A real estate purchase agreement is the written contract that sets the full terms of a home sale: who is buying, who is selling, which property is changing hands, the price, how the buyer will pay, what has to happen before closing, and what each side owes the other if the deal falls apart. Every state requires these contracts to be in writing under the Statute of Frauds, so a verbal promise about a real estate deal is unenforceable no matter how specific it was. Once both parties sign, the document controls the transaction from offer to closing.
What the Contract Has to Contain
The agreement locks in the full legal names and contact information of buyer and seller, and it describes the property in a way a street address alone can’t. The legal description from the deed or county records (lot numbers, subdivision names, or metes-and-bounds references) goes in so there is no ambiguity about what land is being sold.
The contract also specifies how the buyer will hold title. Joint tenancy gives co-owners equal shares with an automatic right of survivorship, so if one owner dies the other inherits the share without probate. Tenancy in common lets co-owners hold unequal shares and leave their portion to whoever they choose. The wrong choice can create real problems later, so this is worth raising with an attorney before you sign.
From there the agreement sets the purchase price, the method of payment (cash, conventional mortgage, FHA or VA loan, seller financing), the closing date, and which items stay with the property. That last point trips people up more often than you’d expect. Appliances, window treatments, light fixtures, and a wall-mounted TV can become sticking points if the contract doesn’t say whether they’re included.
Who Writes the Agreement
In most states, the buyer’s real estate agent fills in a standardized purchase agreement form published by the state or local realtor association. The forms cover the common terms and contingencies, and agents customize them by selecting options and filling in blanks. In a handful of states, including New York and Connecticut, an attorney must prepare or review the contract. Even where it is not required, having a real estate attorney look at the agreement before you sign is worth the cost, especially if the deal involves unusual terms, commercial property, or a for-sale-by-owner transaction with no agent.
Some states also provide an attorney review period after signing, usually three to five business days. During that window, either party’s attorney can propose changes, request modifications, or cancel the contract outright. If your state offers this protection, treat it as a real opportunity to have the fine print examined.
Earnest Money and Where It Sits
Earnest money is the deposit the buyer puts down after signing to show the offer is serious. The amount usually runs between 1% and 3% of the purchase price, though in competitive markets buyers sometimes offer more. On a $400,000 home, that is roughly $4,000 to $12,000.
The deposit does not go to the seller. A neutral third party, usually a title company, escrow agent, or the seller’s brokerage, holds it in escrow until closing. If the deal closes normally, the earnest money is credited toward the buyer’s down payment or closing costs. If the deal falls apart for a reason covered by one of the contract’s contingencies, the buyer gets the deposit back.
Where it gets complicated is when the deal collapses outside of a contingency. Many purchase agreements include a liquidated damages clause: if the buyer defaults, the seller keeps the earnest money and the matter is settled. Some contracts give the seller a choice between keeping the deposit and suing for actual damages. Either way, the escrow agent will not release the funds until both parties agree in writing on who gets the money, or a court or arbitrator decides.
Contingencies: The Exit Ramps
Contingencies are conditions in the contract that must be satisfied before the sale is final. They function as exit ramps: if a contingency isn’t met within its deadline, the protected party can back out and typically recover the earnest money. Waiving contingencies makes an offer more attractive to sellers but increases the buyer’s risk sharply.
Financing Contingency
Gives the buyer a set number of days to secure mortgage approval. If the lender denies the loan or the buyer can’t lock acceptable terms in the window, the buyer can cancel without forfeiting the deposit. Sellers prefer cash offers or buyers with strong pre-approval letters because a financing contingency means the deal could unravel weeks in.
Inspection Contingency
Gives the buyer the right to hire a professional home inspector, usually within 7 to 14 days of signing. If the inspection turns up serious problems like foundation cracks, faulty wiring, or a failing roof, the buyer can ask the seller to make repairs, negotiate a price reduction, or walk away. A lot of deals get renegotiated here, because inspectors almost always find something and the question becomes which issues are dealbreakers and which are the cost of owning a home.
Appraisal Contingency
Protects the buyer if the home appraises for less than the agreed price. Lenders base their loan amount on the appraised value, not the contract price, so a low appraisal creates an immediate funding gap. With this contingency in place, the buyer can renegotiate the price, cover the difference out of pocket, or cancel. In hot markets, some buyers waive this protection to compete, which means committing to pay a price that may exceed what any lender will finance.
Title Contingency
Makes the sale conditional on the buyer receiving clear, marketable title: no liens, ownership disputes, or legal claims that could threaten the buyer’s rights. A title company searches public records for problems like unpaid tax liens, outstanding mortgages from previous owners, easements, or boundary disputes. If the search uncovers a defect the seller can’t resolve, the buyer can cancel. Title insurance then protects the buyer against defects that didn’t show up in the records.
