Real Estate Purchase Agreement Template (Print, Word & PDF)
While selling your real estate property is no walk in the park, it does not need to be nearly as difficult as most people make it out to be. Many real estate investors handle these types of real estate purchase agreements regularly with no problems at all.
There are a lot of forms and documents that are required when conducting a real estate transaction, not to mention other important considerations, such as property taxes, closing costs, earnest money, escrow fees, seller financing, as well as home sale contingency issues.
However, even with so many factors to consider, a real estate purchase agreement can be made easy with the right assistance. As long as the buyer and seller agree, the process should be smooth if all the required parameters are met.
If you are feeling weighed down by the requirements of your real estate purchase agreement, you are in the right place.
Doorloop is your one-stop shop for all things real estate! Meeting the agreed-upon purchase price is just one of many steps involved in the sale of a real estate property.
Before you consider selling your house, read this article and learn all you need to know about a real estate purchase contract in 2023!
Definition of a Real Estate Purchase Agreement
A real estate purchase agreement is a legally binding contract that outlines all the terms and conditions agreed upon by both the buyer and seller regarding the sale of a real estate property.
Usually, when a property is put up for sale, prospective buyers who can meet or negotiate the purchase price can submit a real estate purchase agreement through a licensed real estate agent to the seller.
Financing, earnest money deposit, closing date, home sale contingency, legal description of the property, and all relevant disclosures are just a few of the things discussed in a real estate purchase agreement.
Depending on the State laws where the real estate transaction is being undertaken, a real estate purchase agreement can go by other names, such as:
- Real Estate Sales Contract
- Home Sale Contract
- Real Estate Purchase Contract
Regardless of the state laws, though, one thing that is common with all real estate purchase agreements is that once both parties agree on the purchase price and sign off on the contract, the purchase agreement becomes a legally binding contract from the closing date onwards.
It is for this reason that great care needs to be taken by both the buyer and seller when signing a real estate purchase agreement because breaching any terms of the contract, whether knowingly or unknowingly, could result in severe penalties.
Important Terms Both the Buyer and Seller Must Understand
Conducting due diligence before signing a real estate purchase agreement means, as a seller or buyer, the first step you need to make is understanding the different terms regularly used in this industry.
In that regard, the following terms are essential:
Licensed Real Estate Agent
A licensed real estate agent is a person who is allowed, by the state where they operate, to oversee the sale and purchase of real property after having completed the necessary courses and passing the mandatory state exam.
The exam is only a demonstration that they understand the state's real estate laws and is not enough to allow them to work as a real estate agent. This requires them to join a real estate agency that is overseen by a licensed broker.
real estate agent Vs. realtor
While there are many similarities between a licensed real estate agent and a Realtor, the two have some important distinctions.
A realtor has all the licensing and training that licensed real estate agents have but goes one step further by being affiliated with the National Association of REALTORS®. Membership in this prestigious body means that, unlike real estate agents, Realtors:
- Have extra credentials that further legitimize the agent
- Are held to a higher standard than your average salesperson
- Have access to the group’s various resources that can help facilitate a sale
- Follow a certain code of ethics that is enforced by the association
In short, if you are drafting a real estate purchase agreement for the sale of a very large and expensive property, it would be in your best interest to put your trust in a Realtor to oversee the transaction.
However, the cost of securing the services of a Realtor is usually higher than a regular real estate agent, therefore this will have a significant impact on your closing costs and is something you will need to consider carefully.
Addendum
When any additional form is attached to the original copy of the real estate purchase agreement, this is called an addendum.
In it, you will find any additional terms that have a bearing on the original purchase contract that both parties agree on.
An addendum can be added at the time the original real estate purchase agreement is drafted or as an addition that comes at a later date and as long as both parties have signed the addendum, it becomes just as legally binding as the house purchase agreement.
Many addendums can be added to purchase agreements, such as:
- Closing Date Extension Addendum
- Third (3rd) Party Financing Addendum
- Condominium Association Addendum
- Termination Letter to Purchase Agreement
- Earnest Money Receipt
- Short Sale Addendum
- Earnest Money Release
- Owner (Seller) Financing Addendum
- Escrow Holdback Agreement Addendum
- Inspection Contingency Addendum
- Estoppel Certificate Addendum
What is important to note is that one party cannot add an addendum to the original real estate purchase agreement without the knowledge or signature of the other party responsible for the purchase contract.
