Selling a home isn’t like placing an ad in the newspaper to try to get someone to buy your old exercise equipment. In addition to the large amounts of cash and credit usually involved in a real estate purchase, the process is one that is absolutely fraught with legal considerations. Buyers and sellers put a lot on the line when they enter into a real estate transaction. To ensure that the proper legal safeguards are in place and that the transfer of ownership can proceed unhindered, both parties rely on a number of important contracts.
And perhaps the most important house contract is the purchase agreement.
As part of our Beginner’s Guide for Home Sellers, we discuss the real estate purchase agreement — what it is, what it includes, and what you need to know about it to help safeguard your home sale.
A purchase agreement is a legally binding contract between the seller and the buyer of a property. A purchase agreement (also sometimes called a purchase contract, real estate sales contract, or purchase and sale agreement) clearly and precisely defines the terms of the transaction and the conditions of the sale.
The purchase agreement comes into play when a buyer makes an offer on the purchase of a home. The buyer will provide important details of their offer (such as the offer price) as well as any other proposed conditions of the sale they may wish to include. The seller can then accept, reject, or renegotiate those terms and conditions if they so wish.
Once both parties are satisfied with the terms of the purchase agreement, they sign the contract. This places the buyer, the seller, and the property legally ‘under contract,’ meaning that if and when all of the conditions of the agreement are met, the sale will close and property ownership will transfer from the seller to the buyer.
A signed purchase agreement is a legal representation of the intent of both parties to engage in the real estate transaction, and stipulates the circumstances that must be met for the transaction to be completed.
Traditionally, the buyer’s real estate agent takes responsibility for working with real-estate law firms to write up and prepare the purchase agreement.
Alternatively, buyers and sellers who do not use real estate agents may wish to write their own purchase contracts. To help ensure that your purchase agreement is legally airtight and that it fully details every aspect of your sale agreement, it’s advisable that you work with a real-estate attorney. They will be able to help you draft a purchase agreement for your house, and ensure that you fully understand the terms and expectations to be included in the contract.
The purchase agreement must be able to stand up to legal scrutiny and account for many different factors and circumstances. Common components within purchase agreements include the following:
Although the purchase agreement is an important step towards finalizing your sale, there are still situations that may prevent the property from closing without either party defaulting on the contract. These contingencies are included in the purchase contract and describe circumstances that must be met for the sale to proceed as outlined. Essentially, contingencies give the buyer and the seller a way out, allowing them to clearly identify circumstances that would prevent them from being willing to close.
Although they may differ from contract to contract, some of the most-common contingencies found in purchase agreements include the following:
It is possible to cancel a purchase agreement, but it can be costly. The contingencies included in the contract are the only truly safe options for backing out of a purchase agreement — if one or more of those contingencies are not met, the contract is void and both parties are freed from their obligations. If, on the other hand, you decide to exit a purchase agreement when the option to do so is not protected by the contract, you may incur legal or monetary penalties.
Simply put, once the contract has been signed and the terms have been met, the buyer has a legal claim on the property. They may then sue the seller to force them to complete the transaction, or they might file a lis pendens, or a lien, on the home, preventing the seller from selling the property to anyone else. At the very least, failing to satisfy your responsibilities as outlined in the purchase agreement will end up costing you time, effort, and the earnest money currently held in escrow, and place you back at square one of trying to sell your home.
In nearly every case, the best time to cancel a purchase agreement is before you ever sign it. After you’ve made a legal commitment, getting out is much more difficult. Instead, make sure that you fully understand the contract, your responsibilities, and your options, so you can go through the selling process with confidence.
Selling a home is probably one of the most complex and legally significant transactions you will ever be involved in. But that doesn’t mean it needs to be a stressful experience. Sold.com has the insights, resources, and expertise to help you navigate the stormy seas of selling your property. Take our quiz today , and see what home selling options (and savings) are waiting for you!