can avoid headaches by making sure the deal you're getting into is a good one. Thinking about purchasing a home? Apply for a mortgage today with American Financial Network.