Often called the "earnest money agreement," a Purchase and Sale
Agreement is prepared to specify all the terms and conditions of the transaction
This document is the "blueprint" for the transaction and states the price and
terms under which the purchaser is obligated to buy and the seller is obligated
to sell. It is a legally binding contract that establishes the respective rights
and responsibilities of the purchaser and seller. An agreement for the sale of
real estate is void and unenforceable unless it is in writing and signed by the
buyer and seller. The buyer often makes a deposit, known as an earnest money deposit.
This "evidence of good faith" is usually in the form of a cash deposit. The amount
can vary and the deposit is usually applied to the down payment obligation or
to the buyer's share of the closing costs.
The importance of the Purchase and Sale Agreement cannot be overstated, and
it is advisable to have a lawyer review the document prior to its being signed.
If this is not possible, a condition can be included to provide that the transaction
is "subject to the approval of the purchaser's (and/or seller's) lawyer within
(a specified number) days." The degree of an attorney's involvement may vary,
depending on the complexity of the transaction.
A purchaser may lose his or her deposit and be liable for damages or specific
performance if an agreement is signed and he or she fails to abide by its terms.
A seller who fails to perform after signing the agreement may also be liable
for damages or a specific performance lawsuit.
A preprinted form is most frequently used for purchase and sale agreements,
with specific terms added by completing blanks on the form. A specially prepared
agreement or addendum may also be used in place of or to supplement a preprinted
contract.
Since each transaction differs in size and complexity, it is not possible
to summarize all items that should be considered for each agreement. However,
in addition to naming the parties, price and terms of the purchase, this important
document should also include such items as:
- Legal description of the property;
- Condition of title (or legal right to ownership) and assumed debt;
- Warranties of title (restrictions, rights, or limitations);
- Condition of property and of zoning or use rights (if applicable);
- Prorations of taxes, special assessments, obligations and prorations regarding
insurance premiums;
- Stipulation of who bears costs for such items as transfer fees, state revenue
stamps, etc.;
- Financing, if it is a contingency of the purchase;
- Complete terms and documents to be used if the seller is supplying financing
and receiving security for such financing (with copies of any such documents
attached);
- Items of furnishings, fixtures or appliances to be included or excluded;
- Right of inspection (if any) given the purchaser;
- Date of possession;
- Conditions under which an offer may be canceled, as well as provisions
for return or forfeiture of the deposit.
