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What is a Purchase Contract?
A purchase contract is a legal contract between a buyer and a seller made during a real estate sale, sale of company stock, or sale of other assets. All parties must have the legal capacity to make the purchase. The purchase contract is also based on consideration, which is what is monetary value being exchanged for the real estate, company stock or other assets. A real estate purchase agreement must be written and signed for it to be legally enforceable.
Key Terms in a Real Estate Purchase Contract
A purchase contract generally contains the following components or terms:
- Buyer and seller details. Such as name and contact information.
- Property details. Such as dimensions, description, year built, etc.
- Essential rights and obligations. Such as purchase price, representations and warranties, financing, mortgage note , contingencies , title insurance , closing costs , lead-based paint disclosure, dispute resolution clause , etc.
- Conditions. The condition of the property.
- Fixtures and appliances. What’s included in the sale and which are excluded.
- Earnest money deposit. The amount of the earnest money deposit .
- Itemized closing costs. Outline all closing costs and who is responsible for paying them.
- Closing date. When the transaction is expected to close.
- Signature of each party in the transaction.
- Terms of possession. When the keys to the property will be handed over.
- Contingencies . Conditions that must be met before the sale can go through.
There are three major components covered in a purchase agreement explained in detailed below.
A purchase contract can contain certain contingencies upon which the sale will be dependent. These can include the following:
- Loan contingency: A loan contingency can be used when the buyer is purchasing real estate through a loan. This would provide details on type of loan that the buyer intends to acquire to buy the property. If the buyer fails to secure the loan, a loan contingency can help the buyer get out of the purchase contract.
- Inspection contingency: An inspection contingency allows the buyer to have certain amount of time to conduct home inspection for any issues. If the home fails this inspection then this contingency allows the buyer to cancel the purchase.
- Sale of existing house: A contingency for selling an existing home makes the sale contract contingent on the sale of a current home. If the current home doesn’t sell and the sale doesn’t go through, this type of contingency still allows the buyer to back out of the purchase contract.
- Appraisal contingency: An appraisal contingency allows the buyer to exit the purchase contract in case that the appraisal , or appraised value, of the real estate is lower than the sale price.
Earnest Money Deposit
Earnest money contract is a legally binding document between parties made during the exchange of the earnest money. Earnest money is a monetary deposit made in good faith on a home loan or real property to the seller from the buyer during a home sale.
Purchase contracts will typically contain all information pertaining to the earnest money deposit used in the transaction. It will also outline terms and conditions of refund, contingencies and escrow details of the earnest money deposit.
The purchase contract can include information on how the property or asset is financed. For instance, if the buyer is buying a home through a mortgage, the purchase contract will mention that.
The purchase contract will also note closing costs associated with the purchase. Closing costs can differ from state to state for buyers and sellers. Typically, they are about 2-5% of the purchase price of the home. This covers the taxes and fees related to transfer the property like recording the deed, and payments to title company.
A purchase contract can mention the fees and costs that will need to be paid by each party, as negotiated in the contract and based on the state where the contract is executed.
Here’s more on purchase contracts and their key components.
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Who Prepares a Purchase Contract?
Generally, the buyer’s agent will write the purchase contract. However, if they are not legally licensed to practice law, real-estate agents might not be able to write their own purchase agreements. They can use real estate lawyers or law firms to write up the purchase contract.
Here is a sample of a purchase contract.
Can I Write My Own Purchase Contract?
It is advised to use professional help to draw up a purchase contract to ensure it doesn’t lead to legal troubles in the future. However, you can write your own purchase contract as long as you include certain specifics of your home. Keep some of these important steps in mind:
- Legal address and relevant laws applicable: List the legal address of the property along with any restrictions, zoning laws and special permits that are applicable to the property. Do not forget to mention other property details such as permanent fixtures, appliances, etc.
- Purchase price: Specify the purchase price of the property. Mention any amount that will go into escrow like the earnest money deposit. Lay out all terms and conditions of payment.
- Closing date: Upon agreement from the buyer you can add the closing date of the sale to the purchase contract. You can add penalties in case of default or breach.
- Buyer’s rights: Mention buyer’s rights in the sale process, such as inspection and appraisal.
- Seller’s responsibilities: Mention the responsibilities of the seller such as any intention to make improvements or change fixtures.
- Conditions and provisions: Add all additional conditions and provisions regarding the sale. These could be time frame for financing the home, sale of existing property, etc.
Here are some resources on how to write your own purchase contract .
Get Help With a Purchase Contract
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Meet some of our Purchase Contract Lawyers
David H. Charlip, the principal of Charlip Law Group, LC, is one of only 101 Board Certified Civil Trial Lawyers in Miami-Dade, with over 40 years of litigation experience. Mr. Charlip is also one of only 136 Florida Civil Law Notaries. He is also a Florida Supreme Court Certified Circuit Civil Mediator and a Florida Supreme Court Approved Arbitrator. He has managed and litigated cases across the country. Mr. Charlip has advised businesses, drafted business formation and purchase and sale documents and litigated business disputes for over 40 years and is very familiar with all aspects of contractual relations.
Trusted business and intellectual property attorney for small to midsize businesses. Helping businesses start, grow, scale and protect.
With over 16 years of experience in the area of estate planning, trademarks, copyrights and contracts, I am currently licensed in Florida and NJ. My expertise includes: counseling clients on intellectual property availability, use and registration; oversee all procedural details of registration and responses with the USPTO/US Copyright Office; negotiate, draft and review corporate contracts and licensing; counsel clients on personal protection, planning and drafting comprehensive estate plans.
Melissa Taylor, the President and founding partner of Maurer Taylor Law, specializes in business contract review and drafting and is a second-generation attorney with private firm, in-house counsel, governmental, entrepreneurial, and solo practitioner experience. Melissa has a strong legal background, a dedication to customer service, is friendly, warm and communicative, and is particularly skilled at explaining complex legal matters in a way that's easy to understand. Melissa personally handles all client matters from start to finish to ensure client satisfaction.
Lawrence A. “Larry” Saichek is an AV rated attorney and a CPA focusing on business and real estate transactions, corporate law and alternative dispute resolution. With a background including five years of public accounting and six years as “in house” counsel to a national real estate investment company, Larry brings a unique perspective to his clients – as attorney, accountant and businessman. Many clients think of Larry as their outside “in house” counsel and a valued member of their team. Larry is also a Florida Supreme Court Certified Mediator and a qualified arbitrator with over 25 years of ADR experience.
Entertainment Attorney with 30+ years of experience, representing all aspects of the TV, Film, Music and Publishing Industries
Aaron focuses his practice on entrepreneurs and emerging growth companies, providing general counsel services for companies from formation through exit. Aaron frequently advises clients in connection with routine and unique legal, business, and strategic decisions, including corporate, business and technology transactions, angel and venture financings, mergers and acquisitions, protection of intellectual property, and information privacy and data security.