Understanding Purchase Agreements
Perhaps the hardest part of any major purchase is sifting through the paperwork and understanding what you’re signing. It’s not uncommon to get to the end of the buying process and feel as though you don’t understand what you’ve agreed to, relying instead on trusting the experts you’ve turned to for help along the way. It’s important to know what to watch out for when buying a home. A house purchase agreement can be a complicated document to read through, but it’s an important one to understand before you sign your name on the dotted line.
Buying a home is a major purchase for both first-time home buyers and those who have bought and sold many homes over the years. Prospective homebuyers understandably want to have a handle on all of the terms and forms, given how important it is to find the right home. The more you feel that you understand your home purchase agreement, the more comfortable you’ll be with whatever decision you make. But what, exactly, is a purchase agreement for a house?
As the name suggests, a house purchase agreement is a contract between a home buyer and a seller for the sale of a home, outlining the specifics of the deal agreed upon by the two parties. Given that it’s a contract, a lawyer should draw up the real estate purchase agreement, as real estate agents can’t practice law. State laws differ on whether a lawyer is required, but hiring a legal expert is recommended as they can be very helpful with real estate legal advice. However, the real estate agent may fill in the important blanks of the house purchase agreement.
Universal Elements of a House Purchase Agreement
You may be asking yourself: what is a purchase agreement for a home? The home purchase agreement is more than a statement of your intent to buy and the agreed-upon price—it stipulates all the conditions and requirements of the sale for both the buyer and seller. While a house purchase agreement isn’t necessarily uniform based on the particulars of a sale, the essential elements that should be universal across all agreements include:
- Basic identifying information about both buyer and seller, including whether multiple buyers intend to be owners as joint tenants or tenants in common (these legal terms are best explained by an attorney).
- Identification and description of the property being sold.
- The offer and agreement for the sale, and the details of how the purchase will be financed, whether through cash, home loan, or assumption of an existing mortgage.
- Fixtures and appliances included in the sales, as well as disclosure of the property’s condition and any defects or faults that may affect the home’s value.
- The date of closing, and when possession of the home will be turned over.
- An itemized list of closing costs, detailing which party is responsible for paying those costs.
- The required earnest money deposit amount, which is a payment made to a buyer to indicate their intention of buying the home. It’s usually held in escrow by a third party and eventually applied to the down payment or closing costs.
- Contingencies and related stipulations that need to be addressed for the sale to go through.
Considering Home-Buying Contingencies
Potential contingencies are a major consideration in the house purchase agreement. No matter how you feel about the person you’re buying your home from, it’s important to get your own inspection and appraisal of the property to verify the condition and value. An inspection contingency in the house purchase agreement allows you to back out of the purchase if the home inspection turns up previously undisclosed issues and discrepancies that would make you think twice about buying the property. Similarly, an appraisal contingency allows you to halt the sale if the value is determined to be lower than the price you agreed to pay.
There are also financial contingencies to plan for in your house purchase agreement. If you’re already a homeowner and want to move to a new place, buying that home depends on being able to sell your current property and finding financing for your prospective home. A home sale contingency allows you to back out of the home purchase agreement if you cannot find a buyer for your home. Meanwhile, a financing contingency protects you from having to move ahead with the deal if you’re unable to find a lender to back you.
A caveat is that these contingencies protect you as the buyer, but they can potentially make your offer unattractive to the seller and in certain markets—this is just one of many tips for a smooth home purchase. That may mean that you’re not successful when competing against other buyers for your property of choice. Like other transactions, you must balance the risks when determining which contingencies to include in the offer.
Working with a Lawyer to Close on Your New Home
Closing might seem like another formality, but it’s a crucial part of the home-buying process where everything is finalized and signed. To start, you need to arrange a home inspection and appraisal to verify the condition and value of the property. You need to complete the loan for your home mortgage, including origination and underwriting. You also need to do a title search to ensure there are no other claims on the property.
For the actual closing, some states require you to have an attorney and your escrow agent manage the document signing and transfer of funds. They’ll also verify that terms are met on both sides. Before closing, you’ll have to review the closing notice and closing disclosure to ensure you understand what’s needed at the closing, and all that you’re agreeing to in buying the home. On the day of closing, you’ll arrive at the property to make a final walkthrough, review and sign the remaining paperwork with your lawyer, handle the closing costs, and take possession of the keys to your new home.
The type of closing costs you’ll incur depends on the type of property and the home’s location, but the costs usually tally up to between two to five percent of the total price of the home. While that percentage might seem small, given the considerable amount you’ve just committed to a home, it still comes out to thousands of dollars that cover numerous fees and insurance payments that have to be paid to finalize the sale.
It takes lots of work to make it from offer through signed house purchase agreement and closing, but finding the right home is worth the investment of time and effort to get there.
LegalShield members can talk with an attorney about creating or reviewing a home purchase agreement and any closing documents, plus any other legal issue that may arise in the home buying process. Memberships start at $29.95 a month.
LegalShield provides access to legal services offered by a network of provider law firms to LegalShield Members through member-based participation. Neither LegalShield nor its officers, employees or sales associates directly or indirectly provide legal services, representation or advice. See a plan contract at www.legalshield.com for specific state of residence for complete terms, coverage, amounts, and conditions. This is not intended to be legal or medical advice. Please contact a medical professional for medical advice or assistance and an attorney for legal advice or assistance.