A purchase agreement is a legal agreement that formalizes details of buying an industrial, commercial, or residential property between two or more parties. It establishes terms and conditions for the transfer of an asset.
Suppose you are going to purchase a property. In that case, you will need to sign a commercial real estate purchase agreement or a residential real estate purchase agreement. Each type outlines the terms and conditions for that specific property and sale.
Here are 9 things to include in a purchase agreement to ensure that yours is legally valid.
1. Buyer and Seller Information
The real estate purchase agreement should open with an introduction to whom the contract legally binds. These should be the legal first and last names of all sellers and buyers involved in the purchase and transfer of ownership.
Here is an article that reviews the definition and details of a sale and purchase agreement.
2. Sale Inclusions
The contract should follow the introduction of parties with a description of the property being sold. A description of the property, including its full address and square footage, is a good place to start.
You can also include additional belongings included in the sale. For example, if you are allowing buyers to acquire any furniture, domestic appliances, or equipment, then these will be listed in this section of the master purchase agreement.
It is important to note all additional sale inclusions through an asset purchase agreement to ensure total clarity on what the buyers will receive through their purchase.
Here is an article about sale inclusions in real estate.
3. Sale Exclusions
If anything is excluded from the sale of a property, this should also be listed in the contract. Sale exclusions protect the seller from being accused of not completing the sale in earnest.
There are many things that a buyer may exclude from the sale of a property that buyers are unaware of. This can come as a big surprise when they move in, and it may lead to legal disputes later.
Examples of common sales exclusions in a purchase agreement are:
- Light fixtures
- Kitchen and bathroom appliances and fixtures
- Heating and cooling equipment
- Doors and windows
- Commercial equipment or machinery
Here is an article that explains real estate exclusions further.
Real estate sellers in the United States must legally disclose any risks or hazards on their property. States have their regulations with regards to disclosure requirements, but common ones include things such as:
- Presence of lead
- Previous methamphetamine production on the premises
- Well locations
Here is an article where you can learn more about real estate disclosures.
5. Terms and Pricing Conditions
Real estate terms in a purchase agreement can be confusing. Writing them clearly is important. Most purchases are negotiable, and the conditions may reflect that.
Some terms and pricing conditions include:
- Home or property inspection
- The closing date
Real estate addendums are separate documents attached to the original contract. They can clarify information, add to the original agreement, or include further inclusions, exclusions, and negotiation terms.
Here is an article with more information on real estate addendums.
6. Possession Terms and Conditions
This section of the purchase agreement details how and when the property will be transferred to the new owners. For example, it can describe how and when the buyer will hand over the keys to the home or building after the sale closes.
Here is an article about real estate possession and how it works.
7. Default Clause
A default can happen in real estate if one or both parties do not fulfill part of the contract. In this event, a default clause can lead to a faster resolution by outlining steps to take.
Default clauses do not waive either party of responsibilities. Still, they offer the potential to close a contract with minimal damages in the event of a default.
Here is an article to learn more about what to do when a purchase agreement defaults.
8. Closing Details
The closing details portion of a purchase agreement states who will pay for the closing costs. Real estate closing costs can be an expensive addition to the property's price; taxes, fees, and agent commissions can account for thousands of extra dollars on top of the property’s selling price.
The closing details portion will likely be negotiated several times before buyers and sellers reach an agreement. Sellers often pay more than buyers, but the exact details vary by contract and property.
Here is an article on closing costs and details in a purchase agreement.
9. Signatures of Parties Involved
The purchase agreement should end with a signature from all the parties involved in the sale. This includes:
- The buyer(s)
- The seller(s)
- The real estate agents/brokers of the buyers and sellers
All signatures should be written at the end of the contract and dated.
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