One of the biggest pieces of a real estate transaction is the purchase agreement. Today we are going to remove some of the mystery behind what they contain and why they are important. Hopefully by the end of the article, you’ll feel a little more confident as you enter into your next real estate transaction.
What is a purchase agreement?
A purchase agreement is the center piece of a real estate transaction. It is an agreement dictating all the terms of the sale and sets forth the conditions that need met by both parties prior to the consummation of the deal.
Do I need a purchase agreement?
If you are selling real estate in Indiana, or anywhere in the US, you need a purchase agreement signed by all parties (buyers and sellers) in order to legally sell the property. As you read on, I’m sure it will become increasingly apparent why a purchase agreement is very necessary. Simply put, it protects the parties in the transaction and should make clear what needs to happen for the sale to be successful or terminated.
Where can I get a purchase agreement?
Many people obtain a purchase agreement either through a real estate agent or an attorney.
The first place most people think of are real estate agents. Realtors use template purchase agreements that have been vetted by their association’s attorneys and are crafted in such a way to cast a wide net so they are able to be utilized by as many transaction types as possible.
You can also obtain a purchase agreement through an attorney. Some attorneys are more geared towards servicing real estate transactions, while others do not dedicate the resources to help craft a timely purchase agreement, and some may only provide a template form for the parties to complete on their own. Many times, attorneys will not give much assistance through the remaining steps of the process or help make sure things are going smoothly with the transaction, as they are generally more involved in other legal matters. The one benefit of an attorney, they are able to give legal advice on a contract. No matter where you obtain your contract, you may want to have an attorney to answer any legal questions you have or look over the document to ensure it is legally binding.
The Selling Table offers custom purchase agreements made specifically for your transaction. We make it super simple by sending you an online questionnaire that helps guide you through what is needed to craft your agreement. In minutes you will have provided your transaction coordinator the information they’ll need to customize your purchase agreement to your transaction. If you are wanting a more personal experience, your transaction coordinator is happy to meet in person or over the phone to gather information and answer any questions you may have. Once your agreement is signed, we help walk you step by step through the process to ensure your transaction goes as smoothly as possible.
Can I make my own purchase agreement?
The short answer is yes, but not advised. Unless you have a great understanding of real estate transactions, there are many pitfalls that surround a purchase agreement that can kill a transaction, or worse yet, cost you thousands of dollars.
Working in banking for 8 years, I was able to see many purchase agreements. Yes, there were plenty of purchase agreements prepared by professionals that were not perfect. Realtor contracts that had glaring mistakes and attorney drafted purchase agreements that left out super important terms that all agreements should have. However, by far, the most issues came with purchase agreements crafted by a person trying to put together a purchase agreement on their own or with the help of an online template.
Many times, these buyer or seller crafted agreements would not line out many terms that were necessary to help dictate who was paying for what fees or other critical terms such as possession or closing timeframes. These items can sometimes seem unimportant at the beginning of a transaction but can turn into feverish nightmares as things progress towards closing.
What are the main terms outlined in a real estate purchase agreement?
Now that we’ve gone through what a purchase agreement is, let’s run down the most important terms listed within a purchase agreement.
Identifying the real estate being sold should be simple, but at times it can be more difficult than it should be. Generally, purchase agreements use legal descriptions or parcel numbers to identify the property. USPS addresses are also included but listing an address only can lead to confusion.
Buyer and seller
It just wouldn’t be a purchase agreement if the parties involved are not identified. All owners of the property must sign the agreement.
Cost of the property
How much is the buyer paying for the property? Many purchase agreements go further in depth to outline if the purchase of the property will be financed in order to protect the buyer if the financing falls through.
While an earnest money deposit is not a requirement for a real estate transaction, today, most agreements include some amount of an earnest money deposit to be paid by the buyer up front. This amount gets credited towards the purchase price at the closing of the transaction but is set aside prior to that point as security for the seller in case the buyer does not perform on their part of the agreement. If the deal is terminated for a reason afforded to the buyer within the terms of the agreement, the earnest money is returned to the buyer.
One of the biggest oversights of many purchase agreements is outlining how closing costs and title work are to be handled and paid for. Title insurance protects the buyer from damages and losses caused by a bad title. The title company searches to make sure the seller holds the ownership to the property as well as any liens, back taxes, etc. These costs, along with any other costs for buyer financing, are significant and far too often buyers and sellers do not consider them when writing up a purchase agreement.
There are 3 major dates/timeframes that all purchase agreements should cover.
Offer Termination: How long is the agreement good for until it expires if all parties do not sign.
Closing Date: The date the transaction must close by. Otherwise, the agreement expires.
Possession Date: The date the buyer is to get possession of the property (this may be the same date as the closing date.
All three of these are vital to include in an agreement. Knowing what steps need to take place for each of these events to occur is important to understand before setting these dates in place. While these timeframes can be amended, it takes all parties of the transaction in agreement to do so. For example, if a buyer wants to push back a closing date, but the seller has since received a much better offer on the property, they are in no obligation to change the date, and if the buyer is unable to perform, the contract expires and allows the seller to move on to the other offer.
After the agreement is signed, it opens up the discovery phase of the transaction. Listing any items that the agreement is contingent upon is important to allow for appropriate recourse to both parties. Some of the most common verification items are inspections, surveys, appraisals, title search, and the sale of another property.
What stays and what goes with the real estate is important for all parties to recognize up front, not as the moving truck is taking off down the street. While personal property is defined as something that is not permanently affixed to the real estate, this can often times be a gray area and should be defined on the purchase agreement if there is any confusion. If there are other personal items that are being left on the property, this should be done with a separate agreement as lenders will not allow their loan proceeds to go towards any collateral that is not real estate and able to be secured by the mortgage.
Wrapping it up
A purchase agreement is a very important document that carries a lot of weight. I have seen them handwritten on a piece of notebook paper with the minimum information possible, leaving both parties completely exposed. I’ve also witnessed 16-page agreements so complex nobody understood what they were signing, which is really the most important aspect to an agreement. The biggest issues with real estate transactions occur when someone doesn’t know what they are, or are not, agreeing to in a purchase agreement. When they believed all the bases were covered.
Here at The Selling Table, we strive to make the purchase agreement process smooth, easy, understandable, and affordable. If you are getting ready to sell a property in the near future, please reach out and connect with us to help get you started!