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What Is a Purchase and Sale Agreement?
A purchase and sale agreement, also known as a purchase and sale contract, P&S agreement, or PSA, is a legally-binding document that establishes the terms and conditions related to a real estate transaction. It defines what requirements the buyer must meet as well as purchase price, limitations, and contingencies. Real estate lawyers generally write them for the buyer and seller to sign. In some jurisdictions, purchase and sale agreements can also be prepared by a real estate agent or broker.
How A Purchase And Sale Agreement Works
A purchase and sale agreement is different from a purchase agreement in one particular way. Rather than complete the transaction, as a purchase agreement would, a purchase and sale agreement will instead facilitate it while providing clear guidance regarding party responsibility. By signing the contract, you do not agree to buy or sell the house.
Instead, you are determining how to handle:
- Title searches and transferability
- Inspections and negotiations
- Financing and loan documents
- Transfer of money
- Closing and associated costs
There may even be a negotiation period when it comes to finalizing the terms and conditions of the purchase and sale agreement. This document is critical since it serves as the basis for the property’s sale and can also demonstrate the seriousness and willingness of both parties by signing it since there are typically cancellation penalties.
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After The P&S Agreement Is Signed
Since real estate purchases are more complicated than other purchases, it can take several weeks to finalize. During that period, the buyer, seller, and other third-parties will engage in a series of activities that complete the sale.
Here is what may occur after the purchase and sale agreement is signed:
- Title search: Your property lawyers can file for transfer of ownership while under contract. A title search ensures that the owner has the legal right to sell the residence.
- Inspections: After signing the contract, the purchaser will inspect the property’s condition. The buyer may also renegotiate the purchase and sale agreement if repairs need to be made to reach a satisfactory level.
- Loan agreement: Although most buyers are pre-approved for financing, the process continues to move forward by formally signing a final loan agreement. This process may include an appraiser inspection, underwriting inspection, and more before completion.
- Money transfer: Before closing, the buyer must have the money ready for transfer by agreeing to a down payment, cash payment in full, or an escrow deposit. The seller will not release a deed until receiving the buyer’s payment.
- Closing: Finally, closing involves the signing of documents that are necessary to transfer property ownership. Other activities may be applied as required to satisfy the needs of the purchase and sale agreement.
Once completing these five steps, the buyer will typically receive the keys to take ownership of the property. This purchase or sale is likely the biggest one you will make in your lifetime, which means that you should have a solid purchase and sale agreement in place to ensure that everything goes as expected and you have a serious commitment from the buyer or seller.
What’s Included In A Purchase And Sale Agreement
Since the purchase and sale agreement is the master document that establishes your purchase or sale terms, it should contain the necessary sections, provisions, and elements.
Below, check out some of the elements included in a purchase and sale agreement:
- Amount of the deposit and handling of cancellations
- Personal property included in the transaction
- Escrow and occupancy dates and handling of cancellations
- Contract default provisions if one or both parties do not meet the agreement
- Property inspection terms and conditions
- Financing arrangements and stipulations for payment of closing costs
- Contingencies for the sale or purchase of a new or old residence and insurance, including a rental lease agreement or forbearance agreement
- Other covenants, limitations, and conditions as necessary
As you can see, there are numerous facts and considerations that both parties must make when buying and selling a home. Depending upon where you live and other particulars, you may need to add local or state-specific provisions for the contract to oversee a lawful transaction. Ensure that you draft a contract that is right for the type of purchase and sale agreements related to real estate.
Image via Pexels by Binyamin Mellish
Types Of Purchase And Sale Agreements
Since the types of purchase and sale agreements vary widely, make sure that you understand the difference between the purchase and sale agreement for a house versus a purchase and sale agreement for a car. While the primary components of a contract largely remain the same across all documents, there are always vital differences that you will notice.
Purchase And Sale Agreement For House
A purchase and sale agreement for a house addresses the specific needs and provisions surrounding the transaction. It will consider escrow, closing, expectations, and use real estate terminology that you will not find in another other type of purchase and sale agreement.
Purchase And Sale Agreement For Car
When buying or selling a car, a purchase and sale agreement will describe all matters related to ownership transfer. They tend to be shorter and with fewer terms and conditions. However, they do contain some shared components, including payment, inspection, and transferability.
Samples Of Purchase And Sale Agreements
There are samples of purchase and sale agreements available online. Reviewing them will give you a good sense of what is expected during the process and the type of agreement you are making. Find a purchase and sale agreement used for your exact situation to make the picture even more transparent.
