It’s always a good idea to have a written purchase agreement when engaging in a transaction to buy or sell real estate. Purchase and sales agreement forms (“PSA” or “PA” for short) are written contracts between buyer and seller outlining their agreement to exchange money for real estate, along with other legal obligations. A purchase contract should identify the parties to the agreement, the property (preferably by legal description but at least by street address, a drawing indicating a portion of a larger identified property, or some other clear means of indicating exactly what real estate is being sold), and the purchase price, and it should be signed and dated by the buyer and seller. This agreement serves to protect the interests of each of the parties to the transaction as they sort through matters such as inspections, title searches, financing, surveying, and other items that may be necessary to be able to close.
A good purchase contract also describes the terms of application of earnest money, due diligence periods, payment of closing costs, matters of title, applicable prorations, representations and warranties of each party, the type of title to be conveyed, the method of notifying the other party of intent to terminate the agreement if applicable, and an expiration date for the contract. A very good purchase contract also defines, among other things, the duties of the escrow agent holding the earnest money, describes the consequences for unexpected findings during the due diligence period, any contingencies required by either party in order to be able to close, penalties for default, the rights of each party in the event of damage, destruction or condemnation of the property, and even whether a party might be entitled to more time to get ready to close. Once a deed is delivered in exchange for payment, the representations, warranties and other covenants described in the purchase contract cease to apply.