A real estate purchase agreement needs to lock down every material term of the sale in writing: the parties, a legal description of the property, the price, the earnest money, how the buyer is paying, the contingencies and their deadlines, required disclosures, which items convey with the home, the closing date and cost split, the type of deed, and what happens if either side defaults. Knowing what to include in a real estate purchase agreement matters because anything left out, or left vague, is something you cannot enforce later.
Why the Agreement Has to Be in Writing
Every state enforces some version of the Statute of Frauds, which requires real estate contracts to be in writing and signed by the parties. A verbal agreement to buy or sell property is not enforceable in court, no matter how specific the conversation was or how many witnesses heard it. Every term discussed during negotiations only counts if it ends up in the signed purchase agreement or a written addendum. If you shake hands on a repair credit or an extended closing date and never put it on paper, you have no legal recourse if the other side changes their mind.
The Parties and the Property
List the full legal name of every buyer and seller, along with contact information. When a trust, LLC, or corporation is involved, both the entity name and the name of the authorized signer need to appear. Getting this wrong creates problems at closing and can cloud the title later.
Identify the property by its legal description, not just the street address. A legal description references the recorded plat, lot and block numbers, or a metes-and-bounds survey that precisely defines the boundaries. Street addresses can be ambiguous, especially with subdivided lots or properties that share a parcel. The legal description is what gets recorded with the deed, so it has to be exact.
Price, Earnest Money, and Financing Terms
The purchase price is the anchor of the contract. Alongside it, the agreement should spell out the earnest money deposit, typically 1% to 3% of the sale price. Earnest money signals the buyer’s serious intent and is usually held in escrow by a title company, attorney, or broker. If the deal closes, the deposit is credited toward the buyer’s down payment or closing costs. If the buyer walks without a valid contingency, the seller may be entitled to keep it.
Payment method matters as much as amount. State whether the buyer is paying cash, using a conventional mortgage, or relying on a government-backed loan such as FHA or VA financing. For financed purchases, include the loan amount, interest rate range, and a deadline for securing approval. Seller financing arrangements need their own terms: interest rate, repayment schedule, and what happens on default.
Contingencies and Their Deadlines
Contingencies are conditions that must be met before the sale becomes final. They give the protected party a legitimate exit if specific problems surface, and they usually allow recovery of the earnest money if invoked properly. The four that belong in almost every residential contract are:
- Inspection contingency. Gives the buyer a window, usually 7 to 14 days, to hire professionals to examine the structure, systems, and overall condition. If something serious turns up, the buyer can negotiate repairs or a price reduction, ask for a closing credit, or cancel. Sellers sometimes counter with a right to cure, meaning they fix the problem rather than lower the price.
- Appraisal contingency. Protects the buyer if a licensed appraiser values the property below the agreed price. Lenders will not finance more than appraised value, so without this clause the buyer would have to cover the gap in cash. When an appraisal comes in low, the parties can renegotiate, the buyer can bring additional cash, or either side can cancel.
- Financing contingency. Makes the sale conditional on the buyer actually getting approved for a mortgage by a specific date. If the lender denies the loan, this contingency lets the buyer exit without losing the deposit. Waiving it, which some buyers do in competitive markets, means you are on the hook even if your financing collapses.
- Title contingency. Lets the buyer review the title report and object to any liens, easements, boundary disputes, or other encumbrances that were not disclosed. If a title defect cannot be resolved before closing, the buyer can cancel. Unpaid tax liens and old contractor claims tend to surface here.
Every contingency should carry a specific deadline. Language like “a reasonable time” invites disagreement. The agreement should also state what happens if a deadline passes without the buyer formally waiving or invoking the contingency, because the default outcome varies from one contract form to another.
Required Seller Disclosures
Nearly every state requires sellers to disclose known material defects before closing. The scope varies. Some states mandate detailed forms covering roof leaks, foundation cracks, and neighborhood nuisances. Others require only basic information about the age of the home and the condition of major systems. A few follow a strict “buyer beware” approach with minimal disclosure rules. Everywhere, sellers are prohibited from actively concealing known defects.
Lead-Based Paint on Pre-1978 Homes
For any home built before 1978, federal law adds a separate layer of mandatory disclosure. Under the Residential Lead-Based Paint Hazard Reduction Act, the seller must disclose any known presence of lead-based paint or related hazards, hand over any available inspection reports, and provide the buyer with the EPA pamphlet “Protect Your Family From Lead in Your Home.”1Office of the Law Revision Counsel. 42 USC 4852d – Disclosure of Information Concerning Lead Upon Transfer of Residential Property The buyer also gets a 10-day window to conduct a lead paint inspection or risk assessment before becoming obligated under the contract, though both parties can agree to a different timeframe.2U.S. Environmental Protection Agency. Lead-Based Paint Disclosure Rule Section 1018 of Title X
The purchase agreement itself must contain a Lead Warning Statement and a signed acknowledgment from the buyer confirming they received the pamphlet and had the opportunity to inspect.1Office of the Law Revision Counsel. 42 USC 4852d – Disclosure of Information Concerning Lead Upon Transfer of Residential Property The requirement reaches the seller, the listing agent, and any property manager involved. Exemptions exist for homes built after 1977, certain housing for the elderly, short-term rentals of 100 days or less, and foreclosure sales.
What Stays With the House
Few things cause more post-closing arguments than disagreements about what stays. The agreement should state exactly which items convey and which the seller is taking. Fixtures are items permanently attached to the structure: built-in shelving, ceiling fans, light fixtures, mounted TVs with integrated wiring, and built-in appliances like dishwashers and cooktops. These typically transfer unless the contract says otherwise.
