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Real Estate Purchase Agreement

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Seller Initials ____________  Buyer Initials ____________ Page of

Real Estate Purchase Agreement for Virginia

THIS SALES AGREEMENT (the "Agreement") dated this ________ day of ________________, ________ (the "Execution Date")

BETWEEN :

_______________
(the "Seller")

OF THE FIRST PART

-AND-

_______________
(the "Buyer")

OF THE SECOND PART

BACKGROUND
The Seller wishes to sell a certain completed home and the Buyer wishes to purchase this completed home.

IN CONSIDERATION OF and as a condition of the Seller selling the Property and the Buyer purchasing the Property and other valuable consideration, the receipt and sufficiency of which consideration is acknowledged here, the parties to this Agreement (individually the "Party" and collectively the "Parties") agree as follows:

  1. Property
  2. The property is situated at _________________________________ and the legal description of the property is as follows: _________________________________________________________________________________, which includes fixtures and improvements located on the property and all rights, privileges and appurtenances associated with it, including but not limited to permits, easements, and cooperative and association memberships (the "Property").
  3. The Seller agrees to sell and convey to the Buyer and the Buyer agrees to purchase from the Seller the Property.
  4. Purchase Price
  5. The purchase price for the Property (the "Purchase Price") will be paid as follows:
    1. earnest money payable after the Effective Date of this Agreement is: $____________;
    2. excluding any loan funding fee or mortgage insurance premium, the sum of all financing is: $____________; and
    3. the total Purchase Price payable is: $____________.
  6. Financing Terms
  7. The portion of the Purchase Price not payable in cash by the Buyer amounts to $____________ and it will be paid by one or more third party mortgage or deed of trust loans. The terms of the Third Party Financing Addendum are incorporated into this Agreement by reference.
  8. This Agreement is subject to the Buyer being approved for all financing as described in the attached Third Party Financing Addendum within thirty days from the Effective Date of this Agreement (the "Financing Period"). Either party may cancel this Agreement if the Buyer cannot obtain adequate financing within the Financing Period despite due diligence and good faith on the part of the Buyer or if the Buyer cannot satisfy the terms of the financing commitment by the Closing Date.
  9. Earnest Money
  10. The Buyer will deposit $____________ as earnest money at ____________________ with ____________________ acting as escrow agent (the "Escrow Agent"), on or before ________________ ____, ________. Failure to deposit the earnest money as provided in this clause will result in the Buyer being in default under this Agreement.
  11. Title Policy
  12. At the Buyer's option, and at the Seller's expense, the Seller will furnish to the Buyer a title guaranty policy guaranteeing good title to the Property, or an owner's policy of title insurance, insuring and indemnifying the Buyer against loss (the "Title Policy"), issued from a general title company (the "Title Company") in the amount of the Purchase Price dated as of the date that the sale of the Property becomes final and the Buyer takes possession (the "Closing Date"), subject to the following exceptions (collectively, the "Title Exceptions"): building and zoning ordinances; standard utility easements; standard riparian matters; common restrictive covenants relating to platted subdivision; oil, gas and mineral rights; taxes, mortgages or deeds of trust and assessments which the Buyer will be assuming; discrepancies in regards to shortages in area or boundary lines; and liens created as part of the financing for the Buyer.
  13. Commitment
  14. At the Seller's cost, the Seller will furnish or cause to be furnished to the Buyer a commitment to issue the Title Policy requested by the Buyer (the "Commitment") and copies of restrictive covenants and documents evidencing exceptions in the Commitment (the "Exception Documents") other than the standard printed exceptions. The Seller hereby authorizes the Title Company to deliver the Commitment and Exception Documents to the Buyer's address provided in this Agreement.
  15. Property Survey
  16. Prior to the Closing Date the Seller will deliver the Seller's existing property survey to the Buyer and to the Title Company, along with the Seller's affidavit in relation to the Title Company's approval of the survey. This survey must have been completed within the past year. If the survey is not approved by the Title Company or the Buyer's lender, a new survey, the cost of which will be shared equally by the Buyer and Seller, will be obtained at least seven days prior to the Closing Date.
  17. Objections and Cure
  18. The Buyer may submit a written objection, within 10 days after the Buyer receives the Commitment, and Exception Documents, in relation to any defects, exceptions or encumbrances to title which makes the title unmarketable, excluding the Title Exceptions.
  19. With the exception of the requirements in the Commitment which are not waived, if the Buyer fails to provide a written objection within the allowed time, it will constitute as a waiver on the part of the Buyer to object. Any timely objections by either the Buyer or any third party lender must be cured by the Seller, at the Seller's expense, prior to closing and the Closing Date will be delayed as necessary. If the objections are not cured, this Agreement will terminate and the earnest money will be refunded to the Buyer within ten days unless the Buyer has waived the objections in writing and elected to close the sale and accept the title with the existing defect.
  20. Real Property Disclosure
  21. SELLER'S DISCLOSURE: The Seller does not know of any material facts that would affect the value of the Property, except those observable by the Buyer or any known to the Seller which are disclosed in this Agreement and the attached addenda.
  22. STATUTORY DISCLOSURES: The Seller is responsible to furnish the Buyer with the following disclosures and items as soon as practicable before the signing of this Agreement:
    1. Lead-Based Paint Disclosure and a copy of the pamphlet titled "Protect Your Family From Lead in Your Home" from the EPA; and
    2. Residential Property Disclosure Statement.
  23. MANDATORY OWNERS' ASSOCIATION MEMBERSHIP: The Property is not subject to Virginia Homeowners Association Act.
  24. LEAD WARNING STATEMENT AND DISCLOSURE: Every purchaser of any interest in residential real property on which a residential dwelling was built prior to 1978 is notified that such property may present exposure to lead from lead-based paint that may place young children at risk of developing lead poisoning. Lead poisoning in young children may produce permanent neurological damage, including learning disabilities, reduced intelligence quotient, behavioral problems, and impaired memory. Lead poisoning also poses a particular risk to pregnant women. The seller of any interest in residential real property is required to provide the buyer with any information on lead-based paint hazards from risk assessments or inspections in the seller’s possession and notify the buyer of any known lead-based paint hazards. A risk assessment or inspection for possible lead-based paint hazards is recommended prior to purchase.

