Purchase and sales agreements, sometimes simply referred to as a purchase agreement or “P and S”, are legally binding contracts designed to create an obligation between a buyer and seller. The agreement helps to foster a good business relationship between both parties as well as ensure the transactions are honestly conducted and without fraud. Typically, both the buyer and the seller sign a standard purchase and sale contract when buying real estate and some states permit signatures to be binding if the contract is faxed, which allows for a quicker offer to the seller.
What is The Purpose of a Purchase and Sale Agreement?
As a legally binding contract, the sales and purchase agreement commits both the buyer and the seller to specific provisions and terms as a part of sale agreement. One of the most important functions of a sales and purchase agreement is that it defines the exact responsibilities and rights that the seller and the buyer are assuming as a part of purchasing process. It helps to minimize the opportunity of any misunderstanding of what is and what is not required for a successful completion of the transaction. For example, on the part of the seller, an agreement typically requires them to sell the property at a specifically set price, in other words, once a price agreement has been established, the seller cannot increase the price. The agreement also ensures an obligation of the seller to deliver the property at a set time and date (closing). In some situations, a purchase and sale agreement may involve promises by the buyer. For example, the buyer may promise that they will buy the property according to the terms provided by the seller (property sold-as).
How is a Purchase and Sale Agreement Enforced?
Since a purchase and sale agreement is considered to be a business contract, it is enforced under the contract law in the state in which was created. A dispute over the terms of the contract are typically reviewed by a court of law and the court system will typically refer to the purchase and agreement document itself to resolve the issue. This means that legal damages are often awarded to the non-breaching party of the agreement. For example, if you enter into a purchase and sale agreement with a seller, but the seller later sells the property to a different buyer, the seller may be required to reimburse you for your lost opportunity.
What is Included in a Purchase and Sales Agreement?
There are several terms included in a purchase and sales agreement; however many of the agreements vary from one contract to the next. You may make additions and/or changes to a standard agreement, but both the buyer and seller must agree to every change that is made. Along with the following terms, it is also important that the seller agree to a move in date and what appliances/personal property will be sold with the property.
*Sales price-for most home buyers, the property sales price is the most critical term of the agreement. It is also important to recognize any non-monetary terms of the agreement.
*Title-the title portion of the agreement is referring to the legal ownership of the property. The seller must provide a title that is free and clear from any claims that others may have against the property. A claim by others typically means a lien. In most situations, you can negotiate who pays for the title search that determines whether the title is clear or not.
*Mortgage clause-in the agreement there should be a provision stating that your deposit will be returned if the property sale is canceled because you were unable to obtain a mortgage loan.
*Pests-it is extremely important that a sales and purchase agreement include terms regarding pests. Your lender will generally require certification from a qualified pest inspector that states the home is free from pests, such as termites as well as pest damage. You also have the ability to reserve the right to cancel the agreement or seek immediate treatment and/or repairs by the seller for damages caused by pests.
*Lead-based paint hazards-if the home was built before 1978, you have a certain rights concerning lead poisoning hazards and lead-based paint. The seller must give you a pamphlet about lead hazard information. The seller must tell you what they know about the homes lead-based paint hazards, including any reports or records pertaining to the possibility of the home containing lead based paint. You will have a minimum of ten days to do a risk assessment or inspection for any lead based paint hazards, but you also have the right to cancel the sale based on the inspection results. The seller must attach a disclosure form to the sale agreement that includes a lead warning statement.
*Other environmental concerns-there may be specific laws in your city or state that require testing for other environmental risks, such as radon, asbestos, lead water pipes, underground oil tanks and other hazards. You have the right to negotiate the steps required to clean up these hazards as well as pay for the testing.
*Sharing of expenses-the buyer needs to agree with the seller about how any expenses that are related to the property, such as sewer, water and taxes will be divided on the date of reaching a settlement. You should only be responsible for paying the portion of these debts that are owed after the date of sale.
It is important to note that a potential condominium buyer should add any legal stipulations to their purchase and sale agreement, such as association budget, meeting minutes, financial statements and condominium master deed. It is highly recommended that you seek the advise of an attorney before you sign a purchase and sale agreement or make an offer to purchase. A qualified attorney in real estate laws will be able to uncover any possible issues with the agreement before you sign it, which may prevent you from losing your deposit. You should also closely read and review the contract completely before agreeing to anything you do not understand. if you have any questions or concerns, talk with your attorney and/or the agent over the property.
(Photo by David McNew/Getty Images)