The Purchase & Sale Agreement (P&S) is the binding legal document received after mutual acceptance of an offer to purchase real estate, which states the final sale price and the terms of your purchase. This agreement is typically negotiated by attorneys for the buyer and seller and executed by both parties.
What You Need to Know
The use of a Purchase and Sale agreement can vary state-by-state. Many states rely on a standard form, while others require the agreement to be drafted by the buyer’s attorney and approved by the seller’s attorney.
Typical Features in a P&S:
The following features typically appear in a Purchase and Sale Agreement:
-Sale Price: The purchase price agreed upon by the buyer and seller. In some instances the final sale price may differ from the originally agreed upon price. This can happen if issues arise during the home inspection or if the appraised value is less than the purchase price.
-Earnest Money Deposit (EMD): The earnest money deposit (aka the good faith deposit), is the money paid by buyers after their offer is accepted. This deposit helps the buyer prove to the seller that they’re offer is legitimate. The P&S typically includes the dollar amount and instructions for making the deposit. The EMD is typically required within one to three days of mutual acceptance. The EMD check will be held by a neutral third-party until the completion of the deal.
-Closing Date: The date the purchase will be completed. On this date, the transfer of property will be recorded with the local government, and the seller will receive the money for their home. The closing date is subject to change should any issues arise with the seller, lender or closing attorney.
-Title Insurance Company: The P&S will state that the seller is required to provide a clear or marketable title of ownership to the buyer.
-Title Condition: The P&S will state that the seller is required to provide a clear or marketable title of ownership to the buyer.
-Contingencies: Contingencies are conditions that must be met in order for the home purchase to be completed. Should one party fail to meet a contingency in the P&S, the agreement may be nullified. Common contingencies include:
-Title Contingency: Gives the buyer the right to review the home’s title for problems or conflicting claims of ownership. If the title search uncovers a problem or unrecognized claims on the title, the buyer can back out of the deal without forfeiting his/her EMD.
-Inspection Contingency: Gives the buyer permission to have the home inspected before going ahead with the purchase. If any issues arise, the buyer has the right to renegotiate or he/she can back out of the transaction without forfeiting his/her EMD.
-Appraisal Contingency: Allows the buyer to back out of the deal if the home’s appraisal reveals that the home is not worth as much as the buyer intended to borrow and pay for it.
-Mortgage Financing Contingency: The date the buyer must get approved for mortgage financing before making the purchase. If the buyer makes a “good faith” effort to finance the purchase, but is denied prior to this date, he/she can back out of the transaction without forfeiting his/her EMD.
-Addendums: Any additional request from the buyer to the seller that is not included in the actual P&S document (e.g. the seller pays the borrower’s closing costs)