Real Estate Purchase Agreement

Overview

A real estate purchase agreement (also called a purchase and sale agreement, or PSA) is the binding contract under which a buyer agrees to purchase, and a seller agrees to sell, a specific piece of real property, on agreed terms including price, financing, contingencies and closing date. A key structural point for anyone comparing US practice to other legal systems: the US generally does NOT use a separate two-stage structure of a non-binding 'preliminary contract' followed later by a distinct 'final deed of sale' contract in the way some civil-law systems do. In most US transactions, THIS purchase agreement, once signed by both parties, IS the binding contract — it is simply made conditional on satisfying stated CONTINGENCIES (financing approval, satisfactory inspection, clear title, appraisal at or above price, etc.) before the transaction proceeds to CLOSING, where title actually transfers via a deed. There is no separate preliminary contract to draft or sign. Earnest money: a buyer typically deposits 'earnest money' (a good-faith deposit, commonly 1-3% of the price, though this varies widely by market and negotiation) with a neutral third party (a title company, escrow agent or attorney, depending on the state) shortly after signing. Earnest money functions somewhat like the French 'arrhes' or 'acompte' in that it signals commitment, but its default legal treatment is very different and NOT standardized nationally: whether and when it is refundable to the buyer, forfeited to the seller, or subject to a separate liquidated-damages clause depends on the specific contingency terms negotiated and on {{governing_state}} law and custom — never assume a default rule without checking. Contingencies: the most common contingencies are financing (the deal falls through without penalty to the buyer if the buyer cannot secure a mortgage on stated terms by a deadline), inspection (buyer's right to have the property professionally inspected and to negotiate repairs, a price reduction, or walk away, within a defined period), appraisal (protecting a financed buyer if the lender's appraisal comes in below the purchase price), and clear/marketable title (seller must deliver title free of undisclosed liens or defects). Each contingency needs a clear deadline and a clear consequence if not satisfied or waived. Closing and title: 'closing' is the formal completion of the transaction — signing final documents, transferring funds, and recording the deed transferring title. Closing practice (whether an attorney, title company or escrow company runs the closing, and what title insurance is customary) varies significantly by state and even by region within a state (e.g. attorney-closing states in the Northeast vs. title/escrow-company closings common elsewhere). Disclosure obligations: most states impose mandatory seller property-condition disclosure requirements (known material defects, and federally, lead-based paint disclosure for pre-1978 housing under federal law), but the scope and format of required disclosures vary by state — some states are 'buyer beware' (caveat emptor) with minimal mandatory disclosure, others require detailed seller disclosure statements. When to use: for a residential or other real property purchase where the parties want a binding agreement subject to standard contingencies rather than a separate preliminary contract. Common pitfalls: assuming earnest money is automatically refundable in all circumstances; vague or missing contingency deadlines; and not confirming {{governing_state}} mandatory disclosure requirements. Real estate purchase agreements are high-value, high-risk documents — engage a real estate attorney or licensed title/escrow professional in {{governing_state}} before relying on this template for an actual transaction.