Understanding Purchase Agreements
Why use a purchase agreement?
Purchase agreements are the most important document in any real estate transaction. The purchase agreement lists many key ingredients of the agreement between the buyer and seller, including:
- the purchase price;
- the date of closing and the date of possession;
- earnest money amount, down payment amount, and type of mortgage;
- what personal property will stay with the home;
- whether the buyer will have a professional inspection and if they can cancel the agreement if they do not like the inspection;
- whether there are any contingencies (conditions) on the agreement; and
- who will pay the property taxes.
Preventing common home sale problems
Purchase agreements go into great detail defining what should happen if any of the following events occur:
- a problem with the home's title,
- a property tax assessment is proposed or levied against the property,
- the buyer or seller default on part of the agreement,
- the property is damaged before closing,
The purchase agreement also describes numerous promises that the seller makes to the buyer, such as stating that the property does not have environmental problems, whether the property is leased by someone else, or if the property has a well or septic system.
Using Purchase Agreements Effectively
The purchase agreement should document everything that is important to a buyer and seller in a transaction. Verbal statements by the buyer or seller cannot be relied upon unless they are also written into the purchase agreement.
Many purchase agreements have a section that states "Buyer acknowledges that no oral representations have been made...and buyer relies solely" on the purchase agreement. For example, if the buyer has verbally agreed that an old refrigerator in the basement can stay with the property, that should be written into the purchase agreement.
