15 Apr What is a purchase agreement?
What is a purchase agreement?
A real estate purchase agreement is a binding contract between a buyer and seller. It 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 either agree to, reject, or negotiate. Negotiations can go back and forth between buyer and seller before both parties agree. When both parties agree and have signed then they are “under contract.”
Who Prepares the Real Estate Purchase Agreement?
Normally the buyer’s agent writes up the purchase agreement for their client.
What Is Included in The Real Estate Purchase Agreement?
Some are some basic items that should be included in every purchase agreement.
· Buyer and seller information
· Property details
· Sale price
· Buyer’s financing – type and down payment amount
· Personal property included in the sale
· Closing and possession dates
· Earnest money amount
· Closing costs and who is responsible for paying them
· Contingencies or conditions that must be met
The purchase agreement will include information about how the home will be paid for. If the buyer is not paying in cash, they will need a form of financing to buy home. These facts are laid out in the purchase agreement. In our Minnesota real estate market, a pre-approval is required for a seller to consider the buyers offer if financing is being used.
Earnest Money Deposit
Earnest money is sometimes also referred to as a good faith deposit. It shows that a buyer is serious about buying the home. Sellers want to know that a buyer is going to stick with the contract through closing. The earnest money deposit gives them that confidence.
If, between the time you sign the purchase agreement and close on the home, the buyer decides they want to back out for a reason that is not stipulated in the contract, they lose their earnest money. However, a buyer can get their earnest money back if the contract is cancelled 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.
Contingencies in the purchase agreement
There are different types of contingencies that can be included in real estate purchase agreements. These are on both the buyer’s and seller’s side.
Contingencies are conditions that must be met before the sale can go through. Here are some of the
common contingencies you may see in home sale contracts.
· Financing contingency: Sale is contingent on the buyer being able to obtain financing. Protects the buyer in the case they are unable to secure a mortgage.
· Inspection contingency: Buyer can back out of the sale if something serious is found that the seller will not address or both parties are unable to negotiation a resolution.
· Appraisal contingency: The home must appraise at a value equal to or higher than what the buyer agreed to pay.
· Home sale contingency: The home purchase is contingent on the buyer’s ability to sell their current home. In a seller’s market this is not as common.
I hope this blog on “what is a purchase agreement” was helpful. Call me with questions.
Please reach out to me if you have questions about housing in Minnesota at 612-386-8600.
Real estate is a wonderful investment!