Personal property is different. Freestanding refrigerators, washers, dryers, and window treatments are not automatically included. If you want them, list them. The same goes for outdoor items like storage sheds, swing sets, and patio furniture. Anything the seller plans to exclude, especially items a buyer might reasonably assume are staying, should be called out explicitly.
Some agreements also include a home warranty, an optional service contract that covers repair or replacement of major systems and appliances for a set period after closing. Either party can agree to pay for it. Sellers sometimes offer one as an incentive on older homes to reduce the risk of post-sale disputes.
Closing Date, Possession, Deed, and Costs
Set a specific closing date. This is the day the deed transfers, funds change hands, and the transaction is recorded. Many contracts add a “time is of the essence” clause, which means missing the closing deadline qualifies as a material breach that can let the other party cancel or pursue damages.
The agreement should also say when physical possession transfers. In most transactions the buyer gets the keys at closing, but sometimes the seller negotiates a rent-back period for a few days or weeks. If so, the agreement should specify the daily rate, the security deposit, and what happens if the seller does not vacate on time.
Deed Type
The type of deed the seller will deliver affects the buyer’s level of protection. A general warranty deed provides the strongest guarantee: the seller promises the title is free of liens and claims, and the promise extends back through the entire chain of ownership. A special warranty deed limits that guarantee to the period the seller owned the property. A quitclaim deed offers the least protection; it simply transfers whatever interest the seller has, with no guarantees about the title. Quitclaim deeds are common in transfers between family members or divorcing spouses but are rarely appropriate for arm’s-length sales.
Closing Costs and Prorations
Spell out who pays for what. Common expenses include title search fees, title insurance premiums, escrow fees, recording fees, and transfer taxes. The split is negotiable and norms vary by region. Lenders require a lender’s title insurance policy as a condition of the loan, and that cost typically falls on the buyer.3Consumer Financial Protection Bureau. What Is Lenders Title Insurance An owner’s title insurance policy, which protects the buyer’s equity rather than the lender’s investment, is optional but worth considering.
Property taxes, HOA dues, and utility bills do not pause for a real estate closing. The agreement should explain how recurring expenses are prorated based on the closing date. The seller covers their share of the year up through closing and the buyer picks up the rest. If the current year’s tax bill has not been issued, proration is usually based on the prior year’s amount with an adjustment once the actual bill arrives. Any delinquent taxes owed by the seller should be paid from the seller’s proceeds at closing to clear the title.
FIRPTA Certification for Foreign Sellers
If the seller is a foreign person or entity, federal law requires the buyer to withhold 15% of the sale price and remit it to the IRS.4Office of the Law Revision Counsel. 26 USC 1445 – Withholding of Tax on Dispositions of United States Real Property Interests A reduced rate of 10% applies when the buyer intends to use the property as a personal residence and the sale price is $1,000,000 or less. No withholding is required if the property will be the buyer’s residence and the sale price does not exceed $300,000.5Internal Revenue Service. FIRPTA Withholding Include a certification in the agreement where the seller states whether they are a U.S. person or a foreign person. The buyer carries personal liability for the withholding amount if it is not properly handled.
Default and Remedies
A sound agreement describes what happens when someone breaks the contract. Available remedies depend on the drafting and on which party defaults.
When a buyer defaults by backing out without a valid contingency or failing to close, the most common remedy is a liquidated damages clause. It typically limits the seller’s recovery to the earnest money deposit, which stands in as a pre-agreed estimate of losses. The clause benefits both sides: the seller keeps the deposit without having to prove actual losses in court, and the buyer’s exposure is capped rather than open-ended.
When a seller defaults by refusing to close or selling to someone else, the buyer’s primary remedy is often specific performance, a court order compelling the seller to go through with the sale. Courts generally allow specific performance in real estate because every property is considered unique, which makes money damages an inadequate substitute. The buyer can also pursue money damages or cancel the contract and recover the earnest money along with documented expenses.
Some contracts include a “restricted remedies” provision that narrows either party to specific types of relief. Read these clauses carefully. They control what you can actually do if things go wrong, regardless of what a court might otherwise allow.
Dispute Resolution
Many purchase agreements specify how disputes will be handled. Mediation uses a neutral third party to help both sides negotiate; it is non-binding but tends to be faster and cheaper than court. Arbitration is more formal: an arbitrator hears both sides and issues a binding decision with very limited rights of appeal. Litigation is the default if the agreement does not say otherwise.
Some contracts require mediation first and allow arbitration or court only after it fails. Others send everything to binding arbitration. Pay attention to what you are signing. An arbitration clause means you are giving up your right to a jury trial, which may or may not be in your interest depending on the circumstances.
Amendments and Hard Deadlines
Negotiations rarely end when the initial agreement is signed. Inspection results, appraisal surprises, and lender requirements often trigger changes. Every modification should be documented in a written addendum signed by all parties. Verbal changes are not enforceable for real estate contracts, and casual text messages or emails can create confusion about whether a modification was actually agreed to.
An addendum should reference the original agreement, describe the specific change, and be signed before the relevant deadline passes. Common ones include repair agreements after inspection, price reductions following a low appraisal, and closing date extensions when financing takes longer than expected.
Review every deadline before signing. Contracts with a “time is of the essence” clause treat every date as a hard deadline. Missing one, even by a day, can give the other party grounds to terminate. If you anticipate needing more time for any step, negotiate a longer period upfront rather than assuming extensions will be granted later.