The Real Estate Purchase Agreement Explained

I've received a few emails about real estate purchase agreements lately, so I thought I would answer all of those questions at once. In this lesson, I'll talk about the key parts of the purchase agreement and what you should know about each one of them.

To put this article in context, I am referring to residential real estate purchases -- as opposed to commercial property. This article is intended for home buyers who have questions about the purchase agreement / contract that is used during the home buying process.

What Is a Purchase Agreement Anyway?

For some people, this might be fairly obvious. But I don't want to make any assumptions regarding your level of understanding, so let's start off with a simple definition.

When you buy a house, you will have to submit what is known as a real estate purchase agreement to the seller. If you're buying a brand-new house, the agreement will be between you and the builder. If you buying an existing home that somebody lives in (a resale property), you will submit your purchase agreement directly to the homeowner. Since most first-time home buyers purchase resale properties, I'll focus primarily on that type of purchase agreement.

This agreement is a legal document between the buyer and the seller. It outlines certain to aspects of the sale, including the purchase price. It's a way for the seller to say, "I agree to sell you this house for X number of dollars." On the buyer side, it states the same thing -- "I agree to purchase this property from you for X number of dollars."

The real estate purchase agreement also specifies the time frame for the sale, any conditions or contingencies relating to the sale, and other things you should be aware of.

Some parts of the purchase agreement may be unique to your state. For example, many states require certain disclosures about a property, and these disclosures must be made known within the purchase agreement.

A lot of the information contained within this document is also "boilerplate" information. That is, it includes a lot of standard clauses that do not change from one purchase agreement to the next. So when preparing or reviewing a real estate agreement, you should pay particular attention to the areas that are unique to the sale. These include the sale price that has been agreed upon, the time of the sale, and any contingencies relating to the transfer of property. By "contingencies," I'm talking about things like financing, home inspections, the sale of your current home (if applicable), and other things that need to be in place for the sale to go through.

Viewing Sample Real Estate Documents Online

My advice is to find a sample agreement online and spend some time looking it over. If you do an Internet search for real estate purchase agreements in your state, you should be able to find plenty of information and even some sample documents. This is a good way to familiarize yourself with the information contained in a purchase agreement, and it will help you review such an agreement when the time comes to do so.

I also recommend working closely with a real estate agent, especially if you are buying a home for the first time. In order to get a license to practice real estate in your state, an agent must pass a test that includes everything about purchase agreements and how to prepare them. In other words, a good real estate agent will be an expert in this subject. So he or she will be able to point out the important parts of a real estate agreement to you.

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I hope this article sheds a little light on the subject for you. Good luck with your home buying process.

Labels: Home buying process