The Purchase Agreement

The Purchase Agreement

A real estate purchase agreement contains clauses that represent the obligations and rights of the parties in a real estate transaction. It is important to understand that all contracts do not contain the same language and therefore the same rights and obligations.

Use the information below as a guide for navigating the real estate purchase agreement. And remember, whenever there is an issue that you do not understand, consult your attorney.

Property Description

This may sound simple enough, but believe it or not, an error can be made in this section of the purchase agreement. Be certain that the property address and/or other legal description of the real estate for which you intend to place an offer is correct. This is especially important in the purchase of a lot in a development. A simple error can make you the owner of lot you did not intend to own.

Price and Terms

This should be written in both numeric and alphabetic terms to avoid any confusion as to the intended purchase price.

Earnest Money

Earnest money is NOT always refunded to the buyer in the event the purchase does not materialize. You must read the clause in its entirety and be certain you understand its intent. Not all purchase agreements use the same language.

Financing Contingency

This contingency is to provide the buyer the opportunity to secure financing prior to being committed to proceeding with the purchase of the real estate. The specific terms written into the contingency must be considered carefully, as they will be the basis for the buyer’s obligation to proceed in the event financing of the purchase becomes difficult. Attention must be paid to the type of loan, maximum rate, and minimum number of years the buyer will be required to accept to finance the purchase. Further, the buyer must act in good faith in seeking financing for the real estate. Failure to make a diligent effort to obtain the type of financing specified in the agreement may result in a finding of breach of contract on the part of the buyer.

Property Insurance

Property insurance rates can vary widely depending upon various factors. Insurance companies may use property history, buyer insurance score, credit score, Comprehensive Loss Underwriting Exchange (C.L.U.E.) Reports, etc. in determining the cost of insurance for a property. Buyers should investigate the factors their insurance company will use when quoting insurance. Ask specific questions about these possible factors and, if a CLUE Report is used by your insurance company, consider making the offer to purchase the property contingent upon the Seller providing a copy of the report to the Buyer, so the Buyer can pass it on to his/her insurance company for review.

Appraisal Contingency

Unless the purchase agreement so states, the buyer is not relieved of his/her obligation to proceed with the sale of a property that does not appraise for an amount acceptable to the buyer. If the standard agreement does not contain such a contingency, you may want to consider adding such a clause.

Inclusions/Exclusions of Sale

Sometimes there is a dispute over what items are actually being sold with the real estate. A clause that lists several items as being part of the sale is NOT all-inclusive. While there are many items specifically stated in the purchase agreement as being included in the sale, the legal definition of real estate covers many more things that are not specifically mentioned. The examples listed are included as a means for clarifying many items that are sometimes unclear to untrained buyers and sellers and are typically a part of the real estate. A simple question that is sometimes used in determining whether something is required to remain with the property is: “Do I need a tool to remove it?” If so, it likely falls under the definition of real estate as an “improvement” or “fixture”. If there is an item listed that is questionable and the seller does not want to leave it with the property, it is advisable that the item be stricken from the list.

Personal Property

This section is to be used to negotiate items that are not part of the real estate, by definition, that the buyer would like the seller to leave with the real estate. It is important to consider that some of these items may have sentimental value to the seller and could be a point of conflict in the negotiation process. Therefore, it is recommended that buyers carefully consider any requests they wish to make with regard to personal property. Also, if too many items, or too expensive of items, are included in the purchase price, the buyer may not be able to obtain a loan due to appraisal issues. NOTE: If a seller offers to include items of personal property on the MLS listing, the buyer must still include this in the purchase agreement. The MLS listing is not a part of the contract and the seller will not assume that the buyer wants these items. Further, the seller is usually obligated to remove all personal possessions not included in the contract prior to occupancy by the buyer.

Sellers Certification

This section is to be used for providing information to the buyer with regard to certain KNOWN issues about the property. It would be prudent for a buyer to make his/her own inquiries with regard to any of the issues contained in the certification clause that are of concern to him/her. This can be done prior to making an offer, or even considering an area, in some cases.

Homeowner Association/Condominium/Landominium Declaration, Bylaws and Articles

Some properties are subject to regulations specific to the community/development in which they are located. A seller should be prepared to gather this information and make it available to a buyer upon receipt of an offer. Further, a buyer may choose to make his/her own inquiries with regard to a community prior to viewing properties, thus narrowing the property search area. Buyers of these types of properties should include a contingency to the offer that requires the Seller to provide such information.

Offsite Conditions

A buyer may elect to investigate into area conditions such as crime statistics, presence of registered sex offenders, development, local regulations, etc. prior to beginning his/her property search. However, if the buyer has not yet done so, a contingency can provide the opportunity to conduct such investigation. If the prospect of a registered sex offender living in the area is of concern to a buyer, he/she should familiarize himself/herself with Megan’s Law and become informed on its provisions and limitations.


This section defines who is responsible for maintaining the real estate until possession is granted to the purchaser. Language and direction of responsibility can vary between contracts and therefore should be carefully reviewed prior to entering into an agreement.

