Real estate transactions often feel like they require a specialized dictionary. There are so many terms, and sometimes you’ll even find multiple names for the same thing. That’s the case with the contract that outlines the terms of the sale. You might see it called the purchase and sale agreement, the purchase agreement, or the real estate sales contract. So what is it, and what should you know about it? This article will explain what to expect when working with this agreement.
A purchase and sale agreement (or PSA) is a contract that’s made after the buyer and seller agree on an offer. It’s a legally-binding agreement that outlines the final agreed price of the house, the stipulations on the sale, and all the other terms included in the sale.
Once you sign a purchase agreement, the buyer is legally obligated to buy the house, and the seller is legally bound to sell it. This bars the deal from falling through unless one of the agreement’s contingencies gets kicked into action.
Is Signing A Purchase And Sale Agreement Mandatory?
For most real estate transactions, it is. In most states (if not all), you need to sign a purchase and sale agreement in order to buy real estate. It’s a legal requirement that is a stepping stone to the home purchase.
The first thing you’ll notice about a purchase agreement is how hefty it is. This is because most purchase and sale agreements involve a lot of stipulations. Even a basic real estate purchase agreement will include the following:
- Closing Price of Home- The exact price that you will be paying for the home will be the most important note for many people.
- Earnest Money Requirements- How much earnest money do you need to give the seller? The earnest money will be discussed here, along with any information regarding the escrow account.
- Contingencies- Contingencies are factors that need to be addressed and taken care of for the sale to go through. These can include getting repairs done, having a building inspection, or even getting funding.
- Closing Date- A closing date or time frame will be part of the purchase and sale agreement.
- Preferred Title Company- The purchase contract typically includes information on the title company you will use.
- Title Condition Notes- Are there any liens on the house that you need to be aware of?
- Addendums- Some states may also include other notes as part of their real estate purchase contracts.
In some situations, both buyers and sellers may decide to back out from a transaction after a purchase agreement is signed. This can happen for a wide range of reasons, including a lack of funding or a sudden lifestyle change. If this happens, you may find yourself in a predicament.
Unless one of the contingencies in your purchase agreement isn’t met, you really cannot back out of the agreement without financial or legal repercussions. If you choose to back out from buying a house, the other party has the right to sue you, and you will also have to forfeit your earnest money. If a seller tries to back out and keep the house after signing a purchase and sale agreement, your buyer may have the right to sue you. There is one major caveat here, though. If both parties mutually agree to void the purchase and sale agreement, you won’t have to worry about going to court.
However, even if both the buyer and seller agree to void the purchase and sale agreement, you may not be entirely off the hook. Depending on what type of contracts you signed with your agents, they may be owed compensation.
If you want to purchase a home, you will have to make an offer, even if you don’t plan on negotiating. If the person who’s selling the house agrees with the offer you put on the table, signing a purchase and sale agreement will be the next step. You will need to sign it if you want to get the house.
However, things aren’t always that simple. It’s still an important legal document, and that means that you will need to have an attorney look over it. If you have any questions, ask about what a certain clause means before you sign it. Otherwise, you may have a harder time dealing with it later.
Should you notice errors or omissions, don’t sign the purchase and sale agreement. Instead, bring it up to your attorney and the seller. Once everything is good to go, and you’re sure you want to make this transaction, you can sign the contract.