What is Sale and Purchase Agreement in property?
I can answer this since it is something I deal with on a regular basis with my clients. The purpose behind a purchase and sale agreement is two-fold: 1) to spell out all nitty gritty details of the transaction and 2) to legally bind both parties to its terms and conditions. It also serves to protect both parties. The buyer protects themselves by adding various contingencies and conditions, while the seller protects themselves by including strict deadlines or by negotiating a higher earnest money deposit (or both.) Whats Included on a Purchase and Sale Agreement? The exact details of a purchase and sale agreement vary slightly by state. In fact, in some places, your offer is your purchase and sale agreement. But while the exact form and format of your agreement might change, in general, you can expect your purchase and sale agreement to contain at least these items: Sale price - This is the final purchase price that you and the seller agreed upon. Keep in mind that this number can change later on. If, for example, the home inspection reveals serious repairs are needed, you may need to renegotiate with the seller to make up for those costs. Earnest money deposit - Your earnest money deposit basically holds your place in line while you go about your home inspection, appraisal and mortgage processes. It forces the seller to take the home off the market, but still gives them some sort of financial protection if you back out of the deal. Earnest money deposits are traditionally 1% to 3% of the sale price, though you can offer more or less depending on your interest in the home. Closing date - This is the date youll pay your down payment and closing costs and the seller will transfer the property to your name. Its typically 3 to 4 weeks from when you put an offer on the home, though it may change if your loan is delayed or issues with the inspection or appraisal crop up. Title company - This is the company that will issue the property title in your name once the transaction is complete. It also may be the location where you sign your paperwork on closing day. You have the option to request another title company if you are unhappy with who the sellers have designated. Contingencies - These are conditions that protect the buyer in case their financing falls through, there are issues with the inspection or other problems occur. It gives you a back-door exit, if you will, and lets you cancel the transaction and get your earnest money back in full. All contingency conditions must be met in order for the transaction to proceed. (Read more on contingencies below). Purchase and sale agreements will also typically include details as to who will pay for the home inspection, survey, title insurance and other must-haves along the way, and they may also break down the process for transferring utilities, property taxes, HOA memberships and more. In some cases, either you or the seller may want to include details as to what items will (or will not) be included with the house -- things like appliances, window treatments, furniture, etc. These are traditionally added in as riders at the end of the agreement. Finalizing the Purchase and Sale Agreement Its very important you read your purchase and sale agreement (and any riders or addendums) carefully before signing on the dotted line. Once both parties have signed and the contract has been executed, theres no going back. In particular, youll want to pay close attention to: The purchase price and earnest money deposit - Is it what you agreed to? Have you gotten pre-qualified to make sure youll have adequate funds? Your contingencies and their deadlines - Are all the contingencies you need in place? Do the deadlines for those allow enough time to do your due diligence? Any riders or addendums - Have you read these in full? Were you aware of these before the agreement was drawn up? Depending on your state, you may finalize and sign the agreement with your agent or through a real estate attorney. After both you and the seller have signed off on the document, it becomes a legally binding contract and the transaction proceeds toward closing. As long as all your contingency conditions are met, you should be a proud homeowner in just a few weeks. I really hope this was helpful! Let me know with any comments/questions.