Major Parts of the Purchase Contract 

(What you can expect in the legal paperwork)

A real estate purchase agreement is also known as a real estate contract. It’s a legally binding document between a buyer and seller explaining the details of the land or property purchase.

Most residential real estate contracts use a standard form that provides checkboxes and fill-in-the blanks that customize the contract to the needs of the buyer and seller. However, there can be exceptions that don’t fit neatly into the standard form. These exceptions are accommodated by adding an addendum to the original contract explaining the exception or change. An addendum is also used to record changes to the original signed contract (for instance a change in the closing date or that some personal property will also change ownership). Addendums are mostly for simple changes to the standard contract. 

Below are the major sections to the standard contract with brief descriptions of each section to give you an idea of what to expect. 

1. The parties to the contract. These are the full legal names of both the buyer and the seller that are entering into the contract along with the date the purchase offer is being made.

2. Legal description. This is the legal description of the property as it is recorded on tax records. It includes land lot, section, district, plat book and page, etc.  It is the description of where the property is located.

3. Earnest money, purchase price, and method of financing - The earnest money is similar to a deposit to assure the seller that the buyer will complete the purchase once certain conditions in other parts of the contract are met. There is no set amount that the buyer must agree to as earnest money but the seller does consider the amount as an indication of how serious the buyer is about completing the purchase. The buyer should clearly understand the conditions when the earnest money will or will not be returned to the buyer if the purchase is not completed. 

The purchase price and method of payment or financing are detailed in the contract. The purchase price is exactly that, the purchase price for everything included in the contract – this is straightforward. The method of financing can be more complicated and more important to the seller than the buyer might realize. The method of financing can be anything from an all cash offer to obtaining a mortgage. An all cash offer indicates that the buyer can complete the purchase quickly and with little or no complications. Obtaining a mortgage indicates that the buyer will be using a loan and will taking longer to close the sale because it requires the approval and funding by a lender. Other information goes into this section such as the amount of down payment, the terms of the financing, and lender information

4. Disclosures, inspections, and surveys - There are several paragraphs in the contract dealing with conditions of the property. These should be read and fully understood by all parties to the contract. The seller’s disclosure is attached as a separate document to the contract. The purpose of the disclosure is for the seller to inform the buyer about everything that he/she knows about the house.  Some of the topics include age of the roof and HVAC systems, is it part of homeowners association, has there been any insurance claims during ownership, etc. Some disclosures are mandatory such as if the house contains lead paint. 

The buyer is entitled to have a professional inspection done on the house by an independent party. The results of the professional inspection can be a reason for the buyer to not make the purchase or for parts of the contract to be changed (addendum). The buyer may also want to have a property survey done to be sure they know the property boundaries and of any easements that others (neighbors) may have onto the property. It’s important that the buyer understand all disclosures and read any attachments to the contract because after the sale is completed, the buyer is bound to all parts of the agreed upon contract.

There are several other parts to the purchase contract as well as the attachments. The main contract will include a list of all attachments that are also part of the contract. Other sections of the contract include:

• Seller paid closing costs

• Closing and possession date

• Earnest money deposit.

• Brokerage (real estate agents) relationships to the transaction.

• Time limited of response to the offer or counteroffer

• Rights of the buyer, seller, and brokers if one or more party defaults on the contract.

• Legal requirements such as electronic signatures, governing laws, duty to cooperate, and others.

A purchase contract may be one of the most important legal documents that you ever sign. Real estate brokers cannot give you legal advice although brokers can help you understand the options you have when making a purchase offer. Brokers also work closely with you to make sure both the buyer and seller portions of the paperwork are accurately and fully completed. 

If you need more information or have questions, please  contact us. You can also reach us by calling at (678) 570-8123. We'll be glad to help you!