    The Seller will disclose all known lead hazards in the attached lead disclosure as well as furnish to the Buyer a copy of the pamphlet titled "Protect Your Family From Lead in Your Home" from the EPA and any available report on lead in relation to the Property. The Buyer at its sole cost, will be given at least ten days to inspect the Property in relation to lead hazards. This ten day period may be lengthened, shortened, or waived by mutual written consent of the Parties.
  25. COUNTY DISCLOSURE: The Seller is responsible for satisfying any local disclosure requirements prior to the signing of this Agreement. Please consult the local county department in which the Property is situated and/or a local real estate attorney to ensure compliance has been met.
  26. Property Access and Inspection
  27. The Buyer may, at its sole cost, select inspectors and pest controllers licensed to practice within Virginia or any lawful agent authorized to make inspections to inspect the Property. The Buyer will deliver to the Seller a written notice of any defects in addition to a copy of the inspection report within ten days after the inspection. At all reasonable times, the Seller is to permit the Buyer or its agents access to the Property for the purpose of inspection and will pay for turning on existing utilities.
  28. Property Condition
  29. The Buyer accepts the Property in its current state and condition without any further work, repairs, treatments or improvements.
  30. Warranties
  31. The Seller makes no express warranties aside from those expressly described in this Agreement or the attached addenda. Upon closing, the Seller agrees to assign all manufacturer warranties that are assignable to the Buyer.
  32. Lender Required Repairs
  33. Neither the Seller nor the Buyer is obligated to pay for any lender required repairs or remediations, unless both Parties agreed in writing.  If repairs will exceed five percent, the lender has the sole option to terminate the agreement.  If the Parties cannot come to an agreement for the lender required repairs or remediations, this Agreement will terminate and the earnest money will be refunded to the Buyer within ten days of the receipt of the written notice.
  34. Completion of Repairs and Improvements
  35. The Seller will complete all agreed work, repairs, treatments, and improvements (the "Work") prior to the Closing Date unless both Parties agree otherwise in writing. The Work to be completed must be done by individuals who are licensed to perform such tasks and all required permits and regulations must be obtained and observed. Any transferable warranties received by the Seller for completed Work will be transferred to the Buyer at closing. If the Seller fails to complete the Work prior to the Closing Date, the Buyer may elect to complete the said Work and the Buyer will be entitled to claim reimbursement for the Work from the Seller upon closing.
  36. Closing
  37. The Closing Date will be on or before December 1st, 2022 or be within seven days after objections revealed from the Commitment or survey have been cured, whichever date is later. In the absence of legal excuse, the failure to close the sale on the Closing Date by either Party will enable the non-defaulting party to pursue any remedies on default provided in this Agreement.
  38. Upon closing, the Seller will execute and deliver to the Buyer a general warranty deed which has title to the Property and shows no further exceptions to title of the Property except the Title Exceptions, and furnish a current tax statement which shows no delinquent taxes on the Property.
  39. The Buyer will pay the Purchase Price in good funds acceptable to the Escrow Agent.
  40. Any notices, statements, certificates, affidavits, releases, loan documents and other documents required by this Agreement, by the Commitment or by law which is necessary for the closing of the sale or the issuance of the Title Policy must be promptly executed and delivered by the Seller and the Buyer.
  41. All covenants, representations and warranties in this Agreement will survive closing and may be enforced.
  42. Possession
