Tips & AdviceEverything You Need to Know About Real Estate Purchase Agreements

Everything You Need to Know About Real Estate Purchase Agreements

Real estate investments typically cost hundreds of thousands, even millions, of dollars and involve many moving pieces during the negotiating process. Before any real estate transaction finalizes, the buyer and the seller must agree on an established set of terms.

While plenty of buyers and sellers use a boilerplate set of terms when negotiating, there will usually need to be at least a few changes before buyers and sellers can complete the deal. A real estate purchase agreement will help outline many of these terms. By putting the conditions attached to the transaction into writing, both buyers and sellers will be able to know exactly what they are getting into when purchasing a property.

What is a Real Estate Purchase Agreement?

A real estate purchase agreement is a legal document that outlines all of the terms and conditions of a proposed real estate deal. This is a legally binding contract, meaning that once both the buyer and the seller have agreed to these terms, there could be consequences for backing out of the deal.

Essentially all real estate transactions will involve a real estate purchase agreement. Even if the deal appears fairly straightforward, it will be crucial to outline terms and resolve any questions. By creating a detailed purchase agreement, both the buyer and the seller can avoid potential legal or financial headaches down the road. Buyers and sellers with personal relationships should also consider creating a real estate purchase agreement, even if they trust the other party.

Real estate purchase agreements are legally binding, and the buyer and seller must carefully review all of the terms and conditions involved. Each party’s real estate agent will walk their client through the terms to help clearly explain the benefits and responsibilities each of them entails. Once both parties agree upon and sign the contract, the property officially goes under contract. They can then move forward with the remainder of the closing process.

What are the Most Common Components of a Purchase Agreement?

As suggested, every real estate purchase agreement looks slightly different. This is because, while often similar, these purchase agreements result from an ongoing negotiation process where both the buyer and the seller prioritize their own needs.

Nevertheless, there are still plenty of terms that you can find in almost any real estate sales contract, including:

Basic Contact Information

The agreement should clearly state the names of both parties, as well as all relevant contact information.

Purchase Price

This component typically involves negotiation between the buyer and seller. The seller lists their home for a set purchase price, and the potential homebuyer submits an official offer either below, above, or at the purchase price. The purchase agreement for the house must clearly state the agreed-upon purchase price.

Conceded Items

The contract should state if the seller will include any appliances, furniture, fixtures, or other objects. Sellers typically include items like garage door openers, stoves and refrigerators, and window shades.


If the seller offers any contingencies or different conditions, they will include those in the purchase agreement. This includes anything the seller is willing to fix or replace to sell the home. That might mean changes to the foundation, replacing the roof, fixing broken pipes, and other possible home improvements.

Property Tax Details

Though property taxes can potentially change in the future, sellers must include the taxes due next year in the agreement. Buyers can therefore budget for next year’s taxes and understand what they are responsible for moving forward.

Purchase Financing

To complete the agreement, the buyer must prove that they can buy the property with cash or finance the purchase with a lender-approved mortgage.


These are simple statements of fact that describe the property’s current condition. The seller must disclose, for example, if there are problems with the roof.

Title Insurance

The agreement includes title insurance details, which protects buyers from issues regarding ownership that transpired before their ownership of the property. Title insurance does not protect buyers from problems in the future. It is up to those participating in the transaction to determine who will cover the cost of title insurance, either the buyer or seller.

Property Description

In addition to including the property address, the purchase agreement should also describe the exact dimensions of the property. Sellers may have access to previous development plans or may need to find the square footage themselves. A seller may decide to measure independently if their property is nicely shaped. They can also hire an appraiser to handle a more complicated measuring job.

Property descriptions may appear quite different between agreements. For example, homes built before 1978 must show evidence that the home does not contain any lead-based paint.

Closing Date

This explicitly states the closing date, when the buyers gain official ownership of the property and receive the keys.

Earnest Money

Earnest money is the amount the buyer offers to demonstrate they are serious about closing on the property and are negotiating in good faith. This money is usually non-refundable and goes toward the purchase price.

Buyer and Seller Signatures

The signatures of both parties will be the most important component of this contract. After all, without them, the contract itself is not valid.

Ideally, the purchase agreement will clarify what both parties agree to with this specific transaction. If you feel anything is missing from the agreement or anything is unclear, you should speak with your real estate agent before signing the dotted line.

Real Estate Purchase Agreement Frequently Asked Questions (FAQ)

Both buyers and sellers have additional questions regarding real estate purchase agreements, including the following:

Who prepares the real estate purchase agreement?

Typically, the buyer’s agent prepares the real estate purchase agreement. Since agents are not attorneys, they utilize a general template from a law firm and then find additional resources if needed. Both the buyer and seller provide their information to the real estate agent, who fills in the empty spaces on the template. When they are ready to sign, the buyer and seller complete the signature portion of the contract.

What is a contingency?

A contingency is a condition that a party must meet to validate a contract. In a real estate purchase agreement, that typically means a seller must complete a task like replacing a broken or damaged element. There are many types of contingencies, like inspection contingencies, financing contingencies, title contingencies, and financing contingencies are among the most common. Both parties should clarify the exact terms of the contingencies and ensure they understand what they agree to complete.

What is earnest money?

Earnest money is a cash offer made by the buyer to show they are serious about the purchase. The money goes into an escrow account during the transaction and then applies toward the down payment when both parties close. If a buyer backs out of the deal after depositing their earnest money, they do not receive the money back unless the seller violated a part of the contract that led to the buyer’s backout.

What are closing costs?

Closing costs include all the fees and other expenses a buyer and seller must fund to close on the property. Typically, closing costs equate to three percent of the home’s total value. This means a $400,000 home sale might have closing costs of around $12,000. Typically, the buyer covers more closing costs, but a seller may contribute to taxes and other agreed-upon items.

Who pays for the real estate purchase agreement?

In most cases, the seller pays for the real estate purchase agreement as part of their agent’s commission fee.

Is it possible to terminate a real estate contract?

Whether or not you can terminate a real estate purchase agreement will depend on several factors, including the state where you purchase a property. If the seller misrepresents the current state of the property, it will be easier for the buyer to terminate the contract without paying any penalties.

In other cases, getting out of the contract might not be as easy. While the buyer usually has the option to walk away without making a final commitment, they will lose their earnest money if they do so with no legal reason. Buyers should therefore ensure they are ready to move forward with the purchase before they put their deposit into escrow.


A real estate purchase agreement protects both parties involved in a real estate transaction. The agreement defines the conditions buyers and sellers agree upon before transferring ownership and clearly states key details about dates, pricing and financing, and contingencies. Real estate agents guide their clients through understanding and signing the agreement before they move forward with the remainder of the closing process.