Real Estate Purchase Agreements: Key Terms Buyers and Sellers Should Check

A real estate purchase agreement is the contract that sets the price and conditions for a property sale. Once signed by both sides, it is legally binding, so read each term.

Core terms

• Names of buyer and seller and the property description.
• Purchase price and earnest money deposit.
• Financing terms and the closing date.
• What is included, such as appliances or fixtures.
• Who pays closing costs and prorated taxes.
• Condition of the property and disclosures.

Contingencies

Contingencies let a buyer back out or renegotiate if conditions are not met, for example a satisfactory inspection, loan approval or appraisal. Deadlines matter: missing one can waive the protection. See our guide to buying a house contract contingencies.

If something goes wrong

• A buyer who defaults may lose earnest money.
• A seller who defaults may face a claim for specific performance or damages.
• Disputes over the deposit often depend on the contract language.

Good practice

1. Have a real estate agent or attorney review the contract.
2. Keep copies of every addendum.
3. Do not rely on verbal promises.
4. Track every deadline in a calendar.

Offer, acceptance and counteroffers

A purchase agreement usually begins as an offer signed by the buyer. The seller can accept, reject or counter with changes. Each change restarts the process until both parties sign the same terms. A deal is binding only when both sides have agreed on all material terms and signed. Pay attention to deadlines for the seller to respond and for the buyer to complete tasks such as inspections and loan applications.

Earnest money and deposits

• Earnest money shows good faith and is usually held in escrow.
• It is credited toward the price at closing.
• It may be refundable if a contingency is not met within the deadline.
• It may be forfeited if the buyer defaults without a valid reason.
• The agreement should say who gets the deposit in a dispute.

Typical contingencies

1. Financing: the buyer must obtain a loan on specified terms.
2. Appraisal: the property must appraise for at least the price.
3. Inspection: the buyer may cancel or negotiate after inspection.
4. Title: the seller must deliver marketable title.
5. Sale of the buyer's current home, in some deals.
6. Each has deadlines, so mark them.

Disclosures and condition

Many states require sellers to disclose known material defects, and some require specific forms. The contract may state whether the home is sold as is. Buyers should still inspect. Lead paint disclosure applies to older homes under federal law. See our guide to home inspection and seller disclosure.

Closing, possession and what happens if a party defaults

• The agreement sets the closing date and who pays which closing costs.
• It states when the buyer takes possession.
• If a seller defaults, the buyer may seek damages or specific performance.
• If a buyer defaults, the seller may keep the deposit or sue.
• Use a lawyer or experienced agent to review before signing.

Terms to know

• Contingency: a condition that must be met for the deal to close.
• Earnest money: a good-faith deposit.
• Escrow: a neutral holding of money and documents.
• Closing: the final transfer of ownership.
• Appraisal: an estimate of value.
• Title commitment: a promise to issue title insurance.

Checklist for buyers

1. Know your budget and get pre-approved.
2. Calendar every deadline.
3. Order the inspection promptly.
4. Review title and survey.
5. Do a final walkthrough.
6. Bring funds and ID to closing.

Frequently asked questions