A real estate purchase agreement is the binding contract that takes a property sale from handshake to closing table: price, earnest money, the contingencies that let the buyer exit safely, the deed the seller must deliver, and the closing date.
Because of the statute of frauds, a sale of land is enforceable only in writing. Everything the parties agreed orally but left out of the signed contract effectively does not exist.
Contingencies: the buyer's exit ramps
- Financing contingency: if the loan is denied despite diligent effort, the buyer exits with the earnest money
- Inspection contingency: a professional inspection window with the right to negotiate repairs or walk away
- Title contingency: the seller must deliver marketable title; incurable defects free the buyer
- Appraisal (often bundled with financing): protects against paying above lender-appraised value
Every contingency has a deadline, and silence waives it. Buyers should calendar each date the day the contract is signed: the inspection period especially, since it is usually the shortest and the most consequential.
Earnest money: how much, who holds it, who keeps it
Earnest money of 1 to 3 percent of the price is typical, held by a neutral escrow or title agent, never by the seller personally. If a contingency fails, the buyer gets it back; if the buyer simply walks, the seller keeps it as liquidated damages. That liquidated damages clause protects buyers too: it caps their exposure at the deposit instead of a lawsuit for the seller's full losses.
FSBO sellers: disclosures are still mandatory
Selling without an agent does not waive state disclosure laws or the federal lead-based paint rule for pre-1978 homes. Skipped disclosures are the most common source of post-closing lawsuits in private sales.
From signature to closing in six steps
- Deposit the earnest money with the escrow or title agent within the stated days
- Order the title search and inspections immediately
- Resolve inspection objections: repairs, credits, or termination within the window
- Buyer finalizes the loan; appraisal and underwriting complete
- Title company prepares the deed, settlement statement, and prorations
- Sign, fund, record the deed, and hand over keys at closing
Frequently asked questions
Is this agreement binding once both parties sign?
Yes. It is a binding contract from mutual signature, subject only to its stated contingencies. Backing out without a contingency right forfeits the earnest money (for the buyer) or invites a suit for specific performance (for the seller).
Can a seller back out after signing?
Rarely without liability. Courts can order specific performance against a seller, forcing the sale, because land is legally unique. A seller who wants flexibility must negotiate it into the contract before signing.
Do we need agents or attorneys to use this agreement?
No agent is legally required anywhere. Several states (including New York, Massachusetts, and South Carolina) customarily or legally involve attorneys in closings, and a title company handles escrow and recording in most others. Complex situations deserve professional review.
What happens if the appraisal comes in low?
With a financing contingency, a low appraisal usually blocks the loan, which triggers the contingency: the parties renegotiate the price, the buyer brings extra cash, or the buyer terminates with the deposit refunded.
Who chooses the title or escrow company?
It is negotiable and varies by local custom: buyer chooses in some markets, seller in others. Federal law (RESPA) prohibits the seller from requiring a particular title insurer as a condition of the sale.