One of the reasons buying or selling a home can be dreadful is the confusing and technical terminology involved. Each state has its own set of legislation guiding property ownership. Therefore, it’s crucial that home buyers or sellers have a solid understanding of the relevant real estate terms, laws, and operating conditions that apply to them.
If you’re buying or selling a home in the US, one of the crucial documents that you’ll come across is the purchase and sale agreement. What is a purchase and sale agreement? When is a purchase and sale agreement used? The following paragraphs address these questions and others you might have about this document.
What Is a Purchase and Sale Agreement?
Also called the property sale agreement, the purchase and sale agreement bears the terms of a property sale, with the conditions necessary to complete the purchase. The property sale contract is a legally binding document that indicates the home’s final sales price and the negotiated terms of the sale between the buying party and the selling party.
While most states use a standard purchase agreement form, others demand that an attorney draft the purchase agreement papers. Additionally, the document includes a set of contingencies that could nullify the purchase agreement in the event that the buyer or seller fails to meet them.
Types of a Purchase and Sale Agreement
There are different types of property sale contracts. While that of a real estate transaction and a car sale may look and sound similar, there are slight differences to note between them.
An Automobile Purchase and Sale Agreement
When purchasing or selling a car, the purchase and sale contract includes information about all that pertains to the deal. Car purchase and sale agreements are usually fewer in the content on the ownership transfer. However, they contain similar sections as home property sale contracts, such as inspection and transferability.
Real Estate Purchase and Sale Agreement
A real estate purchase and sale agreement, which is our focus, addresses all the needs and conditions regarding a real estate transaction. The contract often includes information on escrow, the planned closing date, contingencies, and other real estate terms specific to the housing industry.
Content of a Purchase and Sale Agreement
The buyer and seller usually sign a purchase agreement to validate its terms and conditions. Except in US states that require it, you don’t need a real estate attorney to help draft a property sale agreement. Real estate professionals usually prepare the purchase and sale agreements.
The only times where you’ll need a real estate attorney are in more complex property sales. But chances are that you will never need one. Since most buyers and sellers shoulder the task of reviewing a purchase agreement, you want to understand the details of the contract.
Below is an overview of the essential information in a purchase agreement.
The Final Property Sale Price
The property sale agreement usually contains the property’s agreed upon purchase price based on the negotiations between the parties, including the buyer’s closing costs.
Note that the final sale price could be renegotiated if the home inspection reveals conditions that lower the earlier agreed upon purchase price.
Earnest Money Details
In a property sale agreement, you’ll also find out how much money the buyer pays in their earnest money deposit (EMD). The EMD refers to a down payment that a seller receives from a buyer to show that they’re serious about buying the property.
The Settlement Date
This refers to the day both sides fix for the closing date, when the buyer will take ownership of the house. However, the date could be adjusted if problems arise.
A Legal Description of the Property
The document describes the property in legal terms, indicating its size and location, plus a geographical map showing property lines.
The Escrow Company
The purchase and sale agreement details the name and other essential information of the escrow company.
The Title Condition
This section shows the title transfer process, including information on the insurance policy and who would pay for the title policy.
The Title Company’s Name
You’ll also find details about the title company involved in the sale, including their name and addressers.
Also called riders, addendums contain specific terms included in the sale, such as possible agreements on part payments or septic inspection addendums where the property sale caters to the septic tank. They could also include individual items like air conditioning systems in the final sales price.
Contingencies are conditions that could prevent the sale from going through if not fulfilled. There are five common contingency types.
Types of Contingencies in a Property Sale Agreement
A home inspection contingency demands that the home has the same features in the earlier report of the seller. A financing contingency addresses situations where the lender rejects a mortgage application.
A home sale contingency deals with a likely event when the buyer resells the property. The appraisal contingency verifies that the property is worth the selling price and the title search ensures that the title is free and clear for sale.
What a Purchase and Sale Agreement Is Not
We’ve gone through crucial information on the purpose and content of a purchase and sale agreement. However, it’s also helpful to delineate what we’ve said above from other possible perceptions about the agreement. Here are three crucial things a purchase and sale agreement is not:
- A purchase and sale contract isn’t equivalent to a final contract, and the participants often sign them after agreeing on the final sale price and other terms. But the contract comes before the closing date when the buyer takes possession of the property.
- A property sale agreement isn’t an insurance policy, and the buyer is responsible for conducting due diligence and ensuring they conduct proper home inspections or appraisals before the closing date.
- Property sales contracts don’t indicate a final sale. There are options for canceling the contract where there’s a breach of contingencies or agreements.
