What Should I Include in a Comprehensive Purchase and Sale Agreement?

Drafting a real estate purchase agreement can feel intimidating, especially with so many legal details to consider. If you’re worried about missing something important or unsure where to start, this guide is here to help.

We break down the essential steps, offering a clear roadmap to create an agreement that protects both parties and ensures a smooth transaction.

What is a Sale and Purchase Agreement?

A Sale and Purchase Agreement (SPA) in real estate is a legally binding contract between a buyer and seller that outlines the terms of a real estate transaction, similar to agreements used in business deals where M&A legal counsel is often required to structure and review complex transactions.

When buying a home, this agreement sets the sale process in motion by clearly stating the purchase price, the closing date, and other vital details that both parties must agree on to complete the sale.

The purchase agreement should include essential elements such as the sale price, contingencies, and earnest money deposit for the home purchase.

For example, a buyer may stipulate a home inspection contingency, meaning the purchase depends on the home inspection results. If something serious is found, the buyer and seller can negotiate repairs or finalize the deal at a different price.

This agreement is essential because it outlines all the transaction terms — from who will cover the closing costs to when the sale is finalized. It also details whether the buyer must secure a mortgage or if the seller may provide certain disclosures about the property.

By signing a purchase agreement, both the buyer and seller agree to these specific terms and conditions. If, for instance, the buyer is unable to obtain financing or the inspection contingency isn’t met, the sale may fall through.

What Should be Included in a Comprehensive Purchase and Sale Agreement?

A Purchase and Sale Agreement (PSA) is critical in any home sale. It serves as a legally binding agreement between the buyer and seller, outlining the terms of the agreement and setting the foundation for the purchase of the property. The agreement must include several key elements to ensure a smooth transaction.

1. Purchase Price and Payment Terms

The purchase price is among the most critical elements in any real estate purchase and sale agreement. It’s the amount the buyer and seller have agreed upon to sell a home.

This agreement will detail how the buyer will make the payment — whether in cash or through financing. If financing is involved, it often includes a contingency based on the buyer’s ability to obtain a mortgage. For more detailed guidance, check out how to buy real estate for important considerations.

2. Earnest Money Deposit

An earnest money deposit is typically required to demonstrate the buyer’s good faith in moving forward with the purchase. This deposit shows the seller that the buyer is serious about the transaction, and it is held in escrow by a title company or real estate attorney until the sale is finalized.

3. Contingencies

Common contingencies are conditions that must be met before the sale is finalized. For example, a home inspection or appraisal contingency allows the buyer to back out or negotiate a lower price if the property’s sale reveals significant issues or if the appraisal comes in lower than expected.

If applicable, a septic inspection addendum may also be included. These contingencies protect both parties and can prevent a sale from falling through unexpectedly.

4. Closing Date and Possession

The agreement outlines the closing date, the day the transaction will be completed, and ownership of the property will be transferred from the seller to the buyer. Both the buyer and the seller must agree on a date that allows time for inspections, financing, and any other negotiations that may arise.

5. Property Disclosures

The seller must provide disclosures about the property’s condition, such as known defects or issues with the home. Information on how the house has been maintained, whether there are outstanding repairs, and any legal restrictions on the property are often included in the purchase agreement.

6. Title and Deed Information

The purchase agreement should include provisions for the title company to conduct a title search to confirm there are no legal claims against the property. If any issues arise, they must be resolved before the property’s sale can proceed.

7. Real Estate Agent and Legal Representation

A real estate agent and either a real estate attorney or title company’s assistance will likely be involved in facilitating the sale. The agreement may specify who represents the parties and how any fees for their services will be handled.

Having professional guidance can help ensure that all terms of the agreement are clear and legally enforceable.

8. Additional Terms and Conditions

Lastly, the purchase order may include other terms specific to the property or the buyer’s needs. These can include anything from special repairs to be completed before closing to who will cover closing costs.

Every real estate purchase and sale agreement is unique, but it must be comprehensive enough to protect both parties involved.

How to Draft a Real Estate Purchase Agreement

Drafting a real estate purchase agreement can seem daunting, but with the right approach, it’s manageable. This guide will walk you through each step of creating a comprehensive purchase agreement.

Step 1: Start with a Template

Begin with a template that covers the basics of a real estate purchase and sale agreement. Templates provide a helpful structure, ensuring that you include key elements like the price and terms. While a template is a good starting point, you must customize it to suit the specific transaction.

Step 2: Include Buyer and Seller Information

The first section of the agreement must include the buyer and seller’s full names. This identifies the parties involved and ensures they are correctly listed.

• Tip: Double-check spelling and any middle initials or legal names, as this can avoid confusion later.

Step 3: Describe the Property

Next, provide a detailed description of the property being sold. This section should include the legal description of the property (found in the deed) and the physical address. Anything that is part of the property’s sale, such as fixtures or included appliances, must also be outlined in the purchase agreement. For further details on managing property sales, you can explore our real estate services.

Step 4: Set the Purchase Price, Payment Terms, and Ernest Money Deposit

Be sure to specify the purchase price and how it will be paid.

• Will the buyer pay in cash or through a mortgage?
• Are there any payment milestones (like a deposit)?
• How much of a deposit is required from the buyer?

Step 6: Outline Contingencies

Contingencies are conditions that must be met for the deal to proceed. Some common contingencies that may be included in the purchase agreement are:

• Appraisal: The sale is contingent upon the property being appraised at or above the purchase price.
• Financing: The sale depends on the buyer’s ability to obtain a mortgage.
• Home Inspection: The buyer may include a septic inspection addendum or require a general inspection to ensure the property is in good condition.

Step 7: Set the Closing Date and Transfer of Possession

The agreement outlines the closing date, the day the buyer and seller finalize the sale of the home. You should also specify when the buyer will take possession of the property, whether immediately upon closing or at a later agreed-upon date.

• Tip: Be realistic about timing, as inspections, financing approvals, and legal processes take time.

Step 8: Add Required Disclosures and Handle Title Transfer

The seller must provide necessary disclosures regarding any known defects or issues with the property, such as roof or plumbing problems, which must be included in the agreement.

Additionally, the purchase agreement should specify how a title company or real estate attorney will conduct a title search to ensure the property is free of liens or claims. 

Step 9: Finalize the Agreement with Signatures

Once the buyer and seller have reviewed and agreed to all the terms of the agreement, they will need to sign the PSA (Purchase and Sale Agreement). This final step makes the document a legally binding agreement.

• Tip: Always have the agreement reviewed by a real estate attorney or qualified professional to avoid missing key details.

Conclusion

In summary, a well-drafted purchase agreement serves as the roadmap for a successful real estate transaction. It clarifies the responsibilities of each party and helps ensure that the purchase or sale of a home is completed smoothly and legally. 

For expert assistance in drafting or reviewing your real estate purchase agreement, contact Calkins Law Firm. Whether you’re the buyer or seller, our real estate attorneys ensure your transaction is legally sound and fully protected. Contact us today.