  43. Possession of the Property in its current or required state, ordinary wear and tear excepted, will be delivered by the Seller to the Buyer upon proper funding at closing. A tenancy at sufferance relationship will be created between the Parties where there is no authorized written lease agreement and either the Buyer has possession prior to closing or the Seller has possession after closing. The Parties should consult their respective insurance agent and are responsible to ensure adequate coverage exists upon the transfer of ownership and possession.
  44. Settlement and Other Expenses
  45. Unless both Parties otherwise agree in writing, the following expenses payable by the Seller (the "Seller's Expenses") must be paid at or prior to closing:
    1. All existing liens; prepayment penalties; recording fees; lender, tax statements or certificates; preparation of deed; half of escrow fee; title expense, and all expenses payable by the Seller under this Agreement must be released or discharged accordingly.
  46. The following expenses payable by the Buyer (the "Buyer's Expenses") must be paid at or prior to closing:
    1. Loan origination, discount, buy-down, and commitment fees.
    2. All expenses related or incident to any loan, including but not limited to, appraisal fees, application fees, credit reports, loan documents preparation fees, recording fees on notes and mortgages or deeds of trust; as well as recording fees on the deed; financing statements; inspection fees; half of escrow fees; all prepaid items including flood and hazard insurance premiums; documentary stamp tax; and all other expenses payable by the Buyer, necessary to perform the Buyer's obligation under this Agreement must be released or discharged accordingly.
  47. Any Private Mortgage Insurance Premium (the "PMI"), the VA Loan Funding Fee, or the FHA Mortgage Insurance Premium (the "MIP") as required by the lender, must be paid by the Buyer. However, the Buyer may not pay charges and fees expressly prohibited by FHA and VA financing or other governmental loan program regulations.
  48. If any expense to be paid by either Party exceeds the amount expressly stated in this Agreement, the Party responsible for the said exceeding amount may terminate this Agreement unless the other Party agrees to pay the excess amount.
  49. Prorations
  50. The following items will be prorated and adjusted as property as of the Closing Date: any taxes due for the current year, association fees, maintenance fees, assessments, dues, heating tank fuel, utility charges and rents of the Property.  If the tax rate for the current year is unknown, the Parties will use the rate from the previous year plus five percent at closing.  If the tax rate for the previous year is also unknown, the Escrow Agent will estimate an amount to prorate, holdback sufficient funds and adjust the prorated amount when the new tax statements become available.  The Buyer will be obligated to pay the share of the prorated taxes for the current year if the taxes are not paid at or prior to the closing.
  51. Risk of Loss
  52. The Seller will bear all risk of loss to the Property or its improvements, which includes, but is not limited to, physical damage or destruction to the Property, or loss caused by eminent domain, until the Closing Date. If at any point after the Effective Date but prior to closing, any part of the Property is damaged or destroyed, the Seller will restore the Property to its previous condition as soon as possible before the Closing Date, reasonable delays excepted. If the Seller fails to restore the Property due to unforeseeable factors beyond the control of the Seller, the Buyer may elect one of the following:
    1. the Agreement will terminate and the earnest money will be refunded to the Buyer within ten days;
    2. the Closing Date will be extended as necessary to accommodate the performance of restoration; or
    3. at closing, the Property in its damaged state will be accepted and all insurance proceeds will be assigned from the Seller to the Buyer and the Buyer will receive an amount equal to the deductible under the Seller's insurance policy.

