Understanding a Residential Purchase Agreement
A real estate sales contract also called a purchase contract, details a home’s sale price and the terms of the contract between a buyer and a seller. A prospective buyer will present a purchase agreement to the seller outlining the buyer’s offer price, financing terms, closing costs, possession date, contingencies, and more. A thorough purchase agreement review is crucial before signing the document into a legally binding sales contract. Minor oversights can cause a sales delay or, worse, trap you in a bad deal.
Some key elements are part of a typical purchase agreement:
- Buyer, seller, and property detail
- Closing costs and the party responsible for paying them
- Financing terms
- Timeline of closing and possession date
- Earnest money deposit and down payment
- Buyer request for inspection, appraisal, and other contingencies
- Required repairs to finalize the sale
- Appliances, fixtures, or furniture the buyer wants to include in the sale
- Grounds for terminating the sale
What is a Typical Timeline for a Residential Purchase Agreement
A residential purchase agreement has a specific flow or timeline beginning with the buyer’s agent preparing the agreement as their client’s formal offer on the property. The agent then provides this offer to the seller’s listing agent. In turn, the listing agent presents the offer document to the seller, who typically can decline or counteroffer if they desire changes to the deal, usually within twenty-four hours. If there are points to negotiate, such as the terms or price, both agents will try to create an acceptable amended agreement for their clients. Signing off on the purchase agreement happens when both parties agree to the outlined terms.
Once the buyer and seller are under contract, there are usually thirty to forty-five days to complete all tasks before officially closing on the property. The buyer will submit their earnest money deposit, schedule a home inspection and appraisal if included in the purchase agreement, and finalize their loan approval. If unexpected issues occur, such as the buyer’s inability to obtain financing or a home inspection reveals mold, the buyer may revise or even back out of the sale. During this same time, the seller will respond to buyer-requested repairs and begin moving their belongings out of the home.
During the final week of closing, the parties will sign all closing documents, at which point the lender sends funds to escrow for appropriate dispersal. The local county’s recording office then transfers the title to the new owner, and the seller hands over the keys to the property.
There are three main types of purchase agreements:
State/association purchase agreement – If you work with a real estate agent, they will likely use this document. The form is standard and based on the local real estate association’s guidelines.
General purchase agreement – This is a shorter version of the state/association agreement. A buyer will typically use this when purchasing a property without the help of a real estate agent.
Property-specific purchase agreement – This specialized contract covers property transactions outside single-family homes like vacant land or mobile homes. While this purchase agreement type uses much of the same information as the other two options, it also includes additional clauses unique to the property type.
The Value of a Real Estate Purchase Agreement
Whatever the purchase agreement type, once it has signatures, it becomes a legally binding contract. As a seller, it can be challenging to back out of a signed purchase agreement as most of the “loopholes” protect the buyer in this agreement type. Even if the seller receives a more competitive offer or has trouble finding a new home of their own before closing, without a relevant contingency or significant buyer error, they must comply with the contract or take the matter to court. Contingencies can appear in the appraisal, financing, or home sale formats.
A purchase agreement will cover a lot of ground, such as purchase price, closing cost responsibilities, earnest money, down payment, financing, escalation clauses, deadlines, and appraisals and inspections. Although a purchase agreement may seem straightforward, it is a complex legal document. Whether you are a buyer or a seller, getting a professional to review your purchase agreement is in your best interest. Contact our Chicago area office at 630-568-6656 to discuss how we can help you with any legal questions you may have.