Agreement of Sale: What You Need to Know as a Buyer
Written by: Alan Nochumson
How do you make an offer on a home? The process hinges on the agreement of sale, or purchase agreement, and it involves more than the price of the property. Since it is a legally binding contract, it is important for buyers to understand the entire process before you sign and while the document can be quite long and often complex, as you will see in this blog, it can be easily comprehended with some basic knowledge.
What is an Agreement of Sale?
The Agreement of Sale is the formal, written offer that describes the terms and conditions under which you’re prepared to buy the home. It includes the price you’re willing to pay but also the closing date, the conditions under which you can cancel the deal, and other specific conditions. Generally, once the amount of your offer is decided upon, your agent will help you complete the agreement and then deliver it to the seller’s agent for you. While some buyers are tempted to prepare the purchase agreement without the assistance of a real estate agent, this is not recommended. Since the Agreement of Sale is a customized document, it is also very helpful to retain a real estate attorney to ensure all legal aspects are fully accounted for.
Key Elements of an Agreement of Sale
While these documents differ on a case-by-case basis, most do include these 9 key elements.
The price covers the home itself and its “fixtures.” Fixtures are anything permanently attached to the building or the land, like ceiling fans or fences. It also covers anything else you’d like to take part in the deal, such as the washer and dryer, as outlined in the property description. If your offer is lower than the asking price, you’ll need to explain why. For example, you may decide to offer $10,000 less because of the fact that the house needs a new roof.
2. Earnest Money
Earnest money is a deposit, in the form of a check or money order, that shows the seller that you are a serious prospective buyer. Typically, it is 1% of the purchase price, but in a seller’s market, it can be much more. If your offer is rejected by the seller, you will get your deposit back, while if your offer is accepted, it will be applied to the price when you close. In the meantime, the seller’s broker holds the money in escrow, and if you back out for any reason not outlined in the purchase agreement, the seller can keep the money.
Here the buyer and seller agree on the specific details of who will pay for the closing costs and inspections. In a buyer’s market, sellers sometimes offer to pay closing costs. In a seller’s market, not so much. Buyers are almost always responsible to pay for the professional inspections they want to have done.
4. Timelines and Deadlines
An Agreement of Sale also specifies how long the seller has to respond to your offer and when you’d like to close on the home. Because of the time-sensitive nature of the real estate market, buyers, generally speaking, give the seller three to five days to respond to their offer. In a particularly hot market, you may want to ask for a short window so there’s less chance for other buyers to step in and outbid you. However, when a seller is getting multiple offers, they might set a deadline, after which they will open and consider them all. The agreed-upon timeline will also include the closing date, which usually is 30 to 60 days from the date the purchase agreement is finalized. That might sound like a long time, but you’ll need it for inspections, final approval of your loan, and the title review. If any repairs are a condition of the sale, the seller will need time to get them done. This date is often a point of negotiation. You and the seller will try to accommodate each other’s needs. Sometimes, flexibility on the closing date can push your offer above the others.
5. Property Description
This section includes the exact street address, the legal description of the property (usually as found on the deed), and anything that’s not clearly a fixture that you expect the seller to leave in the house: appliances, blinds, etc.
6. Contingency Addendum
A contingency addendum lets you cancel the purchase agreement and get your earnest money back under certain, agreed-upon conditions. Since it is important for buyers to protect themselves, it is very rare to make an offer without contingencies, however, sellers understandably do not like to include too many, and when the market’s tight, they don’t have to. Some common contingencies include financing, appraisal value, and inspections.
Here, you state how you’ll pay for the home. For most buyers, this will be a mortgage loan. Even if you’re preapproved for a loan, the purchase agreement should be contingent on your lender’s final approval of the loan.
8. Property inspections
This section will indicate whether you’ll do any professional home inspections, including any specialists for pests, radon, lead, etc.
9. Property Taxes, Utilities, Other Expenses
Here will include details on how to handle the rest of the year’s property taxes, plus utilities and other expenses that might be incurred before you take possession of the home. Depending on when the various bills were last paid and for what period of time, the seller might have to pay a prorated share, or you might have to reimburse them. In addition, the seller must tell you whether they’ve gotten any notices about future tax assessments or increases.
It is highly recommended to have an experienced and knowledgeable real estate attorney review the agreement, particularly complicated ones with a large price tag. At Nochumson P.C., we are more than legal counsel. We are people serving our neighbors and community in Pennsylvania and New Jersey. Knowing that real communication between real people can help lead to real positive results, our team of attorneys is available 24/7 to help answer your legal questions and to fight for you with skill and fortitude, whatever the case may be. When you hire us, you can expect a sensible and cost-effective approach to legal counsel. We think fast, think ahead, and get things done. Contact us today or call us at (215) 399-1346 to see how we can represent you.