    The Seller's obligations under this provision are independent of any obligations of the Seller found under the heading Property Condition.

  53. Remedies on Default
  54. The Buyer will be in default if the Buyer fails to comply with the provisions of this Agreement, upon which, the Seller may:
    1. seek specific performance; or
    2. seek other relief as may be provided by law; or
    3. seek a combination of any or all of the above remedies; or
    4. treat all earnest money as forfeited and the said money be deemed as liquidated damages and the sole remedy for the Seller.
  55. If the Seller, due to factors beyond the control of the Seller, fails to make any non-casualty repairs or deliver the Commitment or survey as required, the Buyer may:
    1. extend the performance time and the Closing Date as necessary; or
    2. terminate this Agreement and the earnest money will be refunded to the Buyer within ten days as the sole remedy.
  56. The Seller will be in default if the Seller fails to comply with the provisions of this Agreement, upon which, the Buyer may:
    1. seek specific performance; or
    2. seek such other relief as may be provided by law; or
    3. a combination of any or all of the above remedies; or
    4. treat this Agreement as terminated and receive the earnest money within ten days of cancellation.
  57. Escrow
  58. The Seller and the Buyer agree that the Escrow Agent is not:
    1. a party to this Agreement and will not assume any liabilities incurred as a result of the performance or nonperformance of either the Buyer or the Seller, and that no liability will be incurred unless the Escrow Agent is grossly negligent or willfully breaches the terms of this Agreement;
    2. liable for the loss of earnest money as a result of the failure of any financial institution in which the earnest money has been deposited unless the said institution is acting as an Escrow Agent; and
    3. liable for interest on the earnest money.
  59. Upon closing, the earnest money will be applied in the following order with the excess refunded back to the Buyer:
    1. any cash down payment; and
    2. Buyer's Expenses.
  60. At all relevant times during the course of this Agreement, the Escrow Agent is required to notify the other Party prior to the releasing of any funds to the Party who is requesting the funds.
  61. The notice of the Escrow Agent to either Party will be deemed effective upon its deposit to any US Postal Service offices or mailboxes with receipt requested, provided that the notice contains adequate postage and the correct mailing address of the Party contained in this Agreement is inscribed on the notice. The notice of objection to the demand of earnest money will be deemed effective upon receipt by the Escrow Agent.
  62. Seller Representations
  63. The Seller represents and warrants that there will be no liens, assessments, or security interests from third parties against the Property which will not be satisfied out of the sales proceeds. The Seller makes no representation aside from those expressly provided in this Agreement. If the representations of the Seller are untrue upon the Closing Date, the Buyer may terminate this Agreement and the earnest money will be refunded within ten days.
  64. Federal Tax Requirements
  65. The Buyer is responsible for withholding from the sales proceeds ten percent of the gross Purchase Price in compliance with applicable tax law and submit the said amount to the Internal Revenue Service in conjunction with the relevant tax forms if the Seller falls under the definition of a "foreign person" within applicable law. The primary grounds for exemption is if the Seller furnishes an affidavit to the Buyer stating that either:
    1. the Seller is not a "foreign person" within applicable law along with the Seller's United States taxpayer identification number; or
    2. if the Purchase Price does not exceed $300,000.00 and the Property will be used as the Buyer's residence.
  66. Notices
  67. All notices pursuant to this Agreement must be written and signed by the respective Party or its agent and all such correspondence will be effective upon it being mailed with return receipt requested, hand-delivered, or transmitted by email as follows:

