A proper document outlining the terms of sale is essential when selling a valuable asset. Drafting a valid, legally binding purchase agreement streamlines the process. It ensures all parties understand and play by the rules, whether you are selling real estate, a business, or another expensive item.
The document sets the conditions under which the sale happens, the cost of the item, the closing date, and more. It also includes disclosures about the property that a buyer should know before committing to the transaction.
For your purchase agreement to be valid, it must contain specific information and include necessary clauses. Reviewing the information below before starting your document will help you simplify the process. You may need a professional to review your document before signing.
What is a Purchase Agreement, and Why Do I Need One?
When a buyer consents to purchase a property and is ready to make the downpayment, they and the seller sign a document that outlines the terms of the sale. That document is a contract they both enter to finalize the sale. In real estate, it contains the name, parcel number of the property, address, and other essential information. It also includes conditions that must be met (contingencies) to close the sale.
Purchase Agreements are standard in real estate transactions but may be used for other sales as well. Unlike a bill of sale, the buyer and seller typically sign this document before the sale closes but after one party accepts an offer. In many cases, the seller is the one to accept a buyer’s offer, but it can happen either way.
A purchase agreement is legally binding; a party wanting to walk out on it would require a valid reason, such as a contingency that fails to be met. Otherwise, they could lose the downpayment. For example, a home buyer developing cold feet due to buyer’s remorse after signing a purchase agreement may face legal action from the seller. In the US, for example, The Fair Trade Commission’s cooling-off rule, which allows buyers to retract on some transactions, does not apply to real estate purchases.
Either party can draft a purchase agreement if they agree to the terms. In most cases, the seller writes the agreement, and the buyer can either accept the conditions or walk away.
A purchase agreement is also known as a Sale and Purchase Agreement (SPA) or a Purchase and Sale Agreement (PSA).
What to Include in Your Purchase Agreement
A Purchase Agreement can be a few or hundreds of pages long, depending on the type of property you are selling and the clauses you need to include. However, every purchase agreement must include the following basic information.
- The buyer and seller’s information: Include your and the buyer’s legal name. You may also need to include other personal information such as addresses, contact information, and identification.
- Identify the asset for sale: Provide the details of the asset you are selling. Name the item, its number, and its physical location. For real estate, this includes the location and land parcel number.
- Inclusions and exclusions: If there’s anything in the property at the time that will not come with its purchase, put it down in the agreement. The same applies to any additional items that come with buying the property.
- The Price: You must state how much the item costs.
- Payment conditions: If the buyer must pay a portion of the total price upfront, state how much and when the payment should be made. Also, include when the balance is due. A good purchase agreement also outlines the payment method, whether by check, cash, credit card, or other means.
- Closing date: The closing date is the day when the property ownership officially transfers to the buyer. The date should be clearly stated.
- Closing Costs: Besides the property price, the transaction will include other charges, such as appraisal costs, search fees, title insurance, credit report charges, and taxes, among others. The agreement must outline who pays for them.
- Due Diligence: This period corresponds to the time between offer acceptance and the closing date. During that time, the buyer determines whether to proceed with the purchase. They use this time to inspect the property, seek appraisals from third-party evaluators, review HOA rules, and perform other necessary due diligence before paying the total price.
- Disclosures: Federal and state laws require sellers to disclose information about a property’s value or likeability. For example, if the seller knows a house has a leaky roof, they must inform the purchaser. They must also disclose a death that previously occurred in a home, especially if it relates to crime or hazards on the property.
- Warranties and guarantees: Outline any warranties and guarantees that come with purchasing the property.
- Contingencies: Real estate purchase agreements often contain contingency clauses. For example, the contract could state that the buyer is waiting for loan approval to complete the transaction, or they’d have to sell their current home first. Such contingencies can provide a legal way to exit the contract if they are not met.
- Dispute resolution: It’s advisable to anticipate possible disputes that may occur during the sale and lay out the rules to resolve them.
- Other provisions: Your purchase agreement can include as many items as you need for it to be effective. Please address any issues you think may arise, including any addendums that apply and as many clauses as the transaction requires.
- Signatures: Leave clearly marked spaces for all parties to sign and date. The document becomes binding after signing.
Our Purchase Agreement template gets you started. It’s free to download. Adjusting it to your needs takes a short time, as we have considered all the essential elements. However, remember to seek professional assistance, especially with large purchases, to ensure you leave nothing out. Easy Legal Docs provides many other legal documents and templates you can use on demand.
Article by
Dena StandleySenior Writer | Experienced Paralegal | 79 Articles
Dena Standley is an experienced paralegal based in Houston, Texas and has over a decade of experience working as a paralegal with trial lawyers and law firms. She is passionate about making legal processes more accessible and helping people understand and navigate complex legal matters with confidence.
Share
Like what you see? Share this with your friends!
Or copy link