Here are a few samples of purchase and sale agreements:
- Law Depot purchase and sale agreement sample
- SEC purchase and sale agreement sample
- Eforms purchase and sale agreement sample
If you are considering using an online template to create your contract, determine if the transaction you are facilitating is right for the document you need. Due to both parties’ expectations of the sale, consider working with a lawyer to draft a purchase and sale agreement for you.
Working With A Lawyer To Draft A Purchase And Sale Agreement
Problems during a real estate transaction cost both the buyer and seller time, resources, and money. As such, it is imperative that you have a purchase and sale agreement in place that fosters and facilitates the transfer of a home from a seller to a buyer. Contracts carry specific legal implications, which means that you should hire property lawyers to write them instead of using contract templates.
A lawyer will take the time to understand your specific situation and needs to ensure that the agreement is personalized for your objectives. He or she will also guarantee that it complies with all applicable laws in your jurisdiction.
You will have additional peace-of-mind and reassurance knowing that a legal professional created your agreement versus making guesses with templates online. Do not leave the most significant sale or purchase of your lifetime to chances. Protect yourself by working with a lawyer to draft a purchase and sale agreement.
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Meet some of our Purchase And Sale Agreement Lawyers
Jeremiah C.
Creative, results driven business & technology executive with 24 years of experience (15+ as a business/corporate lawyer). A problem solver with a passion for business, technology, and law. I bring a thorough understanding of the intersection of the law and business needs to any endeavor, having founded multiple startups myself with successful exits. I provide professional business and legal consulting. Throughout my career I've represented a number large corporations (including some of the top Fortune 500 companies) but the vast majority of my clients these days are startups and small businesses. Having represented hundreds of successful crowdfunded startups, I'm one of the most well known attorneys for startups seeking CF funds. I hold a Juris Doctor degree with a focus on Business/Corporate Law, a Master of Business Administration degree in Entrepreneurship, A Master of Education degree and dual Bachelor of Science degrees. I look forward to working with any parties that have a need for my skill sets.
Michael T.
I have been in practice since 1990 and practice in D.C., Maryland, and Virginia. I am an experienced litigator and look forward to resolving your legal questions as efficiently as possible.
Rebecca S.
I absolutely love helping my clients buy their first home, sell their starters, upgrade to their next big adventure, or transition to their next phase of life. The confidence my clients have going into a transaction and through the whole process is one of the most rewarding aspects of practicing this type of law. My very first class in law school was property law, and let me tell you, this was like nothing I’d ever experienced. I remember vividly cracking open that big red book and staring at the pages not having the faintest idea what I was actually reading. Despite those initial scary moments, I grew to love property law. My obsession with real estate law was solidified when I was working in Virginia at a law firm outside DC. I ran the settlement (escrow) department and learned the ins and outs of transactions and the unique needs of the parties. My husband and I bought our first home in Virginia in 2012 and despite being an attorney, there was so much we didn’t know, especially when it came to our HOA and our mortgage. Our real estate agent was a wonderful resource for finding our home and negotiating some of the key terms, but there was something missing in the process. I’ve spent the last 10 years helping those who were in the same situation we were in better understand the process.
October 3, 2023
Gunnar C.
I am a multifaceted lawyer, experienced in corporate law, nonprofits, private equity, real estate, financial services, taxation, trust and estate planning, and philanthropy. I am a strategic thinker and cross-functional collaborator who understands the importance of balancing revenue needs with business-minded legal counsel. I am skilled and experienced in preparing and reviewing SaaS agreements, service and vendor agreements, confidentiality, NDAs, data privacy, IP, licensing, real estate transactions, and partnership agreements.
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Gina S.
Experienced business attorney in the field of real estate, construction, and design.
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Neil B.
Family Law attorney with focus on Divorce Mediation
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Angela P.
I am an experienced New York Real Estate Attorney and Florida Licensed Title Agent with extensive knowledge in the Real Estate industry. With more than 20 + years and over 2500 closed transactions, I have become an expert at accurately assessing realtors', lenders' & investors' needs and proposing/implementing viable solutions that bring value to them. I focus on real estate settlement services, education, and training of real estate professionals. I am also skilled working with high-end clients, managing large and complex projects, building solid relationships, effectively and creatively solving complex issues, producing results under stress all with impeccable customer service.
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Browse Lawyers NowReal Estate
Purchase And Sale Agreement
Washington
Earnest money in a purchase and sale agreement?
I am in the process of buying a house and have been presented with a purchase and sale agreement. I am confused about the earnest money portion of the agreement and would like to understand what it means and how it will affect the transaction. I am particularly interested in knowing what happens to the earnest money if either party decides to back out of the agreement.
