Purchase agreements are made for various reasons, from land sales to home sales to car sales. Once negotiation has taken place, a purchase agreement is drawn up, and then it gets signed by both buyer and seller.
It's important to note that purchase agreements are typically used for goods as opposed to services, so you're going to have something tangible at the end of an agreement. If you've ever been involved in a real estate purchase, you've probably seen one.
What Is a Purchase Agreement?
The simple definition of a purchase agreement is that it is a legal document that outlines all terms and conditions related to the sale of a given item. They are legally binding between both the seller and the buyer.
When it comes to home sales, purchase agreements are par for the course. If it is a well-written agreement, it will cover all details of the purchase at hand. At a minimum, there are specific pieces of information that must be disclosed in a purchase agreement.
Buyer and seller contact information will be found within the purchase agreement in addition to any other contact info for witnesses. There will also be a description of the sale type that the agreement was made for, as well as the actual sale item that is changing hands.
The price will also be listed in addition to the date the agreement is being signed. Any underlying terms will also be listed in order to fulfill the agreed-upon requirements.
Purchase agreements aren't always amendable, but if they are, it will be written into the document that the agreements can be revised later if needed. You'll also know what the proper course of action should be if a legal dispute ever arose as a result of the purchase agreement.
Two Types of Purchase Agreements
There are two main types of purchase agreements – absolute and conditional. Absolute purchase agreements are simple and are used for keeping track of transactions similarly to receipts.
Conditional purchase agreements are more complicated and require contingencies or security deposits. Legal disputes are not unusual when conditional purchase agreements are involved. In these cases, damages go to the party that did not violate the agreement.
Both types of agreements are seen in various transactions. The goods that are sold include things like vehicles, furniture, computers, jewelry, horses, tickets, and other large items that generally cost more than $500.
To make sure that the agreements are compliant with state laws, you may want to run them by licensed attorneys to be on the safe side.
Purchase Agreements for Homes
Any time you are involved in the selling or buying of a house or other primary residence, you're going to sign a purchase agreement specifically written for this occasion. It will outline everything that the seller and buyer have agreed to. Having one that is well-written ensures that the sale process will go through without incident.
Conditions within the purchase agreement are meant for buyer protection. As an example, in the sale of a home, there may be restrictions regarding repair to the flooring that state the seller must resolve the issue before the agreement is signed.
There will also be explicit guidelines that allow either the buyer or the seller to negate the agreement and pull back from the sale. An example of one such condition involves financing. If the buyer cannot secure adequate financing, then the seller can back out of the agreement without fault.
Your best bet in getting a purchase agreement that is well-written is to work directly with a real estate attorney or real estate agent to feel comfortable about having protection for your potential home purchase.
Purchase Agreements for Land
A land purchase agreement is similar to a home sale, but there are some differences that are worth noting, especially regarding the land title. The seller holds on to the land title until payment has been received in full. At that point, the seller turns the title over to the buyer.
Because of the way that land purchase agreements work, farmers benefit by being able to use the land without owning it up front. Within the agreement, you'll also find a description of what is being sold, the expected purchase price, length of payment term, and anything else that is needed to complete it.
It is critical to have a purchase agreement that is legally sound in order to avoid disputes in the future. There are forms that you can fill out online, but when in doubt, reach out to a real estate attorney to help you determine if the document is written to comply with your area.
Going Forward with a Purchase Agreement
So, you've found the perfect house or parcel of land – that's great! Your next step is to have the purchase agreement drawn up by a competent real estate agent or attorney. You'll also need to have earnest money to put down with your offer, and then the agreed-upon percentage when you sign the agreement.
Typically, the amount due is approximately between 5 and 10 percent of the total purchase price. The money is applied to the total purchase price, but it is required in many cases unless you qualify for specific types of financing.
Once you decide to sign the purchase agreement, you need to be certain before putting pen to paper. In most instances, any deposits made will not be refundable. That means that if you, as the buyer, were to walk away without an acceptable reason, then that deposit will revert to the seller.
There are exceptions to this but proceed with the signing expecting you're going all the way through with it. Remember, when you get to this point, you're in it for the long haul.
How to Get Out of a Purchase Agreement
Recognize that you may or may not be able to get out of a purchase agreement depending on the area and contingencies that are built into the agreement. You can't just change your mind, though, and decide that you don't want to go through with a purchase. It doesn't work that way.
Earnest money was mentioned earlier, but it's important to repeat that if you were to honestly and completely cancel an agreement due to specific reasons that are laid out within it, then you can get it back. If you breach the contract, you're going to risk losing that money.
If the seller breaches the contract, then you're in the clear to request cancellation of the purchase agreement. Examples of breaches include failing a home inspection or not getting information in a timely manner.
On the other hand, if you don't care about losing your deposit, you can back out of an agreement. Understand, though, that if you take this route, there is a chance that the seller can pursue you and sue to claim a breach of contract.
A Few Last Words About Purchase Agreements
Purchase agreements are so important in this day and age. Without one, you can end up with a lot of misinformation, miscommunication, and just a rough time when you finally find that item you've been looking for.
Having a purchase agreement is going to make a difference because not only will it save everyone time, it will also act as a way to see what the expectations are for both buyer and seller. Agreements help keep things clear so that the process can run smoothly from start to finish.
Remember, details are your friends. Be specific about items included in the sale like window dressings or light fixtures. Make it a point to specify that the seller is responsible for all associated expenses up through the date of closing.
If you have the agreement written in a way that allows all parties to agree, then you're set to go forth and purchase that home or car that you've had your eye on. The best thing is that you'll know exactly what you're getting into.
