What Is a Real Estate Purchase Agreement?

Editor's note: This post was originally published on March 7, 2020, and has been updated for accuracy, comprehensiveness, and freshness on March 3, 2026.

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.

If you're in the process of buying or selling a house, you are likely to come across a ton of paperwork. While each of these documents serves an important purpose, perhaps one of the most important documents you'll come across is the real estate purchase agreement.

Given that it sets the terms of the transaction, you should understand what a purchase agreement is and its role in a real estate transaction, especially if you’re buying a house for the first time. The more you know about it, the more likely your home sale or purchase will go smoothly.

Understanding real estate purchase agreements

A real estate purchase agreement is a contract where a buyer and seller agree to transfer a piece of real estate. In addition to binding the parties to the deal, this contract also outlines the terms of the sale, such as what property is being sold and for how much.

Before there’s an agreement, the buyer submits an offer to the seller. This might only include a price, but it could also include requests for things like repairs, fixtures, or furniture as part of the sale.

The seller can then accept this offer, reject it, or respond with a counteroffer. This process can go back and forth until both parties reach an agreement.  For a real estate contract to be binding, most states require it in writing.

While state laws vary, keep in mind that real estate agents can generally prepare real estate purchase agreements. However, they will often do so by taking a template that was originally drafted by a real estate lawyer, then filling in certain blanks, such as the location of the property, the names of the buyers and sellers, and the price.

Real estate agents can also give a basic overview of the terms of the agreement, including what to look out for when buying a home. That said, if their clients have questions about real estate law, they may need to talk to a lawyer to get real estate legal advice.

Key elements of a purchase agreement 

Every purchase agreement for real estate will be as unique as the property it applies to. Yet most real estate purchase agreements will share some details in common, including:

• Basic buyer and seller information: At a minimum, the contract will have the legal names and contact information of the parties. If there are multiple buyers, the contract will also state if the multiple buyers intend to be owners as joint tenants or tenants in common (a lawyer can best explain these legal terms).
• Property description: The agreement will have both the physical address and the property’s legal description (lot, block, and parcel numbers).‍
• Purchase price: The total agreed-upon amount and the intended down payment amount.‍
• Earnest money deposit amount: This is a "good faith" deposit (usually 1-3% of the price) held in an escrow account to show the buyer is serious about the purchase. If the deal goes through, this money is usually applied to the down payment or closing costs.‍
• ‍List of closing costs: These costs are itemized and state which party is responsible for paying which costs.‍
• Date of property transfer: The date of closing will be noted, as well as when possession of the home will be turned over, and the buyer can move in.‍
• Financing details: If applicable, there will be details of how the purchase will be financed, whether through cash, home loan, or assumption of an existing mortgage.‍
• Inclusions and exclusions: A list of what stays with the house (e.g., pieces of furniture, appliances, chandeliers, etc.) and what the seller is taking with them.‍
• Property disclosures: The seller will confirm the property's condition and identify any defects or faults that may affect the home's value.‍
• Contingencies and stipulations: These are conditions that need to be addressed for the sale to go through.

Important contingencies for buyers and sellers

Despite the best intentions, some real estate transactions experience surprises that can cause either party to rethink the deal. To address these situations, real estate agreements include special provisions to outline what happens should these situations occur.  

These special provisions can allow the affected party to walk away from the transaction without penalty if one or more of the scenarios come into play.

Financing and appraisal 

The vast majority of buyers borrow money to pay for the purchase of the property, which is especially true with residential purchase agreements. The financing contingency exists to allow a buyer to back out of the purchase property agreement if they can’t get a mortgage loan by a certain deadline.

The appraisal contingency in the real estate agreement is another “escape hatch” for the buyer in situations where the property is not worth as much as the buyer thought. This matters because if the appraisal is too low (the property is worth less than expected), the buyer won’t get enough money from the bank to pay for the purchase. An appraisal contingency clause comes into play in these situations.

The appraisal contingency clause will usually give the buyer the option of walking away from the sale or asking the seller for a lower price.

Inspection and title 

When it comes to real estate, what you see is not always what you get. To avoid any surprises, buyers will have inspection and title contingencies in the real estate contract to deal with unexpected problems with the property itself that come up during inspection or even during the title search.

A property inspection contingency may allow buyers to back out of the purchase if the home inspection turns up issues that the seller didn’t previously reveal, but would make a reasonable buyer think twice about buying the property.

A title contingency is similar to an inspection contingency because it may allow the buyer to back out if the title search finds unknown problems with the legal title, such as liens, ownership disputes, or encumbrances.

