Whether you sell your home FSBO (for sale by owner) or with the help of a top real estate agent, you will enter into a purchase agreement that will come from the buyer or buyer’s agent. A purchase agreement is a legally binding contract between a home seller and a home buyer that spells out the details of the real estate transfer. Missteps or misunderstandings in this important contract can delay the sale of your home or even box you into a bad deal.
We talked to real estate agent Michael Tyszka of Keller Williams Realty in New Jersey to learn more about purchase agreements.
Home purchase agreements aren’t really difficult to understand, but it’s important to review them carefully to ensure everything is included that needs to be there.
“In New Jersey, we make purchase agreements as simple as possible so the home seller and homebuyer can understand them,” Tyszka explains.
A home purchase agreement can go by many names, such as:
- Real estate sales contract
- House purchase agreement
- Real estate purchase agreement
- Agreement for the purchase and sale of real property
- Contract for sale of real property
- Buy and sell agreement
A fully executed purchase offer becomes a purchase agreement
A purchase agreement comes into play when the buyer makes an offer. The buyer’s agent submits a written purchase offer, or offer to purchase real estate, on a standardized form. The buyer and seller then begin to negotiate the conditions of the home sale, in writing, on this form.
When the buyer and seller have agreed upon the negotiated terms, both parties sign the form. Once both parties have signed the purchase offer, the form is considered fully executed and the purchase offer becomes a purchase agreement. After the document has been fully executed, the home seller and the homebuyer are legally obligated to fulfill the contract stipulations.
Within the U.S., all agreements to buy or sell real estate must be done in writing. The required components of a home purchase agreement may vary from state to state; however, there are certain components that must be present in any home purchase agreement. These include sales price, contingencies (the requirements that must be met), and closing date.
Depending on the real estate agency, and the state, an attorney may be engaged to review the contract after it is signed. The attorney, who has 3-5 business days to review the contract, will check the document for all the appropriate signatures and required components. During the contract review period, as both parties are in agreement, the seller and homebuyer can make changes to the contract to add components they may have overlooked.
In this article, we explain each of the required components and we’ll tell you where you can download a sample home purchase agreement so that you can learn more about this document.
Where to find a contract for selling your house
No matter how you sell your home—with the help of an agent or FSBO—the purchase offer that becomes the purchase agreement will come from the buyer or the buyer’s agent. The type of agreement you receive will depend on whether or not the buyer has an agent and what type of property you’re selling.
Tyszka explains that there are three types of home purchase agreements:
- A state/association purchase agreement is a standard form submitted by the buyer’s agent. It contains the terms set forth by the state and local real estate guidelines where your property is located. If you sell your home through a real estate agent, you can request your agent to provide you a sample state/association purchase agreement. Or you can view the New Jersey purchase agreement we’ve uploaded here.
- A general property agreement is a generic form that is typically downloaded and filled out by a buyer who isn’t going through an agent. If you sell your home FSBO, you can find sample generic property agreement forms online. Freeforms.com provides real estate purchase agreements broken down by state. A buyer who isn’t using an agent might also use an app to fill out a general purchase agreement. If you are selling your home without the assistance of an agent, you can get a sample generic purchase agreement from your real estate attorney.
- A property-specific purchase agreement may be used for the sale and purchase of land or a manufactured home (such as this form here). Property-specific purchase agreements are similar to state/association or general purchase agreements but require additional terms specific to the property.
What terms are necessary in a purchase agreement?
No matter what state you live in, there are certain components that must be present in all real estate purchase agreements. These are the who, what, when, where and how of your contract. They include:
- Names of the seller and buyer
- Address and description of the property
- What’s included in the sale, e.g., fixtures and appliances that stay
- Purchase price
- Financial details, including earnest money deposit, down payment, final payment, dates of payment and who pays which closing costs
- Buyer contingencies, which may include sale of the buyer’s home, inspection and cost of repairs, appraisal value of home, financing at a set interest rate, or financing through certain loans (FHA, VA)
- Seller contingencies, which may include purchase of a new home and reasonable timelines for the buyer to schedule inspections, appraisals, or secure financing
- Disclosures, defects and hazards, easements, zoning restrictions, etc.
- Consequence of breach of contract
- Date of closing and date of possession
- Signature block
What components of a purchase agreement are particularly important to a seller?