    To the Buyer at:

    To the Seller at:

    Name: _______________
    Address: ____________________________
    Telephone: _______________
    Email: ______________________

    Name: _______________
    Address: ____________________________
    Telephone: _______________
    Email: ______________________

  68. Addenda
  69. In addition to any aforementioned required documents, these addenda will also constitute as part of this Agreement:
    1. Third Party Financing Condition Addendum.
  70. Assignability
  71. The Buyer may not assign this Agreement without the Seller’s written consent. This Agreement is binding on the respective heirs, executors, administrators, successors, personal representatives and assigns, as the case may be, of the Seller and the Buyer.
  72. Effective Date
  73. The effective date of this Agreement (the "Effective Date") is the latter of the date the Buyer executed this Agreement and the date the Seller executed this Agreement.
  74. Governing Law
  75. The Parties agree this Agreement will be construed under the laws of Virginia, without regard to the jurisdiction in which any action or special proceeding may be instituted.
  76. Spousal Interests
  77. The spouse of each married Seller consents to this real estate transaction, and will sign and deliver such deeds and other documents as may reasonably be requested by the Title Company to evidence such consent and to effect the transfer to the Buyer of any dower, homestead, elective share, community property or any other rights which that spouse may have in or to the Property.
  78. Severability
  79. If there is a conflict between any provision of this Agreement and the applicable legislation of Virginia (the "Act"), the Act will prevail and such provisions of the Agreement will be amended or deleted as necessary in order to comply with the Act. Further, any provisions that are required by the Act are incorporated into this Agreement.
  80. If any terms or provision of this Agreement are determined to be invalid or unenforceable by a court of competent jurisdiction, the remainder of this Agreement will not be affected and each unaffected term and provision of this Agreement will be valid and be enforceable to the fullest extent permitted by law.
  81. No Broker or Agent
  82. There are no obligations on either Party for the payment of broker fees in this Agreement. The Parties agree that no real estate brokers or agents were procured for their services in connection with this Agreement or any part of the sale agreement prior to the signing of this Agreement. If a broker or agent was retained, the Party which employed the said broker or agent will be solely liable for the costs associated with it.
  83. Agreement of Parties
  84. This document constitutes the entire agreement of the Parties and it may not be contradicted by evidence of prior, contemporaneous or subsequent oral agreement. The provisions contained in this Agreement cannot be changed except by the signed and delivered written consent of both Parties.
  85. Consult an Attorney
  86. The Seller and the Buyer should consult an attorney before this Agreement is executed if any aspect of the Agreement is not understood. The Seller and the Buyer agree each will notify the other of the contact information for the respective attorney, if any, responsible for this real estate transaction.
  87. General Provisions
  88. This Agreement may be executed in counterparts. Facsimile signatures are binding and are considered to be original signatures.
  89. All monetary amounts in this Agreement refer to US dollars, and all payments required to be paid under this Agreement will be paid in US dollars unless the Parties agree otherwise in writing.
  90. Headings are inserted for the convenience of the Parties only and are not to be considered when interpreting this Agreement. Words in the singular mean and include the plural and vice versa. Words in the masculine gender mean and include the feminine gender and vice versa. Words importing persons include firms and corporations and vice versa.
  91. Time is of the essence in this Agreement. Every calendar day except Saturday, Sunday or U.S. national holidays  will be deemed a business day and all relevant time periods in this Agreement will be calculated in business days. Performance will be due the next business day if any deadline falls on a Saturday, Sunday or a national holiday. A business day ends at five p.m. local time in the time zone in which the Property is situated.


    EXECUTED by _______________ on the _______ day of ___________ , 20____ .

    ____________________________                    ____________________________
    Witness                                                              _______________

    EXECUTED by _______________ on the _______ day of ___________ , 20____ .

    ____________________________                    ____________________________
    Witness                                                              _______________


RECEIPT

The Receipt of $____________ as earnest money in the form of __________________ is hereby acknowledged on this _______ day of ______________, _______.

