When buying a home, there’s a lot of important paperwork to complete before you can call it yours. One key document is the purchase and sale agreement.
We’ll explain what a purchase and sale agreement is, what it includes, and what happens next. Read on to learn more about this crucial part of a real estate transaction.
What is a purchase and sale agreement?
A purchase and sale agreement (PSA or P&S) is the document you receive after an offer is accepted. It outlines the final sale price and all the terms of the purchase in a real estate transaction. A PSA can vary by state but usually includes the final sale price, earnest money details, closing date, title information, and contingencies. It also specifies timelines for inspections, securing financing, the closing date, and any other deadlines or requests from the buyer or seller.
Purchase and sale agreement vs. purchase agreement
Purchase and Sale Agreement (PSA): This document outlines the terms and conditions agreed upon by the buyer and seller. It includes the final sale price, earnest money, timelines for inspections and financing, contingencies, and the closing date. Both parties sign the PSA to show they accept these terms.
Purchase Agreement: This is the final paperwork that both parties sign to complete the sale of the home. Once all the terms in the PSA are met, the purchase agreement is signed, finalizing the transaction.
What does the PSA consist of?
The specific items in this contract vary by state, but will almost always include the following:
1. Final sale price
The PSA includes the purchase price agreed upon by the buyer and seller. This price might change during negotiations before the closing date. For example, if a home inspection reveals a problem, the buyer may negotiate a lower purchase price.
2. Earnest money details
The purchase and sale agreement will include details about the earnest money deposit, such as the amount and how to make the deposit. Typically, the buyer will need to provide a personal or cashier’s check, which is held by a neutral third party, such as an escrow company, title company, or law firm. This deposit usually needs to be made within one to three days of both parties agreeing on the terms.
3. Closing date
The closing date will be listed in the purchase and sale agreement (PSA). On this date, the property transfer is officially recorded with the local government, and the seller gets paid for the home. Although the closing date is set in the PSA, it can change if unexpected issues arise, such as delays in financial paperwork.
4. Title company
The purchase and sale agreement will include details about the title company. As the buyer, you have the right to choose your own title company. If you have questions about selecting one, consult your agent or attorney for guidance.
5. Title condition
The purchase and sale agreement will include a commitment from the seller to provide a clear or marketable title of ownership to the buyer.
6. Contingencies
Contingencies are conditions that must be met for the home purchase to go through. If a contingency isn’t met, the buyer or seller can cancel the sale. Here are some common examples of contingencies.
Purchase and sale agreement FAQs
Who writes the purchase and sale agreement?
The contract will be drafted by either the buyer’s agent or a real estate attorney, depending on the state. In states where escrow agents manage the closing process, the buyer’s agent prepares the PSA document. In states where attorneys handle the closing, the attorneys prepare the document. The buyer, seller, and their agents will all sign the document.
Who pays for the purchase and sale agreement?
Typically, the costs for preparing the purchase and sale agreement are the buyer’s responsibility. Since it’s considered a closing cost, the buyer and seller can negotiate to share the expense. Sometimes, sellers may agree to cover part of the cost as an incentive for the buyer.
Are PSAs legally binding?
Purchase and sale agreements are legally binding contracts. If any party fails to meet their obligations, legal action or lawsuits may be pursued to recover damages. Having a real estate lawyer review the PSA can help reduce the risk of violating its terms.
What happens after the purchase and sale agreement?
After the buyer and seller sign the PSA and the earnest money is deposited, the buyer and third-party companies will start home inspections, title searches, loan agreements, and any other tasks outlined in the agreement. Finalizing the purchase and sale agreement can take several weeks, as issues might arise during inspections. The buyer will sign the purchase agreement at the closing.