Suitable housing contingency. Sellers should ensure they have a suitable housing contingency in their purchase agreement. This contingency makes the homebuyer aware that the property sale is dependent on the seller finding and purchasing the home they want to buy. If the seller can’t find suitable housing within the time stipulated in the contract, the buyer can back out of the purchase agreement or agree to extend the suitable housing contingency. A suitable housing contingency prevents the seller from being forced to sell if he/she cannot find housing. This is particularly important in a hot (seller’s) market when there’s a shortage of housing and a real risk of not finding a new home. A suitable housing contingency helps the seller avoid uncertainty and the stress it causes, and it prevents the seller from making a hasty decision.
Disclosures. Tyszka stresses that disclosures are as important to the seller as they are to the buyer. “Put everything in there,” he stresses, “it’s better to over-disclose than it is to under-disclose.” The inspection will tell the buyer how old your roof is, how old the HVAC is—so don’t surprise the buyer with this information. Disclosures protect the buyer by making them aware of the repairs that need to be made, but they also save the seller from making unnecessary repairs. While the inspection may require you to repair items that are not functional, the disclosures can protect the seller from unwarranted repair expenses. If, for example, you’ve disclosed that your HVAC is 30 years old (and it’s in working order), the buyer can’t later require you to replace it.
What the buyer expects to be included in the home purchase. Sometimes sellers overlook this part of the agreement. Make sure you look over this part of the agreement before you remove appliances or window treatments.
Can a buyer or seller back out of a purchase agreement?
Fortunately—or unfortunately, if you’re having seller’s regrets or if you receive a better offer—it’s difficult to back out of a purchase agreement once it has been fully executed. Usually, the only way a buyer or seller can back out of an agreement is if one of the parties fails to meet a contingency that is specified in the purchase agreement.
If, for example, the buyer doesn’t schedule an inspection within a certain time frame or can’t secure financing in a timely manner, it can be a valid deal-breaker. If the house appraises for less than the selling price, affecting the buyer’s ability to secure a mortgage, the buyer and seller may break the contract.
A seller contingency may allow you to back out of the home sale if your purchase of a new home falls through. These buyer and seller contingencies must be clearly stated in the purchase agreement.
A seller may also have legal recourse to back out of a purchase agreement if the buyer has scammed the homeowner to sell for an unreasonably low price. Otherwise, it can be expensive or impossible for a seller to back out of a legally-binding purchase agreement.
Tyszka says it’s more common to modify a home purchase agreement than it is to break one.
Can the purchase agreement be modified?
After the purchase agreement has been signed by the buyer and seller, it is possible to extend or modify the document. If a misstatement needs to be corrected, the attorney will amend the contract. The attorney adds an addendum to the contract if unusual circumstances (such as a pandemic) or events take place that delay the sale of the home, or if both parties agree to extend the closing date.
Addendums that may be added to a generic purchase agreement before it’s signed include (but are not restricted to) such clauses as:
- Escalation clause in which the buyer agrees to increase their offer to a certain capped amount above the highest bidder
- Contingencies for well water potability, septic inspections, flood insurance, and removal of known hazards
- Post-occupancy addendum if the seller can’t secure a new home by the closing date
Selling FSBO? Hire an attorney to draft your contract
There are so many ways a purchase agreement can affect the sale of your home, especially if you’re unprepared, uninformed, or if you don’t have the help of a top real estate agent. If you’re selling FSBO, it’s a good idea to hire a real estate attorney before you enter into a legally binding contract—actually, it’s a good idea to hire one before you list your FSBO home. A real estate attorney generally charges up to $350 per hour or a flat fee of $900-$5,000.
A real estate attorney will review the purchase offer, ensure the terms are in your favor, and look for any red flags that may affect the sale. In fact, some states require a real estate attorney to prepare the legal documents, even with the assistance of an agent. Keep in mind that even if the buyer has an agent and/or attorney, they are there to assist and protect the buyer—not you.
Bottom line: know your home purchase agreement
When you understand how a purchase offer becomes a purchase agreement, where it comes from, and all the terms that make up a purchase agreement, you remove some of the risk, stress, and uncertainty from the home sale. To protect your home sale, make sure you discuss all your concerns about the transaction with a top real estate agent or real estate attorney and negotiate with the buyer until you are satisfied with the conditions of the sale.
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