Name: ____________________

Address: ____________________

Phone: ____________________

Email: ____________________

Signature: ____________________

Seller Initials ____________  Buyer Initials ____________ Page of

Real Estate Agreement Checklist

This list serves as a reminder of some of the items and common issues that the parties need to keep in mind during the completion and execution of the Real Estate Purchase Agreement (the "Agreement"). Please take the time to go through the checklist and take note of the necessary items that need to be provided to the parties.

  1. Prior to the signing of the Agreement, the Seller should:
    • Provide any required Seller Disclosures or optional disclosures to the Buyer;
    • Complete the Seller’s Disclosure of Lead-Based Paint and/or Lead-Based paint Hazards and provide the finished copy to the Buyer;
    • Furnish a copy of Pamphlet: Protect Your Family from Lead in Your Home to the Buyer. The pamphlet can be downloaded from the EPA website at http://www.epa.gov/lead/pubs/leadprot.htm; and
    • Ensure both the Seller and the Buyer have read through and understand the Agreement and any necessary addenda. Note that there may be additional disclosures under the Real Property Disclosure section of the Agreement.
  2. Both parties should initial at the bottom of each page of the Agreement after reading it. The witnesses do not need to witness each page.

Last updated November 23, 2022

What is a Real Estate Purchase Agreement?

A Real Estate Purchase Agreement is a contract that outlines the terms and conditions of a residential property sale.

Prospective buyers (or their agents) can submit this document as an offer to a seller, who may then negotiate terms before signing and accepting the deal.

For a less comprehensive contract that’s better suited for back-and-forth negotiations, you can also use LawDepot’s Offer to Purchase Real Estate.

A Real Estate Purchase Agreement is also known as a:

  • Real Estate Sales Contract
  • Home Sale Contract
  • Real Estate Purchase Contract

Who needs a Real Estate Purchase Agreement?

Use a Real Estate Purchase Agreement for any type of residential property sale, including previously owned homes or newly built homes (where construction is complete before the contract’s closing date).

You can use a Real Estate Purchase Agreement when:

  • You’re a real estate agent representing a client
  • The transaction is between family members
  • The seller finances the buyer’s purchase
  • You’re conducting a private sale

LawDepot’s Real Estate Purchase Agreement contains terms for seller financing if needed. However, you can also use a Contract for Deed (sometimes called a Land Contract), which is a property sales contract that has more emphasis on the seller financing arrangement. 

How do I fill out a Real Estate Purchase Agreement?

1. Describe the property

Include the legal land description of the property, which you can obtain from your county clerk-recorder office. Also, add descriptions of any furniture or fixtures inside the building. 

State the general condition of the property and any disclosures required by state or federal law. For example, property sales in California must disclose whether the property is located within two miles of an airport or is affected by certain contaminants.

The questionnaire for LawDepot’s Real Estate Purchase Agreement prompts you to include any disclosures that may apply to the property, including state-regulated disclosures. 

2. Provide buyer and seller details 

Include the full names, addresses, and phone numbers for both the buyer and the seller. You can add multiple buyers or sellers if needed.

3. Establish the sale details

You’ll need to decide:

  • The total purchase price 
  • The amount that the buyer will deposit
  • When the deposit is due
  • Who will hold the deposit until the end of the deal 

If the buyer requires financing, include the type of financing and the total cost of the loan. 

4. Set conditions on the sale

The sale agreement may be subject to common contingencies, such as the buyer being approved for financing or the sale of another property. If the conditions are not met by the closing date, the buyer or seller may cancel the contract. 

You can also require a new land survey for title insurance purposes. Alternatively, you can ask the seller to provide a statement saying they’re unaware of any property changes since the last survey. 

5. Add final details

Choose a closing date for the sale to become final. You can also specify whether the buyer will take possession on this date or if they'll temporarily lease the property.

Real estate transactions typically allow some time between the offer and the closing date. This gives the buyer and seller the opportunity to address the conditions and arrange financing.

