Real Estate Purchase Agreement: What Is It And What Does It Include?

8 Min Read
Updated Jan. 9, 2024
FACT-CHECKED
Written By
Sarah Sharkey
Couple excited after purchase agreement and house offer goes through.

Signing a purchase agreement is a major step in the path to closing on a home. That’s why it’s important to know what this document includes and how it can impact your home purchase journey.

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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 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.”

Other common terms for a purchase agreement include real estate sales contract home purchase agreement, real estate purchase contract and house purchase agreement.

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Who Prepares The Home 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, real estate agents 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 Real Estate Purchase Contract?

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.

1. Buyer And Seller Information

A home purchase agreement will include the full names of all of the buyers and sellers involved. In addition to legal names, the contract will also include contact information for all involved parties.

2. Property Details

The contract will include information about the property including the physical address, a brief description of the property and useful details about the property to ensure that everyone is on the same page.

For example, the contract will include information about which fixtures and appliances will be included in the sale. Knowing this information in advance will help you avoid any unhappy surprises on closing day.

3. Mortgage Terms

Your real estate purchase agreement 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.

4. Contingencies

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: A financing contingency means the sale is contingent on the buyer being able to obtain financing. This protects the buyer if they can’t qualify for a mortgage.

  • Inspection contingency: An inspection contingency means the buyer can back out of the sale without penalty if they aren’t satisfied with a professional inspector’s assessment of the home.

  • Appraisal contingency: An appraisal contingency states that the home must appraise at a value equal to or higher than the agreed upon sale price. If the appraisal falls short, the buyer might struggle to find financing.

  • Home sale contingency: With a home sale contingency, the home purchase is contingent on the buyer’s ability to sell their current home. If the buyer can’t sell their home within the agreed-upon timeframe, then the purchase agreement is invalid.

  • Title contingency: A title contingency means the buyer can leave the contract if the home isn’t clear of liens. Buyers often work with a title company to review the title report of a home to ensure no one other than the seller has a claim to the property.

5. 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 helps give them that confidence.

If, between the time of signing the purchase agreement and closing 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 refunded 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 – if the deal goes through.

6. 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 origination fee, appraisal and inspection fees, taxes, lenders fees and insurance.

For buyers, closing costs average 3% – 6% of the purchase price. Closing costs may be slightly higher for sellers since they typically pay real estate agent’s commission and may cover some of the buyer’s closing costs as part of the negotiation.

7. Disclosures

The seller is obligated to disclose certain things about the home. For example, the purchase agreement might include a lead-based paint disclosure, which is required for any house built before 1978.

What’s Not Included In A Purchase Agreement?

A purchase agreement is a relatively comprehensive document. But it doesn’t include everything about the transaction. This document likely won’t include a specific look at the fees you might encounter along the way. For example, it likely won’t include information on the costs of a home appraisal or closing costs.

If you want to see a breakdown of specific closing costs, you’ll find these in the Closing Disclosure document provided by your lender.

What Happens After The Home Purchase Agreement Is Signed?

When both you and the seller sign a home purchase agreement, the home is officially under contract. But that’s just one step in the march toward the closing table.

Once the contract is signed, it’s time to start working through the contingencies. For example, the buyer can order an inspection. Additionally, now is the time for the buyer to secure funding for the deal.

If all the contingencies are met by closing day, the buyer and seller can complete the transaction.

House Purchase Agreement FAQs

Below are the answers to some commonly asked questions surrounding real estate purchase agreements.

What is the purpose of a real estate purchase agreement?

The purpose of a real estate purchase agreement is to lay out all the details of a transaction. With this document, both the buyer and seller can get on the same page. It’s helpful to have the details in writing for both parties to refer to through the closing process.

Is a purchase agreement for a house the same as a purchase contract?

Yes, a purchase agreement for a house can also be called a purchase contract. Other common terms for a purchase agreement include real estate sales contract home purchase agreement, real estate purchase contract, and house purchase agreement.

Can the buyer or seller back out of a home purchase agreement?

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. But you can still back out for an outlined reason without repercussion. For example, you could walk away from a purchase agreement if the contract had a home inspection contingency and the home inspector uncovers serious issues.

When does a real estate purchase agreement expire?

Any expiration date should be clearly outlined in the purchase agreement.

The Bottom Line

As you navigate the home purchase process, it’s very helpful to understand the concept of a purchase agreement. Although you’ll likely have a real estate professional to help you create and follow the details of this contract, read through the document on your own to make sure you understand all transaction details.

Always read the fine print before signing on the dotted line, especially when it comes to a purchase as large as a house. 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? today.

Home Buyer’s Guide

Home Buyer’s Guide

Follow our step-by-step guide to learn how to buy a home.

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