Purchase Agreement
The legal contract between buyer and seller that outlines the terms of a real estate transaction.
Definition
A purchase agreement (also called a purchase and sale agreement, PSA, or contract of sale) is the legally binding contract between a buyer and seller that outlines all terms of a real estate transaction: price, earnest money, due diligence period, closing date, contingencies, and what's included in the sale.
Investor-friendly purchase agreements include: an inspection contingency (right to conduct due diligence), a financing contingency (ability to cancel if financing falls through), an appraisal contingency (ability to renegotiate if the appraisal is low), and an assignability clause (allows assignment to another buyer).
Reading and understanding the purchase agreement is not optional for investors. Key clauses that protect you: the specific default remedies if either party backs out, what happens to earnest money in various scenarios, the exact definition of 'material defects' the seller must disclose, and any representations and warranties.
Related Terms
Earnest Money
A deposit paid by the buyer to demonstrate serious intent — held in escrow until closing.
Due Diligence
The investigation and verification process buyers conduct before committing to a real estate purchase.
Contract Assignment
Transferring the right to purchase a property from a buyer (assignor) to a third party (assignee) for a fee.
Closing Costs
Fees and expenses paid at settlement when a real estate transaction is finalized.
Also in "P"
PITI
Principal, Interest, Taxes, and Insurance — the four components of a monthly mortgage payment.
Points (Origination Points)
Upfront fees paid to a lender, equal to 1% of the loan amount per point.
Private Money
Loans from individual private investors — usually friends, family, or high-net-worth individuals — secured by real property.