Sellers can first encounter purchase agreements when they receive offers from buyers. It outlines the offer price, contingencies, financing terms, closing costs, possession date, and other details.
It’s important to review the agreement before you sign. Here are some of the ins and outs of purchase agreements to help you understand the role it plays in your home sale!
What is a purchase agreement?
A purchase agreement is a document the buyer and seller use to detail the sale price and terms of the sale. Essentially, it’s an offer that evolves into a contract.
The key elements of a purchase agreement are:
- Closing costs & which party is responsible for them
- Details regarding the buyer, seller, and property
- Financing terms
- Possession date & closing timeline
- Earnest money deposit and down payment
- Contingincies, inspections, appraisals, etc.
- Repairs required to finalize the sale
- Fixtures and appliances the buyer would like to include in the sale
- Grounds for terminating the sale
The purchase agreement is a working document until it is signed. Most real estate agents might have a generic purchase agreement on file, and it is drafted by a team of real estate attorneys and agents who update it annually.
The buyer’s agent will typically prepare the document and customize it to include the buyer’s purchase price, contingencies, disclosures, and other items.
Types of purchase agreements
The main types of purchase agreements are:
State/association agreement: A real estate agent (if you’re using one) will likely use this agreement. It’s a standard form based on the local real estate association’s guidelines.
General purchase agreement: This is a shortened version of the state/association agreement Buyers who purchase a property without the help of an agent will likely use this type of agreement.
Property-specific purchase agreement: This is a specialized contract made for property transactions for things other than single-family homes, like mobile homes and vacant land.
Reviewing the agreement
Once you sign the agreement, it becomes a legally binding contract. This means both parties have committed to the sale and may only negotiate or cancel if the contingencies and deadlines are not met.
Check for any buyer’s contingencies
Buyers can make plenty of reasonable requests in the purchase agreement, but they may also include some contingencies. Here are some common ones to be aware of:
- Inspection contingency: This contingency requires a professional home inspector to inspect the home and allows the buyer to back out if they’re not satisfied with the inspection. Some buyers may request that you complete or compensate for any necessary repairs before closing.
- Appraisal contingency: This stipulates that a buyer can back out of the sale if the home appraises for less than the agreed-upon price. The appraisal typically takes place after the home inspection and can take anywhere from a few days to a few weeks to get the report back.
- Financing contingency: This allows the buyer to back out of the contract if they can’t obtain financing. according to a January 2021 report from the National Association of Realtors (NAR), “issues related to obtaining financing” accounts for 22% of delayed contracts and 9% of terminated contracts.
- Home sale contingency: With this contingency, the buyer agrees to purchase your home if (and only if) they sell their current house first.
Confirm the purchase price and closing cost responsibilities
The purchase agreement will outline all of the money exchanged in the home sale. These are things like:
- Earnest money: This is also known as a “good faith deposit”. This shows how serious the buyer is about their offer. If the buyer happens to walk away from the deal, they lose this deposit. An earnest money deposit can be 1% to 3% of the total purchase price.
- Down payment: Most buyers require a mortgage in order to afford a home purchase. However, the down payment is the percentage of the purchase that the buyer pays up-front and out-of-pocket.
- Escalation clauses: Sellers are more likely to see escalation clauses in a competitive market. This indicates that a buyer will pay more for the property if there are better offers on the table. An escalation clause will often include a price cap that indicates the highest possible offer.
Find an agent to help
A purchase agreement can be a complex document – and its contents may make or break a deal. Find an agent to help ensure a smooth sale and keep the process as stress-free as possible.
Team Melton has over 50 combined years of real estate experience to assist you through every step of the process. Contact us today to get started on selling your home!