6. Outline tactics for conflict resolution

If there are any unresolved disputes that you need to address before the closing date, you can specify whether the parties should go through mediation or arbitration. These tactics for conflict resolution both involve a neutral third party to oversee the issue. A mediator helps facilitate a compromise, whereas an arbitrator decides what the outcome should be (and in this case, the result is binding on the parties).

How can I finance a real estate purchase?

There are four ways to finance a home in a Real Estate Purchase Agreement. The option you choose depends on the buyer and seller's financial positions.

1. Third-party financing 

A bank or other lending institution provides a loan the buyer must repay over time. This is the most common way to purchase a new home, but approval depends on the buyer's credit rating, job history, and current financial situation.

2. Seller financing 

Sometimes, a seller provides financing to a buyer who’s unable to obtain a loan from a financial institution. This is often the case when a seller has paid off their mortgage and a buyer pays them a certain amount in intervals until the home is paid in full.

3. Assumption

A buyer can assume (i.e., take over) the seller's mortgage. In this case, the home loan transfers to their name, taking financial responsibility for the remainder of the mortgage. The lender may only permit the buyer to assume the mortgage under specific guidelines. 

4. No financing 

The buyer doesn’t need a loan but pays for the residential property fully using their funds.

What are other financial terms in a Real Estate Purchase Agreement?

Earnest money 

This is the deposit that a buyer pays to the seller to show their commitment to purchasing a residential property. 

Once all conditions are met and the deal closes, the seller credits the earnest money to the buyer’s down payment. 

If the sale falls through, the seller typically returns the money to the buyer. This might be the case if the seller defaults or because a condition wasn’t met (e.g., the house inspection was not satisfactory).

Although, if the buyer defaults, the seller may keep the money as liquidated damages.

Down payment

This is the amount of money that a buyer puts towards the total purchase price of a home to qualify for a loan from a financial institution. 

In 2021, the median down payment on a house was 12% of the total home purchase price. The size of a down payment influences the type of loan a financial institution will approve; it typically comes from the buyer’s savings or proceeds from the sale of their primary residence. 

Escrow

When you purchase a property, a third party known as an escrow agent holds the earnest money until the closing date. An escrow agent is a neutral third party, such as an individual or a financial institution. Typically, the buyer and the seller evenly split escrow fees associated with their Real Estate Purchase Agreement. 

Proration

These are the yearly homeowner costs that a buyer and seller split as their Real Estate Purchase Agreement closes. Typically, the buyer reimburses the seller for any prepaid expenses during the time that the seller does not own the property. For example, prorated fees can include:

  • Property taxes
  • Homeowner association fees
  • Maintenance fees
  • Home assessments
  • Utility charges

Do I need to notarize my Real Estate Purchase Agreement?

Although you don’t need to notarize your Real Estate Purchase Agreement, the buyer and seller should sign the contract in front of a witness. The witness should be a neutral third party and should also sign the contract on its execution page. 

How do I cancel a Real Estate Purchase Agreement?

You can include a term in your Real Estate Purchase Agreement that gives a buyer the option to terminate the contract for any reason after signing. A seller may grant this right in exchange for a termination fee, which may be credited to the purchase price when closing the deal. 

In this case, you should specify the time frame for a party to terminate the contract; this time frame should not be less than any statutory right to terminate. LawDepot’s Real Estate Purchase Agreement template provides some guidance in this regard so that you can create a contract that abides by the laws of your selected state. However, you should consult a lawyer or refer to your state’s civil codes regarding property sales for further clarification. 

State laws also outline situations that allow a buyer to terminate the contract legally after signing. For example, a buyer might cancel their offer to purchase when a seller fails to disclose certain facts about the property's condition. 

Related Documents:

  • Land Contract: documents a real estate loan between a buyer and seller, where the deed transfers to the buyer once the debt is paid.
  • Deed of Trust: transfers the title of real property to a neutral trustee until the borrower pays off the loan.
  • Warranty Deed: guarantees that the title to a property is free from any interests held by others, such as liens.
  • Quitclaim Deed: transfers a title or whatever interest the owner (grantor) may have in a property to another person (grantee) without any warranties of title.
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