14.9%! That’s how many home sales failed in June because sellers and buyers couldn’t agree on contingencies in the purchase agreement. Home inspection, appraisal, and preapproval are common contingencies when selling or buying a home.
Buyers need to account for, and fulfill, all conditions in a purchase contract. Sellers must ensure that the agreement terms are clear and easy to understand, while being subject to similar clauses. This avoids unnecessary hiccups during a transaction.
Drafting a purchase agreement can be complicated, so seek professional help. Besides access to the latest technology, Houzeo’s Gold Plan gets you dedicated assistance with all paperwork from a licensed broker.
What Is a Purchase Agreement in Real Estate?
A real estate sales and purchase agreement (SPA) legally places the buyer, seller, and for-sale property ‘under contract’. Once the buyers and sellers have signed it, the SPA becomes legally binding for all parties involved.
A purchase agreement clearly chalks out the terms and intent of all parties. It also includes conditions to be met for the sale and transfer of assets to happen.
What Should You Check in a Purchase and Sales Agreement?
Here’s a list of clauses in a contract of purchase and sale you should be aware of:
| Topic | Description |
| Parties Involved | Names and contact information of all buyers and sellers. |
| Property Details | Property’s address, measurements of the property, and buyer and seller’s agreed-upon home purchase price. |
| Representations and Warranties | The facts and conditions of the property as given by the seller. |
| Financing and Taxes | Details of any mortgage loan taken by the buyer and the payment method. Also, the liability of property taxes is mentioned. |
| Title Insurance | A note about whether the buyer or lender is purchasing insurance against bad title in the future. |
| Closing and Possession Date | The date of transfer of title and the date when the buyer will receive the keys to the property. |
| Contingencies | Conditions such as home inspection, appraisal, or mortgage approval have to be met by a certain date. Otherwise, the sale of the property can’t go through. |
| Earnest Money | Earnest money deposits act as a security deposit. It’s paid by the buyer before a home purchase and must be mentioned in the agreement. |
| Closing Costs | The required closing costs and the person who is responsible for paying them. The amount of the costs is not mentioned. |
| Conflict Resolution | Options to resolve a conflict and terminate the contract. |
| Signatures | Required of each party to finalize every purchase agreement. |
What Are the Contingencies in a Contract to Purchase?
Here are some common contingencies that one may see when buying or selling a house:
- Inspection Contingency: Home sellers have to get a home inspection done beforehand. The buyer can cancel the contract if the seller doesn’t conduct one. Buyers are also allowed to nullify it if any defects are found on the property after inspection.
- Appraisal Contingency: It ensures that a home’s appraised value is at least equal to or higher than the purchase price.
- Mortgage Contingency: Sellers can cancel the sale if a buyer can’t obtain a mortgage. This will result in buyers getting their earnest money deposit back.
- Title Contingency: A clean title report saves the buyer from a future dispute over a bad title. It assures the buyer that the property has no liens.
How Binding Is a Real Estate Purchase Contract?
A real estate purchase agreement legally binds all parties involved in a property transaction. Once signed, it shows their intent to transfer the house from the seller to the buyer. But they must meet all contingencies before the contract is enforced.
It protects both the buyer and seller and helps avoid issues that could halt the transaction. Consult with a professional agent or list with a flat fee MLS company to delegate heavy documentation.
Choose a reliable real estate agent to check for and fix property-related issues to ensure a smooth transfer of ownership. With Houzeo’s network of real estate professionals, it has never been easier to find one.
Frequently Asked Questions
Are Sales and Purchase Agreements (SPAs) legally binding?
Yes, SPA or PSA is legally binding and puts involved parties 'under contract'. It’s a legal document that outlines the contingencies involved in a property transaction.
Who draws up a purchase contract in ‘For Sale By Owner’ (FSBO) transactions?
The seller’s agent prepares a purchase agreement in FSBO transactions.
What happens after you sign a purchase agreement?
After you sign a realty purchase agreement, you can finalize the sale of a property. You should carefully check the terms and contingencies given in the agreement for a smooth transaction.
