8 Essential Facts Regarding Real Estate Purchase Agreements

After the seller accepts your offer, it’s time to take care of more paperwork. At this point, you may also receive the real estate purchase agreement. 

Real estate agents are familiar with real purchase agreements. But it may also be useful to have a real estate attorney you trust to go over the contract. By consulting these professionals, you can feel more secure about the transaction. However, it still pays to do research on your own to know what the agreement covers. And, this post does exactly that!

We’ve got a list of 8 basic things to help you understand real estate purchase agreements better. 

1. What Is A Real Estate Purchase Agreement?

A real estate purchase agreement is basically a contract between a buyer and a seller. It outlines the terms of the sale of the property. It also includes the obligations and rights of both parties. 

Otherwise known as a home purchase contract, this written arrangement details the terms of buying the property. It also specified the agreed closing date. The buyer usually initiates the negotiation for purchasing the property with an initial offer. If the buyer and seller finally agree on the terms, the real estate purchase agreement enters the picture.

Tip: Some people use real estate sales contract or property sale agreement instead of real estate purchase agreements.

2. What Is Included In The Real Estate Purchase Agreement?

Real estate purchase agreements cater to the needs of both the buyer and the seller. Although terms can differ from contract to contract, all agreements contain these basic elements:  

Personal information of the Buyer and the Seller:

The agreement needs to include the full names and contact numbers of the parties involved.

Details of the Property:

Specific address of the property and the legal description, if needed. A licensed surveyor usually prepares this document. You can also request this information from your county’s recorder office.

Price offer:

This refers to the price you agree to offer for the property. You should include adjustments or deposits required. Most real estate purchase agreements include an earnest money deposit.


The earnest money deposit is the deposit made by the buyer to express his or her genuine interest in purchasing the property. In exchange for this deposit, the seller agrees to take the property off the market. A neutral third party should your earnest money deposit in escrow.

The earnest money deposit is usually deducted from the downpayment. If the buyer terminates the contract because of contingencies, this deposit may be refunded.  For instance, a problem occurs during the home inspection, and the buyer decides to let the property go because of serious issues. If the real estate purchase agreement has an inspection contingency, the funds held in escrow may be released to the buyer. 


Our agreement should specify if the buyer plans to obtain financing to purchase the property. It should also state if the buyer will assume the seller’s current mortgage.

Warranties and representations:

This clause states that the seller holds a  clean title and has the right to sell it. This means that the title must not have any type of lien placed by creditors or other parties. There should also be no grey areas as to the legal ownership of the property. 


The seller is in no position to complete the real estate purchase agreement if he or she is not able to provide a clean title of the property. 

Title insurance:

This is a form of insurance covering loss of property value. It protects you in case of defects in title are discovered in the future.

Closing date:

Closing is considered as the final step in a real estate transaction. During closing, the buyer can take possession of the property. 


This is also the stage where the seller receives the payment for the property. The buyer also becomes the legal owner of the property. The negotiations finally come to an end and both parties sign and hand over the necessary documents.


This refers to certain conditions that need to happen for the contract to push through. 

3. What Contingencies Can You Include In Your Real Estate Purchase Agreement?

As noted above, contingencies are circumstances that should occur for the actual sale to happen. These contingencies allow buyers to terminate the real estate purchase agreement without losing their earnest money deposit.

When something goes wrong in the process (e.g. mortgage loan applications don’t get approved), buyers can back out. Sellers, on the other hand, can entertain other offers if the buyer opts out of the agreement. Most real estate purchase agreements include these contingencies.

Home inspection contingency

A home inspection contingency gives buyers the right to hire a professional inspector to examine their prospective home. Usually, buyers can schedule the inspection after making the earnest money deposit.

A reliable inspection report should detect structural, material, or other home-related problems with the property.  The inspection should be completed prior to closing. This way, you can make sure that there are no serious defects in the property. 

If the inspection report finds defects or property damage, the buyer may request the seller to make the necessary repairs. The buyer can also use inspection results as leverage to negotiate a better price. With this contingency, the buyer may walk out of the deal if the seller is not willing to negotiate.  

Mortgage or Financing contingency

A mortgage or financing contingency gives buyers a deadline for securing a mortgage. There are cases where the buyer fails to get a loan approved after signing the real estate purchase agreement. When that happens, this contingency gives the buyer the right to back out without losing the earnest money deposit.

While the mortgage contingency protects buyers, it’s better to make the necessary arrangements ahead of time. Check if you qualify for a loan by getting pre-qualification for a mortgage. It would be even better if you have a pre-approval. This would save you and the seller a lot of time. Aside from that, knowing this can help you make a budget and determine how much house you can afford

Appraisal contingency

This contingency allows the buyer to back out if the sale price is higher than the property’s valuation. A licensed appraiser should provide an appraisal based on the fair market value of the property.

It’s advisable to retain this contingency to cover your bases. Most mortgage lenders will estimate the loanable value of a property based on their appraisal. If the appraised value is low, your loan may not cover the full amount you expected. Although you can pay the difference, it’s better to negotiate with the seller first. 

