Purchase Contracts

A purchase contract is a legally binding agreement between buyer and seller for the transfer of real property. Once signed by all parties, it creates enforceable obligations and sets the terms for the transaction. Understanding contract components helps identify favorable terms, recognize risks, and negotiate effectively.

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Core Components

Every purchase contract includes fundamental elements that define the transaction.

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Contingencies

Contingencies are conditions that must be met for the contract to proceed. They protect parties from unforeseen problems. Common contingencies:

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Financing Terms

For financed purchases, contracts specify loan parameters. Key financing terms:

• Loan type (conventional, FHA, VA, USDA)
• Loan amount
• Interest rate cap (if specified)
• Financing contingency deadline
• Pre-approval requirements

Watch for:

• Whether financing contingency protects earnest money
• What constitutes “good faith” effort to obtain financing
• Consequences of loan denial
• Appraisal requirements and gap provisions

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Property Condition

Contracts address property condition and seller representations. Common provisions:

• “As-is” vs seller warranty
• Disclosure requirements
• Condition at closing
• Risk of loss before closing
• Walk-through inspection rights

As-is sales: Seller makes no warranties about condition. Buyer accepts property in current state. Does not eliminate disclosure obligations for known defects. Walk-through rights: Typically within 24-48 hours of closing to verify:

• Condition unchanged from contract/inspection
• Agreed repairs completed
• Included items present
• Property is vacant (unless otherwise agreed)

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Included and Excluded Items

Contracts should clearly specify what transfers with property. Typically included (fixtures):

• Built-in appliances
• Light fixtures
• Window treatments attached to walls
• Landscaping
• Attached shelving

Often negotiated:

• Refrigerator
• Washer/dryer
• Window air conditioners
• Storage sheds
• Outdoor furniture

Typically excluded:

• Personal property
• Leased equipment (water heater, solar panels)
• Items specifically excluded in contract

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Seller Obligations

Contracts typically require sellers to:

• Maintain property condition until closing
• Provide clear title
• Make required disclosures
• Complete agreed repairs
• Pay agreed closing costs
• Vacate by possession date
• Provide keys, codes, and access devices

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Buyer Obligations

Contracts typically require buyers to:

• Deposit earnest money by deadline
• Apply for financing promptly
• Complete inspections within contingency period
• Provide required documentation
• Obtain homeowners insurance
• Appear at closing with funds
• Accept property meeting contract terms

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Default and Remedies

Contracts specify what happens when parties don’t perform. Buyer default:

• Seller may retain earnest money as damages
• Seller may sue for specific performance (force sale)
• Seller may sue for damages beyond earnest money

Seller default:

• Buyer may receive earnest money return
• Buyer may sue for specific performance (force sale)
• Buyer may sue for damages

Liquidated damages: Many contracts specify earnest money as “liquidated damages” - the agreed compensation for buyer default. This may limit seller’s recovery to earnest money amount.

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Dispute Resolution

Contracts often specify how disputes will be resolved. Common provisions:

• Mediation required before litigation
• Binding arbitration instead of court
• Which state’s law governs
• Where disputes must be filed
• Attorney fee provisions

Read dispute resolution clauses carefully. Binding arbitration waives the right to sue in court.

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Common Contract Forms

State association forms: Most states have standard forms created by realtor associations. These are widely used and familiar to all parties. Attorney-prepared forms: Some states use attorney-drafted forms, particularly in attorney-required closing states. Builder contracts: New construction typically uses builder-prepared contracts that favor the builder. Review carefully. FSBO forms: For sale by owner transactions may use various forms. Quality and balance vary significantly.

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What to Negotiate

Everything in a contract is potentially negotiable until signed. Common negotiation points:

• Purchase price
• Earnest money amount
• Closing date
• Possession timing
• Contingency periods
• Repair responsibilities
• Closing cost allocation
• Included/excluded items
• Inspection rights
• Financing terms

Negotiating leverage depends on market conditions, property desirability, and party motivations.

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