Purchase Agreement: What is it and what to watch out for when selling or buying a home?

Buying a home is undoubtedly one of the most exciting times in one’s life. But, without knowing what to expect, real estate transactions can also be stressful and confusing. To make your transaction less daunting, it’s always important to make sure you are equipped with the tools and knowledge you need to get you through the process. A good first step is to familiarize yourself with common real estate phrases and what they mean.

There are many complex legal components involved in buying a home, and the purchase agreement is one of the most significant. Whether you’re planning to buy a new home or an investment property, it’s essential to have all your I’s dotted and T’s crossed. If you’re wondering, “What is a purchase agreement?”, this guide is for you. We’ve put together a list of everything you need to know about purchase agreements and how you can handle this legal document like a professional.

What Is a Purchase Agreement?

Here’s a closer look at what a purchase agreement is and what it entails.

Purchase Agreement Definition

A purchase agreement refers to a legal document that defines the agreement between the seller and buyer. It is also commonly referred to as a purchase contract, real estate purchase contract, or real estate sales contract. As implied by the name, this legal document is the contract required to purchase a home and covers every element of the transaction, spanning from contact information of the seller and buyer to common contingencies to the purchase price.

The homebuyer is responsible for proposing the conditions of the contract and the seller will have the option to agree to conditions, reject them, or negotiate. The goal of a purchase agreement is to clearly lay out the details of the sale and serves as a way to protect both the seller and the homebuyer. The purchase agreement template will serve as a guide to ensure that all the necessary information is accounted for.

Information Included (and Not Included) on Purchase Agreement

Whether you’re a first time seller or buyer, understanding a purchase agreement can be difficult. To make it easier, we’ve provided a breakdown of the information that is — and isn’t — included in a purchase agreement. 

Information Included

If it’s your first time dealing with a purchase agreement, then you might be wondering what information is included in the document. After all, it’s often a lengthy document that will most likely contain terms you’re unfamiliar with. While you might feel intimidated, it’s essential that you have a thorough understanding of what all the terms mean before signing the document. 

The document (or contract) will outline the terms of the agreement and basic information, such as the home address and the sale price, but it will also contain a number of more specific details regarding the sale. These may include:

• Contact information for the homebuyer and seller
• Earnest money deposit amount
• Description of the property
• Fixtures and appliances included in transaction
• Contingencies that must be fulfilled in order for the sale to go through‍
• Disclosures and hazard forms‍
• Home purchase price and financing information‍
• Closing date and closing costs
• Conditions under which the contract can be terminated
• Signatures of each party

It’s worth noting that there are a number of contingencies that might be included in the purchase agreement on both the seller or homebuyer’s side. Contingencies refer to stipulations that must be fulfilled in order for home sale to go through. Some of the most common contingencies include:

• Financing: A financing contingency enables buyers to withdraw from the real estate sales contract if they are unable to secure a mortgage.‍
• Home sale: A home sale contingency means that the real estate sales contract is dependent upon the sale of the buyer’s home.‍
• Home inspection: A home inspection contingency allows homebuyers to hire a professional to inspect the house for any major or minor issues.‍
• Appraisal: An appraisal contingency clause enables a homebuyer to back out of the contract if your home doesn’t appraise for the purchase price they’ve agreed to pay.

Information Not Included

While it might sound like the information included in a purchase agreement is quite comprehensive, there is some information that is not covered in the document. For example, purchase agreements typically do not have the following items:

• Specific breakdown of fees
• Down payment amount

Common Questions With Purchase Agreements

Read on for answers to common questions about purchase agreements when selling your home.

Who Writes Up the Document? 

If a seller is working without a realtor, then it’ll be up to them to provide the necessary contracts and legal documents. While a real estate attorney isn’t required by the state of California, it might be worthwhile to consider hiring one to ensure that all of your legal documents are executed correctly. Plus, a real estate attorney will be able to provide solid legal advice to guide you along the way.

Can a Buyer Back Out of a Contract?

The purchase agreement isn’t binding until both parties have signed it. After then, a homebuyer can back out of the contract, but only depending upon certain circumstances. For instance, if a seller or buyer does not meet a contingency as laid out in the document, then one of the parties can back out of the purchase. 

What’s the Difference Between a Purchase Agreement and PSA?

Although similar in name to a purchase and sale agreement (PSA), the purchase agreement is a separate document. The purchase agreement is traditionally done during the closing process, while the purchase and sale agreement are drafted earlier on in the process. Signing a PSA does not complete the home’s sale, while signing a purchase agreement is a legally binding contract and does complete the sale of a home.

Who Pays for the Purchase Agreement?

If the home seller is represented by an agent, then the agent will take responsibility for drafting the agreement and arranging for signatures. The buyer’s agent is typically responsible for writing up the purchase agreements by using a standardized template. This enables agents to fill in the blanks with the specific details about the sale. When it comes to a direct sale, however, the seller will be directly responsible for handling the purchase agreement. As such, it’s up to the seller to guarantee that their contract is legal and valid, abiding by state laws.

When the Time Comes, You’ll Be Ready

Now that you understand the basics of a purchase agreement and its components, you’ll have the knowledge and tools to handle a real estate transaction like a professional. 

Buying or selling your home might feel overwhelming, but Aalto is ready to walk you through the process step by step. Using innovative technology, Aalto directly connects sellers and buyers, making the home sale process easier than ever before. It eliminates the need for a traditional real estate process enabling sellers to list their homes on their terms and timeline. 

Unlike traditional real estate, Aalto gives sellers control and flexibility to explore their sale and doesn’t require a commitment. If you have any questions or need assistance navigating through the tricky parts of selling a home, an on-demand expert agent is available to help. 

From finding a home to navigating purchase agreements, Aalto’s talented team of Advisors will be there to guide you every step of the way so you can buy your perfect home with confidence. 

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