Sale of Prior Home Contingency
Makes the purchase dependent on the buyer selling their current house within a specified timeframe. Sellers view this warily because it introduces a variable completely outside their control. Many will accept a competing offer with a “kick-out clause” that gives the original buyer 48 to 72 hours to drop the contingency or lose the deal.
Seller Disclosures
Most states require sellers to fill out a property condition disclosure form covering what they know about the home: structural defects, water damage, pest infestations, plumbing and electrical problems, environmental hazards, and similar issues. The specifics vary by state, but the principle is consistent. Sellers must disclose known material defects that a buyer wouldn’t reasonably discover on their own, and hiding a problem can expose the seller to a lawsuit even after closing.
One disclosure requirement is federal. For any home built before 1978, the seller must disclose known lead-based paint hazards, provide any available inspection reports, include a Lead Warning Statement in the contract, and give the buyer a copy of the EPA’s lead safety pamphlet before the contract is signed. Asbestos has no equivalent federal mandate, though some state or local laws may require disclosure.
An “as-is” clause means the seller won’t make repairs or reduce the price based on condition, but it does not eliminate the seller’s duty to disclose known defects. A seller who actively hides a defect or lies about the property’s condition can still face liability regardless of any as-is language.
Closing Costs and Prorations
The agreement typically addresses how closing costs are divided. Customs vary by region and everything is negotiable, but the general pattern looks like this:
- Seller usually pays the owner’s title insurance policy, transfer taxes, deed preparation, and real estate agent commissions.
- Buyer usually pays lender fees (origination, underwriting, credit report), the appraisal, the lender’s title insurance policy, and prepaid items like homeowner’s insurance and property tax escrow.
- Escrow fees, recording fees, and prorated property taxes or HOA dues are often split or negotiated.
In some deals the seller agrees to a closing cost credit, covering a set dollar amount of the buyer’s costs to reduce the cash the buyer needs at closing. This is common with first-time buyers or in slower markets, and the contract should spell out the exact amount and which costs it applies to. The agreement also usually handles prorations: dividing ongoing costs like property taxes and utility bills based on the closing date so each party pays for the time they owned the property.
Clauses That Carry More Weight Than They Look
A “time is of the essence” clause means every deadline is strictly enforced. Missing one by even a day can be treated as a material breach and give the other party grounds to cancel. Not every purchase agreement includes this language, but when it’s there, treat every date as a hard deadline.
Dispute resolution clauses decide what happens if the two sides end up in a legal fight. Some contracts require mediation first, followed by binding arbitration if mediation fails. Arbitration is faster and more private than a courtroom trial, but appeal rights are limited: if the arbitrator gets it wrong, you’re generally stuck with the result. Read this section carefully, because agreeing to mandatory arbitration means giving up the right to a jury trial.
Changing the Agreement After Signing
Once both parties sign, the contract can only be changed if both sides agree. Any modification, whether pushing back the closing date, adjusting the price after an inspection, or adding a new contingency, has to be in writing through a formal addendum signed by both buyer and seller. Verbal agreements to change terms are unenforceable.
Addenda are common in practice. Home inspections generate repair requests, appraisals come in low, closing dates shift because of lender delays. Each change gets its own addendum, which becomes part of the original contract. A typical transaction might generate two or three before closing.
How the Contract Ends
A purchase agreement can end in several ways, and the route matters because it decides who keeps the earnest money and whether anyone faces legal exposure.
- Contingency failure: if a contingency isn’t satisfied within its deadline, the protected party can cancel and the buyer’s deposit is returned.
- Mutual rescission: both sides can agree to tear up the contract at any time, usually through a written mutual release that specifies how the earnest money is handled.
- Breach by one party: if the seller refuses to close or can’t deliver clear title, or if the buyer walks away without a valid contingency, the non-breaching party has remedies.
- Expiration of deadlines: in contracts with a “time is of the essence” clause, missing a critical deadline can automatically terminate the agreement or give the other party the right to do so.
What Breach Actually Costs
When a buyer breaches by backing out without a valid contingency, the seller’s most common remedy is keeping the earnest money as liquidated damages. The contract usually spells this out, and courts generally enforce these provisions as long as the deposit was reasonable relative to the purchase price.
When a seller breaches, the buyer has broader options. The buyer can sue for specific performance, a court order forcing the seller to go through with the sale. Courts grant this remedy in real estate cases more readily than in other contract disputes, because every piece of property is considered unique and money alone can’t truly replace the specific home the buyer contracted to buy. To win, the buyer needs to show there was a valid contract, they were ready and able to close, and the seller refused without legal justification. Buyers pursuing this route typically file a notice called a lis pendens against the property, which clouds the title and prevents the seller from selling to someone else while the lawsuit is pending.
The buyer can instead seek monetary damages for expenses incurred in reliance on the contract: inspection costs, appraisal fees, loan application charges, and sometimes the difference between the contract price and the cost of a comparable property. Which path makes sense depends on whether the buyer still wants the house or just wants to be made whole.