Real Estate Inspection Contingency

Most buyers want to have the obligation to proceed with the purchase of real estate contingent in some manner upon the results of a property inspection. The terms of this type of contingency can vary widely from one contract to another. Some contingencies provide that the inspection must be satisfactory to the buyer. Others provide that if the buyer is not satisfied with the results of the inspection due to material defects, the buyer and seller will negotiate as to the disposition of those defects. Be certain to review this contingency carefully to ensure that it meets your needs. And remember, if the contingency does not require negotiation, the seller has no obligation to consider requests from the buyer to make corrections. And, the buyer’s only option may be to void the contract and absorb the cost of the inspections.

Lead-Based Paint Inspection

This contingency is intended for use when making an offer of property built prior to 1978. If a buyer is considering properties built prior to 1978, it is recommended that he/she review the pamphlet Protect Your Family From Lead in Your Home and any other publication deemed necessary prior to viewing these properties. That way, the buyer will have an understanding of the lead-based paint issue and will be better prepared for making an offer and deciding whether or not they wish to select a lead-based paint inspection.

Termite and Wood-Boring Insect Inspection

Sometimes a buyer elects to have a separate inspection conducted for termites and other wood-boring insects. The terms of such inspection are defined in this clause. Further, some loan programs require this inspection. Buyers should inquire into this requirement when discussing different types of loans.

Home Warranty Program

Home warranty companies offer various types of programs for the purchase of real estate. Buyers should investigate the benefits of these programs and be prepared to make a decision as to whether they want to include a home warranty in the purchase agreement, or possibly purchase one on their own, outside the purchase agreement. NOTE: If a seller offers to provide a home warranty on the MLS listing, the buyer must still include this in the purchase offer. The MLS listing is not a part of the contract and the seller will not assume that the buyer wants the home warranty they have offered to provide if they have not requested it.

Conveyance and Closing

Transferring real estate from one owner to the next requires coordination and cooperation between the parties, the lender, title company and REALTORS® involved in the sale. There are many documents to be signed and fees to be paid to facilitators of the closing, government agencies, etc. The buyer and seller agree through this clause to execute all documents required to facilitate the transfer and to pay the fees necessary for conveying title. Some of the fees charged to facilitate the transfer are to the buyer (to take care of services specifically provided for the buyer) and some are charged to the seller (to take care of services specifically provided for the seller). Sometimes the parties are confused as to why they are being charged specific fees. The seller is required, per contract to convey title as described in the clause. If there are legal issues that need to be addressed in order for the seller to make such conveyance, the cost of addressing those issues will be charged to the seller. It is important to read and understand the specific language contained in the contract you sign so you will not be surprised when you see a charge on the closing statement for a service you were unaware would be necessary in order to fulfill your obligation under the terms of the contract. Further, this clause addresses the date by which the paperwork is to be completed and conveyance is to occur. It can also provide the opportunity for the seller to indicate any issues associated with the title that will be conveyed to the new buyer.

Title Insurance

There are 2 types of title insurance. The first type is lender’s title insurance. This insurance protects the interest of the lender with regard to the real estate. The second type of title insurance is owner’s title insurance. This type of insurance is designed to protect the buyer for losses caused by defects in the title. Buyers should inquire about the benefits of owner’s title insurance from a title insurance agency or provider prior to entering into a contract, but no later than closing.


There are many fees associated with ownership of real estate that are annual, semi-annual or perhaps spread out over a certain number of years. This section addresses the fees that will be transferred along with the real estate and who will pay for those fees on a pro-rated basis.

Possession and Occupancy

This clause identifies the date that the seller will vacate the property and what obligations/rights the seller has with regard to utilities, rent, and condition of the property after vacating. It is important to remember that a change in closing date can affect the ability to provide/accept occupancy as indicated in the original purchase agreement. If there is a change to the closing date, the occupancy date must also be reviewed to determine if there is a need to also make an amendment to that date. Failure to do so could cause a seller to have to vacate the property in less time after closing than he/she had planned. Or, it could leave a buyer in a “homeless” situation, if they needed to have occupancy by a specific date. There is no set rule as to when occupancy must be granted. Some sellers provide occupancy at closing. Others need time to facilitate their own move and may request several days, a month or even longer. The amount of time a seller will have to occupy the property after closing is negotiable between the parties.

Sole Contract

This clause serves to remind all parties that all agreements must be in writing as part of the contract. If a request is made and agreed upon verbally, it must be put in writing and signed by all parties. Don’t leave anything to memory or disputable interpretation of intent. Put everything in writing so there will be a clear understanding of all agreements. Further, this clause often defines other legally binding situations.

Expiration and Approval

This provides the maximum time that the seller has to act on the offer. In the event the seller cannot be reached within the time-frame specified, the listing agent should notify the selling agent and a written extension should be obtained. If the buyer decides to rescind the offer prior to the expiration, he/she may do so as long as the offer has not already been accepted.

Action by Seller

The seller has the option of either accepting a buyer’s offer, submitting a counter-offer to the buyer, rejecting the offer or allowing the offer to expire without responding. If the seller chooses to submit a counter-offer, an expiration deadline must be included. The listing agent should attempt to have the seller respond to all offers in writing. However, if a seller chooses to not respond to an offer in writing, the listing agent should contact the selling agent and so advise. All sellers of the real estate must sign the agreement.