Frequently Asked Questions on Purchase and Sale Agreements
The entire process of purchasing a home can be overwhelming due to the different technical terms and documents. However, the purchase and sale contract helps protect the interests of both the buyer and seller during the sale. Remember that the home buying process is a monumental life decision and probably the most expensive asset you may ever own.
We’ve compiled answers to some of the most frequently asked questions on property sales contracts. By going through the answers to the questions below, you’ll better understand all that the document involves. If you still have unanswered queries regarding the subject, don’t hesitate to speak with your real estate agent for more information. Now to our FAQ section.
Do Purchase and Sale Agreements Have an Expiry Date?
Yes, purchase and sale contracts have an expiry date. Every purchase and sale agreement should contain a clearly defined expiry date before both parties sign it, and the document should also include the consequences if the contract expires.
Expiration could often lead to the buyer losing their money, while the seller could face a lawsuit. That’s why it’s vital to inform your agent about any contracts and have them carefully review the papers before signing them. Ensure you have enough education about any legally binding contracts before adding your signature to it.
Which Party Signs the Purchase and Sale Agreement First?
The sending party usually determines who adds their signature to a purchase and sale agreement. For instance, if a seller made the offer, they usually sign the papers before sending it to the buyer. The other party, that is, the buyer, then reviews the paper and adds their signature if content with the terms.
However, the reverse is the case if the buyer initiates the offer. The buyer would sign the document before sending it to the seller. It doesn’t matter who first signs the papers as long as you and your agent are satisfied with its terms and both parties sign. Again, take time to study any legal paper before adding your signature. It’s not a waste of time.
When Do I Sign the Purchase and Sale Contract?
Regardless of whether you’re selling or buying, you won’t sign the purchase agreements until the two sides agree to its terms. Signing the papers hoping that the other party will agree with the terms might adversely impact the plan.
You want to be as patient as possible before signing the papers until you’ve correctly addressed every contingency (such as home sale, financial, appraisal, and other contingencies) and condition.
It’s also helpful to involve your real estate agent in thoroughly reviewing the document before signing it. It isn’t easy to alter the content of such agreements after both parties have signed them.
Is a Purchase and Sale Agreement Legally Binding?
The basic answer is yes. Purchase and sale contracts are legally binding contracts. Although they don’t indicate a final sale, they legally bind the signing parties to their conditions. A breach of the paper’s terms could lead to a lawsuit.
Some agreements make provisions for possible termination. However, it’s advisable to clearly define such conditions in the contract before signing it. Any breach of the agreement could mean losing your money or facing a lawsuit.
Could a Purchase and Sale Agreement be Canceled?
Yes, it’s possible to cancel a purchase and sale contract. However, there could be consequences for turning your back on a purchase and sale agreement. Backing down means you lose your earnest money deposit. But where an undisclosed problems with the property is found during the inspection, backing out of the purchase receives no penalties.
It’s often more challenging for sellers to cancel a purchase agreement. But termination is possible without any penalties if the buyer defaulted on the contract terms. Also, real estate laws vary across different US states.
Consulting with real estate agents or law firms specializing in personal property sales is essential to understand what rules apply to your situation. Ensure that the conditions for cancellation are well-defined before you sign a purchase contract.
While a real estate purchase and sale agreement aren’t equivalent to a completed deal, it’s a necessary significant step towards your dream closing day. A home sale process is a considerable contract involving technical paperwork and legal documents. Therefore, a purchase and sale contract includes any terms related to the final sale in a real estate transaction.
One straightforward way to avoid mistakes when reviewing the purchase and sale contracts is by speaking with your real estate agents. It’s their job to guide you – ask them any questions you may have regarding the sale of the document.
With the appropriate guidance, the home buying process shouldn’t be as stressful as it appears from afar. Once you take the first step, the sale process will inevitably become more straightforward than it currently appears.
Whether you want to buy or sell, the process can be stressful. But it doesn’t have to be. Homes by Ardor wants everyone to realize their dreams of owning a property. That begins with the right education, so buyers or sellers can be better equipped to make the best decisions.
At Homes by Ardor, we align our goals with our clients, so we can be as objective and understanding as possible when assessing your options in the property market. Our dedicated real estate agents are always on standby to provide real estate solutions to any challenges or needs you may have as you take steps towards your dream home purchase.
Tell us what you’re looking for, whether you’re selling, buying, or seeking investment opportunities, and we’ll quickly work hard to provide the right answers for you. Schedule a consultation with Homes by Ardor today.