What is a Purchase and Sale Agreement?

When it comes to a real estate transaction like buying a home, a lot of important paperwork needs to be completed before you can call a home yours. One of these important pieces of paperwork is a purchase and sale agreement. 

To help you navigate this document, we’ll go over what a purchase and sale agreement is, what makes up the agreement, and what happens after. So whether you’re selling a home in Boston, MA, or buying a home in Dallas, TX, read on to learn more about what goes into a purchase and sale agreement during a real estate transaction.

What is a purchase and sale agreement?

A purchase and sale agreement, PSA or P&S for short, is the document received after mutual acceptance on an offer. It states the final sale price and all terms of the purchase in a real estate transaction. A PSA can vary by state. They typically consist of the final sale price, earnest money details, closing date, title information, and contingencies. Timelines and anything else the buyer/seller requests will be gone through in the agreement.

Who drafts the purchase and sale agreement? 

Either the buyer’s agent or the real estate attorney will draft up the contract. This depends on what state the home resides in. In states where escrow agents handle the closing process, the buyer’s agent is responsible for preparing the PSA document. In areas where attorneys handle the closing, the attorneys will prepare the document. The buyer, seller, and their respective agents will sign the document. 

What does the PSA consist of?

The specific items in this contract vary by state, but will almost always include the following. 

1) Final sale price: This is the purchase price agreed upon by the buyer and seller outlined in a purchase and sale agreement. Note that this price might change during negotiations before the closing date. For instance, if the buyer’s home inspection turns up a problem with the home, the buyer may be able to negotiate a reduced purchase price.

2) Earnest money details: The purchase and sale agreement will include information on the earnest money deposit, such as the dollar amount and instructions for making the deposit. In most areas, the buyer will need to deposit a personal or cashier’s check which is held with a neutral third party. These third-party companies can be escrow companies, title companies, or law firms. They will need to deposit within one to three days of mutual acceptance.

3) Closing date: On your closing date, the purchase will be completed, the transfer of property will be recorded with the local government, and the seller will receive the money for their home. Usually, you’ll sign all the necessary paperwork a day or two before your closing date. Your closing date may change, however, due to unforeseen events, such as your financial paperwork taking longer than expected.

4) Title insurance company: Information about your title company will be included in the purchase and sale agreement. As the buyer, you always have the right to select a title company. You should talk to your agent or attorney if you have any questions about choosing a title company.

5) Title condition: The purchase and sale agreement will include an agreement that the seller will provide a clear or marketable title of ownership to the buyer. 

6) Contingencies: Contingencies are conditions that must be met in order for the home purchase to be completed. A buyer or seller may cancel a sale if one of the contingencies can’t be met. Here are some examples of common contingencies.

Common Contingencies

  • Inspection contingency: This contingency allows the buyer to have the home inspected before going ahead with the purchase. If the inspection turns up a problem with the home, the buyer can renegotiate with the seller. The seller may repair or offer a credit for the problem. If the problem is severe, the buyer can back out of the purchase without losing the earnest money deposit.
  • Financing contingency: This contingency requires the buyer to get approved for a mortgage before making the purchase. If the buyer is unable to get mortgage approval they can back out of the deal.
  • Title contingency: This contingency gives the buyer the right to review the home’s title for problems or conflicting claims of ownership. The buyer can require the seller to satisfy any problems with the title before the closing date. This contingency allows the buyer to walk away from the deal.
  • Appraisal contingency: This contingency allows the buyer to back out of the deal if the home appraisal reveals that the home is not worth as much as the buyer intended to borrow and pay for it.
  • Home sale contingency: Less common than the other contingencies listed above, this contingency gives the buyer the right to back out of the deal if she is unable to sell her current home.
  • Addendum: An addendum, also known as a rider, is any additional request from the buyer to the seller that is not included in the actual PSA document. Examples may include a buyer’s request that the seller pays part of the buyer’s closing costs. Another example is that the seller includes appliances or furniture not originally included in the home’s sale price.

Purchase and sale agreement vs. purchase agreement

The purchase and sale agreement may sound similar to the purchase agreement, but they are not the same. A PSA outlines the specific terms in the transaction between the buyer and seller. Both parties sign the final paperwork for the sale of the home called the purchase agreement. Both parties will move forward with the final paperwork of the sale of the home after signing the PSA. After signing the purchase agreement the sale is complete. 

What happens after the PSA?

The buyer and seller will sign the PSA and the earnest money will be deposited, and then the buyer and third-party companies will begin the home inspections, title searches, loan agreements, and anything else outlined in the agreement that needs to be checked. It can take several weeks for the finalization of the purchase and sale agreement. This is because there might be problems that arise during an inspection. The buyer will sign the purchase agreement at closing. 

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