Purchase Agreement / Sales Contract
Definition
A purchase agreement is a legally binding contract between a buyer and seller that outlines the terms and conditions for the sale of real property. It is also commonly called a sales contract, purchase and sale agreement, or earnest money agreement.
Example
A buyer submits a purchase agreement offering $350,000 for a single-family home with a 30-day closing period and a financing contingency. The seller signs the agreement, creating a binding contract that obligates both parties to perform according to its terms.
Exam Tip
Remember that a purchase agreement must be in writing to be enforceable under the Statute of Frauds. Exam questions often test whether all essential elements are present — if any element is missing, the contract is void. Do not confuse a purchase agreement with a listing agreement, which is between the seller and the broker.
Related Contracts Terms
Offer and Acceptance
Offer and acceptance is the process by which one party proposes specific terms for a contract and the other party agrees to those exact terms, creating mutual assent. This mutual agreement, also called a meeting of the minds, is an essential element of every valid contract.
Counteroffer
A counteroffer is a response to an original offer that changes one or more terms of the offer, effectively rejecting the original offer and creating a new offer. The party who makes the counteroffer becomes the new offeror.
Consideration
Consideration is something of value exchanged between parties to a contract, making the agreement legally binding. It can be money, a promise to act, a promise to refrain from acting, or anything else of value.
Earnest Money Deposit
Earnest money is a deposit made by the buyer at the time of the offer or shortly after to demonstrate good faith and serious intent to purchase the property. It is also called a good faith deposit.
Contingencies
Contingencies are conditions written into a real estate contract that must be met before the transaction can close. If a contingency is not satisfied, the buyer can typically cancel the contract without penalty.
Inspection Contingency
An inspection contingency gives the buyer the right to have the property professionally inspected within a specified time frame and to negotiate repairs or cancel the contract based on the findings.
Frequently Asked Questions
Test Your Contracts Knowledge
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