Merry A.
Good morning. I am a WA State attorney, and I have reviewed numerous purchase and sale agreements (PSA), and have bought and sold numerous pieces of property in WA and CO. You are wise to ask this question. Since you are the buyer, normally your buyer's real estate agent would prepare the PSA for you to use, after discussing with you. Since you said a PSA "was presented to you" I"m wondering whether you are buying a new home from a building contractor. In any event, the purpose to an earnest money payment is to hold the home for you and let the seller know you are interested. In most cases, however, the seller can keep your whole earnest money payment if you back out of a purchase for reasons that are not protected in the PSA. For example, if you write your offer contingent on your subjective approval of an inspection report, or write your offer contingent on obtaining financing at terms you approve of, either one of these terms can get you out of the contract and also have your earnest money returned to you. There should be language in the PSA that clearly states what happens to the earnest money and how much earnest money you are providing. I hope that that is helpful. If you continue to have questions, I urge you to have an attorney review any and all documents, including those for loans, prior to signing anything.
Business Contracts
Purchase And Sale Agreement
Washington
Governing law in a purchase and sale agreement?
I am in the process of purchasing a business and have been presented with a Purchase and Sale Agreement. I am looking to better understand the governing law that would be applicable to this agreement, and any potential implications for the agreement. I am looking for advice on the law that would be applicable to this Purchase and Sale Agreement, and the potential implications for the agreement.
Merry A.
Good morning - I am a WA State attorney. The purchase and sale agreement should, itself, specify the governing law that would be applicable; if that term is not already part of the PSA you were presented, it should be added. If you are buying a business in WA, normally the PSA will say that WA law will apply, but if you are buying a franchise, it's possible that the PSA will say something like that law of Delaware may apply. Washington has good governing law for this type of agreement. I also suggest that you discuss any concerns with your buyer's agent, and possibly request a WA State attorney to review all the documents before you sign anything.
Real Estate
Purchase And Sale Agreement
California
Purchase and sale agreement contingencies?
I am in the process of purchasing a home and have received a Purchase and Sale Agreement from the seller. I understand that there are contingencies that must be met in order for the agreement to be valid, but I am unclear on what these contingencies are and how they will affect the agreement. I am hoping to get some insight from a lawyer on what contingencies I should be aware of and how they could affect the agreement.
Myrna L.
Contingencies are conditions provided in the contract that need to be met prior to performance or close of escrow. In Purchase and Sale Agreements, it is usually the buyer who negotiates for contingencies to reduce or eliminate their risks prior to close of escrow. Normally, buyer’s contingencies would include appraisal reports, property inspections, mortgages, title reports or sale of another property. More often than not, sellers do not have contingencies in Purchase and Sale Agreements because they want to sell the property in a timely manner; if seller cannot deliver the property, it may deem the property not available for sale in the first place.
Business
Purchase And Sale Agreement
California
Confidentiality in a purchase and sale agreement?
I am a small business owner looking to purchase another business and I am currently negotiating a Purchase and Sale Agreement. I am concerned about the confidentiality of the agreement and would like to ensure that all parties involved are abiding by the terms of the agreement. I am also concerned about any potential liabilities that may arise from the agreement and would like to ensure that I am adequately protected.
Rosemary L.
Confidentiality and nondisclosure agreements are common in the purchase and sale of businesses. They are meant to allow a buyer and seller to negotiate and reach terms on an agreement without information leaking which would impact the business, such as financial information, impact on employees, future plans and trade secrets. It is common practice for these agreements to be signed. If the agreement is breached, the party who has been injured by the breach can sue the other party for damages or other appropriate remedies.
Real Estate
Purchase And Sale Agreement
California
Purchase and sale agreement and mediation?
I am in the process of selling my home and have recently received a purchase and sale agreement from the potential buyers. The agreement outlines the terms of the sale but does not include any details regarding mediation in the event of a dispute. I am interested in learning more about the role of mediation in a purchase and sale agreement and what my rights and obligations are in such a situation.
Rosemary L.
Mediation is a voluntary process that the parties may agree to pursue in the event there is a dispute in an agreement. The parties basically agree that prior to filing suit, or entering into some other kind of process for resolution, they will mediate the dispute. It is a fairly informal process where each party presents its evidence and arguments in a dispute to the mediator, who attempts to work out an agreement between the parties. If it does not result in an agreement, the parties may then go ahead and choose to go to court to reach a resolution of their dispute.
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