A home purchase agreement is a binding contract, generally between two parties, for a sale of a house or any other property. Both parties must have the legal ability to make the exchange, purchase, or other conveyance of the property in a transaction.
A legal “consideration” is the base of the contract. Whatever is being exchanged against the real estate is a consideration, and usually, most of the time, it’s the amount of cash although payment could be any other property in exchange or a promise to perform some act, like a promise to give a certain amount of money in the future.
The Agreement must be in Writing and Signed by both Parties
A U.S. common law “statute of frauds” requires several specific agreements to be made in writing for them to be considered valid, and it includes the contracts for real estate. If there is a sale purchase real estate contract that is not in writing and not duly signed by both parties of the agreement, then the contract is not enforceable, or it is a void contract.
Although there are many templates and forms of sale purchase contract available online, you should consult with your real estate agent or attorney to check their appropriateness.
Components of a Purchase Agreement
Apart from the mutually agreed consideration, a purchase contract of real estate should also include:
- Property’s description
- Identification of both parties
- Contract’s essential details, rights, and obligations of the parties
- Any conditions or contingencies that must be fulfilled before the sale can proceed
- Property’s condition
- The included and excluded fixtures and appliances in the contract of sale
- The amount of the earnest money deposit, which shows the buyer’s good faith and intention to close the deal
- Who is responsible for the payment of itemized closing costs and its total amount
- The probable date of closing
- Both parties signatures
- Terms of possession, i.e., a statement of when the keys to the house will be given over to the buyer
Contingencies list may include a loan contingency; this contingency provides the details of the kind of loan the buyer is arranging for and permits the buyer to get out of the agreement if they fail to secure the financing.
Moreover, there is an inspection contingency that permits the buyer to revoke the purchase agreement if their expert property inspector finds some significant problems with the property. Alternatively, the buyer can request the seller to reduce the price of the property or make some specific repairs that would be expensive for the buyer.
Home inspections are done in advance in individual states before executing the final buying contract, so it would not be recorded as a contingency there.
In some instances the sale is contingent upon happening of another transaction of real estate before this one. For example, the seller might say that they won’t be able to complete the transaction until they have purchased their new home.
The mortgage company or the lender usually requires a buyer to get an appraisal of the property to see whether the property is worth what the buyer has offered to pay.
Deposit of Earnest Money
When a buyer signs the purchase contract, they are often required to pay a small amount of cash to show that they are serious about buying the house. The amount is kept in an escrow account until the closing by a third party, for example, a title company or a seller’s real estate lawyer. Usually, the amount is mentioned in the real estate agreement, and the amount is credited toward the downpayment at the time of closing.
Costs of Closing
The kinds of closing costs and the side who’s responsible for paying them may vary in different states. The amount is usually 2-5% of the purchase price of the property and includes different fees and taxes linked to the transfer of the property. These costs may consist of a recording of the deed and expense of a title company. A title company performs research to find out the chain of ownership of the house and ensures that no one else has an ownership or monetary claim on it other than the seller. Furthermore, the title company also offers other products like insurance protection against any future claims.
Moreover, there is another additional cost at the time of the closing, which is the real estate agents commission, and it usually amounts to 6% of the purchase price of the home.