Contracts
What Is a Purchase Agreement in Real Estate?
A purchase agreement (also called a sales contract, offer to purchase, or purchase and sale agreement) is the binding contract between a buyer and seller that governs the terms of a real estate transaction. It is the most important document in any real estate deal.
Essential Elements of a Purchase Agreement
Identification of parties: buyer and seller names
Property description: legal description and address
Purchase price and payment terms
Earnest money deposit: amount, holder, and release conditions
Financing terms: loan type, amount, rate parameters
Contingencies: inspection, financing, appraisal, home sale
Closing date and possession date (may differ)
Inclusions/exclusions: appliances, fixtures, personal property
Condition of property: as-is vs. seller repair obligations
Disclosure requirements and seller representations
Default provisions: what happens if either party fails to perform
Agency disclosure: who represents whom
Purchase Agreement FAQ
When is a purchase agreement legally binding?
A purchase agreement becomes binding when all parties have signed (or initialed all changes) and each party has been notified of the other's acceptance — called 'mutual acceptance' or 'offer acceptance.' Before that point, either party can withdraw without obligation. In most states, the contract must be in writing to be enforceable for real estate transactions (Statute of Frauds).
Can a purchase agreement be changed after signing?
Yes, through an addendum or amendment. Both parties must agree to and sign any modification. Common post-execution amendments: extending the closing date, adjusting the purchase price after inspection findings, modifying contingency deadlines, or adding/removing inclusions. Never verbally modify a real estate contract — changes must be in writing.
What is earnest money and what happens to it?
Earnest money (or good faith deposit) is cash the buyer deposits when the contract is signed to demonstrate commitment to the purchase. Typically 1–3% of purchase price. Held in escrow by a title company, brokerage, or attorney. If buyer backs out without a valid contingency, seller may keep it. If seller defaults, buyer typically gets it back plus may sue for damages.
What is the difference between a purchase agreement and a letter of intent?
A Letter of Intent (LOI) is a non-binding expression of interest used primarily in commercial real estate to outline proposed terms before drafting a formal contract. A purchase agreement is a binding contract. In residential real estate, LOIs are rare — buyers make formal offers using standardized purchase agreement forms. In commercial, LOIs are common first steps.
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