Earnest Money Deposit
To prove to the seller that they are serious about purchasing the property, a buyer may be required to make an earnest money deposit as part of the purchase agreement.
Also known as a good faith deposit, earnest money is not necessarily a down payment because it usually only accounts for 1% to 5% of the agreed-upon purchase price.
Once all the terms and conditions of the purchase agreement have been met and the buyer has secured financing, for example from a local financial institution such as a bank, the earnest money deposit will be credited to the buyer's down payment.
If the transaction falls through due to the fault of the seller, the earnest money deposit is usually returned in full to the buyer unless it is otherwise stipulated in the purchase agreement or any of the addendums.
When the fault lies with the buyer, for example in cases where the buyer's lender pulls out of the transaction, the earnest money or good faith deposit may be kept by the seller as damages.
Contingencies
If any clause is included in the real estate purchase agreement that specifies a requirement or action that needs to be met for the purchase agreement to be considered legally binding, this is referred to as a contingency.
As an example, the buyer may say the real estate purchase agreement is contingent upon the seller fixing certain issues that have been identified on the real property before the earnest money deposit is handed over or before the closing date arrives.
In this scenario, if the seller fails to meet such contingencies then the buyer can claim breach of contract and is free to back out of the purchase agreement whether the seller agrees or not.
Contingencies can be directly inserted as part of the main body of the real estate purchase agreement or attached separately as an addendum. A real estate agent is the best person to help you identify important contingencies that need to be included to make the purchase agreement more secure.
In most states, it is normal for real estate purchase agreements to come with the following items attached or included as contingencies:
Homeowners Insurance
Depending on the region of the country that the property is located in or other underlying factors, insurance companies may refuse to provide coverage for these high-risk real estate properties.
This means that backing out of the real estate transaction can be contingent upon the buyer's failure to secure insurance for the property.
Appraisal
Before the transfer of real property can be sanctioned, most banks require an appraisal to be conducted. Appraisal fees will be incurred, which will ultimately add to the closing costs of the purchase agreement.
If the appraisal contingency is included and it finds that the estimated property value is higher or lower than the agreed-upon purchase price, the buyer has three options,
- Terminate the real estate contract
- Renegotiate the purchase price with the seller
- Obtain financing from a different lender
Home sale and kick-out clause
The purchase agreement can be contingent upon the buyer being able to sell their residential property before the closing date. This means if the buyer fails to sell their personal property, they will be free to back out of the deal without any repercussions.
Sellers usually do not accept this type of agreement and will generally look for a buyer offering an earnest money deposit to guarantee the transaction.
As a counter to the home sale contingency, if a seller agrees to forego the earnest money deposit and to allow the buyer a time period to sell their residential property, the seller may include a kick-out clause contingency.
This will allow the seller to keep on marketing the real estate property and terminate the purchase agreement should they find another buyer offering earnest money and not requiring any time to sell their personal property.
Title
This states that the purchase agreement is contingent upon the property being free and clear of any debts, loans, or liens. To confirm this, the buyer may require to see the title insurance or secure the services of a title company that will run a search and issues their findings through a title search report.
If at any point, an issue arises regarding the title or ownership of the property, the buyer has the right to terminate the purchase agreement and demand any earnest money deposit they may have made to be returned.
Inspection
After entering into a purchase agreement, the inspection contingency allows the buyer a period to conduct inspections of the house and also bring in professionals to provide their assessment of how well-maintained the property has been.
This real estate contract contingency will also determine who is responsible for the payment of the inspection fees. Any finding that indicates there are structural defects that the seller did not disclose will mean the buyer can choose to either have the purchase agreement terminated or renegotiate the terms and purchase price.
Disclosures
A disclosure is a statement that is attached to the purchase agreement detailing key information about the property that the buyer needs to know before signing any property transactions.
If the seller fails to reveal important information that later on comes to light, they face serious consequences, especially in cases where such disclosures are required by state, local, or federal law.
These issues are usually addressed in the form of a disclosure form that is attached as an addendum to the purchase agreement, such as:
- Lead-based paint disclosure form
- Property disclosure statement
- Toxic substances, such as asbestos or radon disclosure