It is important to note that even if you can terminate a real estate contract for one of these contingencies, you may still forfeit your escrow funds. A lawyer can advise you on what happens if these situations occur. 

Home sale and HOA review 

A home sale contingency is for home buyers who need to sell their current home before they can buy a new one. These buyers have this contingency added to the home purchase agreement in case they run into trouble trying to sell their existing home.

Home sale contingencies often come alongside “kick-out” or ”bump-out” clauses. These clauses give the seller a chance to keep the home on the market to get more offers. 

If the seller gets a better offer (one that doesn’t have a home sale contingency), the original prospective buyer will usually have a short period of time to remove the home sale contingency (where they agree to move forward with the purchase of the new home even if they haven’t sold their current home yet) or risk losing out on the property.

Homeowners Association (HOA) contingencies protect buyers from unexpected HOA restrictions on the property. A buyer will have a set amount of time to review the HOA rules and bylaws. If the buyer does not like what they see, they may have the right to back out of the purchase of the property. 

Step-by-step purchase agreement process

Here are the steps to take before and during the sale of real estate property:

• Step 1: The buyer submits an initial offer. This is often done orally, with the buyer (or the buyer’s representative) conveying their offer and any major conditions or contingencies.
• Step 2: The seller either accepts the buyer’s initial offer, rejects it, or submits a counteroffer. These negotiations may happen over a series of informal back-and-forth phone calls and/or emails or by sending proposed draft purchase agreements.
• Step 3: Once the parties agree on the major terms of the sale, the buyer will submit a prepared and signed purchase agreement and related documents, such as a pre-approval letter from a bank.  
• Step 4: The seller confirms the terms of the sale and then signs the real estate purchase agreement.
• Step 5: The buyer sends the earnest money deposit to escrow, along with completing any inspections, title searches, and other “due diligence” tasks. During this time, the property may be marked as “Under Contract” or “Contingent.”
• Step 6: After the inspections and contingency conditions have been met, the property may be marked as “Pending.”
• Step 7: A closing date is set.
• Step 8: The buyer completes a final walkthrough of the property before purchase to make sure everything is as expected. This includes not just the property’s condition, but also that any necessary repairs or other tasks were completed. This usually happens the same day as closing.
• Step 9: The parties sign the sale and financing documents at the closing, the deed with the new owners is recorded, and the buyer becomes the owner of the property.

Closing on your new home

Closing is an important part of the home-buying process where everything is finalized and signed. What happens during a closing depends on where you live, but often, your real estate agent, the other party’s real estate agent, a lawyer, and an escrow agent will be there. For more complicated deals, lawyers for each party may also attend. You may meet at a title company, a bank, or your attorney’s office for closing. You may even complete your paperwork at another location, with a remote notary.

During the closing, you and the other party will be signing a lot of documents. If you are the buyer and borrowed money to make the purchase, you can expect to spend more time signing documents.

The parties will also exchange checks as outlined by the purchase agreement. Not all closings have only the seller receiving a check. In some cases, the seller might give the buyer a check for a credit or concession, like certain closing or property repair costs. 

Most of the time, any money the seller is to give to the buyer will usually be taken out of the check the seller receives when the property is sold. Additionally, the earnest money at closing will be applied or credited as outlined in the purchase agreement.

Lastly, the buyer will receive the keys and any other items necessary for the property, like an alarm system remote or a garage door opener.

Something to keep in mind about residential closing costs: The amount normally depends on the type of property and the home's location, but the costs average between 2%-5% of the total price of the home. While this percentage might seem small, it still usually comes out to thousands of dollars. 

In short, buying or selling your home is one of the largest financial decisions you'll make. The purchase agreement isn't just paperwork — it's a binding contract that affects your finances, time, and legal rights.  

In the rush of negotiations and closing deadlines, misunderstanding a contingency or a clause can cost you thousands of dollars. This is why understanding what you’re signing is so important. Having a lawyer review your agreement can provide the clarity and confidence you need to sign. 

Work with LegalShield on your real estate purchase agreement 

A LegalShield provider law firm can offer legal advice on real estate matters and provide legal reviews of your personal documents. They can read the fine print to ensure your legal documents protect your best interests before you sign.  

Plus, advanced LegalShield plans offer Residential Loan Document Assistance to help review mortgage documents and Tenant Lease Assistance. 

Buying or selling real estate is a big deal. Keep up with real estate industry changes to protect your rights and avoid unpleasant surprises. Explore more of LegalShield’s Real Estate services.