Sale of home contingency

Buyers who plan to use the sales proceeds of their home to buy a new one add the sale of home contingency. This contingency permits a buyer to back out if his or her home is not sold at a specific date.

4. Who Writes The Real Estate Purchase Agreement?

Usually, the seller’s attorney drafts the real estate purchase agreement or purchase contract. But there are instances where the buyer drafts the agreement. Sometimes, the escrow agent handling the closing process drafts the contract. 

The contract contains the important elements and terms required for closing. Hence, both the buyer and seller should understand the conditions in the real estate purchase agreement.  Attorney involvement would also be ideal to make sure that both parties understand what they are signing. 

You can check out these real estate purchase agreement templates to become more familiar with the contract.

5. Is It Advisable To Hire Someone To Prepare The Real Estate Purchase Agreement For Me? 

Most of the time, buyers only have to review purchase agreements. Unless you are an expert in drafting these contracts, it’s best to leave it to professionals.

Of course, you should still exert effort to understand the documents you have to sign. It would also be helpful to have someone familiar with the documentation and overall process to guide you. This is precisely where real estate agents come in. Your agent can enlighten you about the process and explain the details covered in the real estate purchase agreement. 

Moreover, real estate agents can recommend reliable inspectors and mortgage lenders. Negotiating with the seller’s agent will also be part of their job.

Real estate agents can assist you in drafting a real estate purchase agreement. However, in some states, you need a lawyer to draft the purchase agreement.  Even if it’s not mandatory in your state, seeking legal advice is highly recommended. After all, real estate attorneys are in the best position to answer your queries and concerns about clauses in the contract.

6. What Happens After Closing?

After closing, the seller is no longer the owner of the property. At this time, the buyer is the rightful owner of the property. The seller should surrender the keys, access codes, and controls to devices related to the property. 

Sometimes, however, the buyer and seller’s relationship continues after the closing date. 

Moving Out Period Agreement

After the closing date, the seller should have vacated the property with all of his or her assets or possessions. This also means that the house should be ready for the owner to move in. However, there are instances when the seller may not be able to move out on or before the closing date. If this happens, the seller can enter a post-closing possession agreement with the buyer.  

Post-Closing Possession Agreement

Aside from allowing the seller to stay longer, the buyer may also execute a post-closing possession agreement. This agreement is better known as a residential leaseback agreement or simply rent-back. Most sellers propose rent-back agreements before the closing date.

When a buyer rents back the property, the seller becomes a tenant for a specified period. This agreement requires rent payments. Depending on the agreement, the seller who is now a tenant may be responsible for property insurance, taxes, and damages that may arise while renting the property. 

7. What Are The Steps Involved Before You Sign A Real Estate Purchase Agreement?

After making an offer, it takes a while before you get to sign the purchase agreement. Here’s usually what happens from the time you make an offer on a house to the time you sign the agreement.

1. Make an offer.

2. Get the seller to accept your offer. It usually takes several counter-offers and negotiations to agree on a price and terms. At this point, you should receive the real estate purchase agreement from the seller.

3. Request your agent or lawyer to review the contract. There may be revisions in the contract to accommodate the needs of both parties. Your representatives should propose contingencies and other terms you want during the review process.

4. Check the contract. Even if professionals reviewed the contract, it’s still useful to go over it to make sure everything is there.

5. If everything checks out, sign the contract.

6. Make the earnest money deposit to a third party’s escrow account.

8. Can you terminate the real estate purchase agreement? 

Yes, you can terminate a real estate purchase agreement. If no issues arise, the transaction leads to the transfer of the property. However, there are several instances when a real estate purchase agreement can be terminated. 

Situations Where The Seller Can Terminate The Contract 

Sometimes, sellers change their mind about selling their home for several reasons.  For instance, their life circumstances may have changed. Undecided sellers usually include contingencies in the agreement which allows them to back out. But if the seller simply had a change of mind, the deal may not push through but the buyer claim for damages for breach of contract. 

Situations Where The Buyer Can Terminate The Contract 

Buyers can terminate the contract in the following instances: 

When contingencies are not satisfied

Most purchase agreements include several contingencies that allow buyers to terminate the contract. These grounds for backing out may include:

1. Serious problems with the property discovered after a home inspection and not disclosed by the seller did not disclose (inspection contingency)

2. Buyer’s inability to secure a mortgage (mortgage/financing contingency) 

3. The value of the property is lower than the sale price (appraisal contingency) 

When the condition of the property changes within the transaction period 

On the closing date, the condition of the property must be the same as when the offer was made. The buyer may withdraw and get the earnest money deposit back if any damage occurs to the property.  

A Real Estate Purchase Agreement Is Always A Must

When buying a home, make sure that your real estate purchase agreement covers everything. Before finalizing the sale, your goal as the buyer is to make sure that the property meets all your expectations. 

Your real estate purchase agreement should address your needs as well as the demands of the seller. Don’t forget to bring up any concern you have with earnest money deposits, contingencies, and deadlines. Equipped with your new knowledge and the assistance of your agent or lawyer, you should feel more at ease about proceeding to the next step in buying a home. 

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