What is a purchase agreement for a house?

A purchase agreement for a house is a legally binding contract between a buyer and seller that records the terms, price, and conditions of a residential property sale. Learn more about the mechanics of a purchase agreement and what you need to know before signing a contract to buy or sell a house.

Key takeaways:

• A purchase agreement is a legally binding contract that outlines the price, terms, and conditions of a home sale.
• Contingencies like financing, appraisal, inspection, and title protect buyers, while earnest money and deadlines protect sellers.
• Purchase agreement requirements vary by state, so it’s worth reviewing the agreement carefully and getting professional help from a real estate agent or attorney.

What is a purchase agreement?

A purchase agreement is a legal document that outlines the terms of a real estate sale. When a buyer and a seller sign the agreement, the property is considered “under contract.”

Other terms for the purchase agreement include real estate purchase agreement, real estate sales contract, home purchase agreement, and purchase and sale agreement.

What is the purpose of a purchase agreement?

A purchase agreement is designed to protect buyers and sellers in a real estate transaction.

How a purchase agreement protects buyers

Buyers can protect themselves by including contingencies in a purchase agreement. Here are some examples:

• Financing or mortgage contingency. This allows a buyer to back out of a deal if they can’t secure a mortgage loan by a certain deadline.
• Appraisal contingency. This allows a buyer to back out if the appraisal comes in low, making it harder to qualify for financing.
• Inspection contingency. This allows a buyer to back out if a professional home inspection reveals undisclosed property issues.
• Title contingency. This allows a buyer to back out if a title search finds unknown problems with the property’s title, such as liens, ownership disputes, or encumbrances.
• Home sale contingency. This allows a buyer to back out if they’re unable to sell their existing home.
• Homeowners association contingency. This protects a buyer from unexpected HOA restrictions on the property by giving them a set amount of time to review HOA rules and bylaws.

How a purchase agreement protects sellers

For sellers, a purchase agreement can offer protection in the form of:

• Earnest money. This is a “good faith” deposit of usually 1-3% of the purchase price held in an escrow account. It shows that the buyer is serious about the purchase. If the buyer backs out without a valid reason (such as a contingency failing), the seller keeps the earnest money.
• Deadlines. Deadlines for when contingencies are considered fulfilled, when the sale will be finalized, and when funds will be transferred can all protect the seller from uncertainty and indefinite delays.
• Signatures. A buyer’s signature makes the purchase contract legally binding.
• Written terms. Having the terms of the property sale in writing can protect the seller from nonbinding verbal agreements.

Who prepares a purchase agreement, and how do you get one?

Purchase agreements aren’t hard to come by. Below are a couple of options.

State-specific purchase agreement forms

Many states issue purchase agreement forms that buyers and sellers are required to use. However, contract requirements vary by state. Use the appropriate state-specific document for your location and consider getting professional guidance before drafting or signing a contract.

Working with a real estate agent or attorney

If you’re working with a real estate agent or attorney, they will likely have the appropriate purchase agreement documents. They can also address any legal or transaction-related questions you might have.

What is included in a house purchase agreement?

A house purchase agreement typically includes the following:

Buyer, seller, and property information

At a minimum, a purchase agreement contains the names and contact information of the buyer and seller, along with the property’s address and legal description.

Purchase price, financing, and earnest money

Of course, the purchase agreement must also include the agreed-upon purchase price, how the purchase will be financed, and the earnest money amount and terms.

Title, escrow, and disclosures

Purchase agreements can also include title contingencies, ensuring the property passes a title search before the buyer is obligated to buy. Typically, the buyer’s funds are held by an escrow agent until the title and other contingencies are met.

Disclosure requirements in the purchase agreement can also require sellers to identify any known defects or hazards, including lead-based paint for homes built before 1978.

Fixtures, appliances, and addendums

A purchase agreement can also identify which fixtures or appliances are included or excluded from the sale to avoid potential misunderstanding or disputes.

Addendums are documents that supplement or modify the agreement’s terms.

Closing costs, closing date, and signatures

Finally, the purchase agreement can also stipulate closing costs, which average 3% – 6% of the loan amount, as well as who is responsible for them, and the closing date. Similarly, the target ownership-transfer date and the signatures from each party are also included.

How does the purchase agreement process work?

The purchase agreement process follows these steps:

Making an offer and negotiating

First, the buyer makes an offer with a proposed purchase agreement, including the offer date. The seller then has the option to accept, reject, or make a counteroffer.

Signing and going under contract

Once both parties agree to and sign the final terms of the sale, the home is considered under contract.

What happens after signing

With the purchase contract signed, the purchase process can move on to finalizing the financing, inspections, appraisal, title search, negotiations, and any contingency requirements.

Closing

Lastly, the buyer and seller sign the final closing documents before ownership is transferred from one to the other. The average closing period is 30 to 60 days.

What is not included in a purchase agreement?

A purchase contract may not contain every document, service, or action involved in the broader buying and closing process.

What should you review before signing a purchase agreement?

Before signing a purchase agreement, make sure to review all of the following:

• Party names and contact information
• Property details
• The purchase price
• Financing and payment terms
• Earnest money requirements
• Contingencies
• Dates
• Calculations and credits
• Disclosures
• Included property (appliances and fixtures)
• Addendums
• Unanswered questions

FAQ

Here are answers to some frequently asked questions regarding purchase agreements.

Can anyone write a purchase agreement?

A buyer or seller may be able to draft a purchase agreement, but you should consider getting professional guidance to ensure you use the correct legal terms and follow your local state requirements.

Can someone back out of a purchase agreement?

Backing out of a purchase agreement may be possible when the agreement or applicable state regulations allow it, including when contingency requirements aren’t met. How often contingent offers fall through varies widely depending on local market conditions.

What is another name for a purchase agreement?

Other names for a purchase agreement include real estate sales contract, home purchase agreement, real estate purchase contract, house purchase agreement, and purchase and sale agreement.

Does a real estate purchase agreement need to be notarized?

No, a real estate purchase agreement generally does not require notarization to be valid, as it is not filed with county records. However, rules vary by jurisdiction.

Can a purchase agreement be changed after it is signed?

Any changes to the purchase agreement must be agreed to by both parties and documented appropriately.

Is a purchase agreement the same as an offer or closing?

A purchase agreement is a legally binding contract that may be included in a purchase offer. Both are distinct from closing, which is the process of finalizing a real estate sale.

The bottom line: Review your purchase agreement before closing

A purchase agreement establishes the legal terms of your property sale, including price, financing, contingencies, and closing details. Consequently, it deserves your careful review before you sign and move toward closing.

Since requirements vary by state, buyers and sellers alike may benefit from the guidance of a real estate agent or qualified attorney.

Ready to take the next step toward home ownership? Apply for a home loan from Rocket Mortgage today.

This article is for informational purposes only and is not intended to provide, and should not be relied on for, medical, legal, financial, investment or tax advice. You should consult with a qualified professional for advice specific to your situation. Consumers should independently verify that any services, products, or programs referenced meet their needs and comply with applicable requirements.

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