Real estate purchase agreement
IN PLAIN ENGLISH

Common clauses in a real estate purchase agreement

• Purchase price and earnest money

  The agreed price and the initial deposit — typically 1-3% of the purchase price — that the buyer puts down to show good faith. Earnest money is held in escrow and applied to the purchase at closing. If the deal falls through due to a failed contingency, the buyer usually gets it back; if the buyer backs out without a valid reason, the seller typically keeps it as liquidated damages.

• Closing date and possession

  When the sale will close and when the buyer takes possession of the property. These are usually the same day, but not always — sometimes the seller negotiates a "rent-back" to stay in the home for a short period after closing. Missing the closing date can trigger penalties or allow the other party to terminate.

• Financing contingency

  A clause that makes the purchase conditional on the buyer obtaining mortgage approval by a specified deadline. If the buyer can't get a loan on the agreed terms, they can cancel the contract and recover their earnest money. In competitive markets, buyers sometimes waive this contingency to make their offer stronger — a risky move if financing falls through.

• Appraisal contingency

  A clause that allows the buyer to renegotiate or cancel if the property appraises for less than the purchase price. Lenders won't finance more than the appraised value, so a low appraisal creates a gap the buyer must cover in cash — or the deal falls apart. Waiving the appraisal contingency means agreeing to pay the difference out of pocket.

• Inspection contingency

  A period (typically 7-14 days) during which the buyer can hire inspectors to examine the property — structure, roof, HVAC, plumbing, electrical, pests, radon, lead paint — and request repairs, credits, or a price reduction based on what's found. If the parties can't agree on remedies, the buyer can usually cancel and get their deposit back. Waiving inspection is common in bidding wars and extremely risky.

• Title and title insurance

  A requirement that the seller deliver "marketable" or "insurable" title, free of liens, encumbrances, and defects. The buyer typically purchases title insurance to protect against problems that surface after closing — forged deeds, unknown heirs, recording errors. The contract should specify who pays for the title search, title insurance, and any clearing of title issues.

• Property condition and disclosures

  The seller is typically required to disclose known material defects — past flooding, foundation issues, roof leaks, lead paint, deaths on the property (in some states), and anything else that would affect the buyer's decision. The purchase agreement usually incorporates a separate disclosure form. Failure to disclose can expose the seller to liability after closing.

• Fixtures and personal property

  What stays with the house: appliances, light fixtures, window treatments, built-in shelving, outdoor equipment. The general rule is that "fixtures" (items attached to the property) convey with the sale, while personal property (items that can be removed) doesn't. The contract should list any items the buyer specifically wants included or excluded to avoid disputes at closing.

• Home warranty

  Some contracts include a home warranty — a service contract that covers repairs to major systems and appliances for the first year. Who pays for it (buyer or seller) and what it covers varies. A home warranty is not a substitute for a thorough inspection.

• Contingency on sale of buyer's home

  A clause that makes the purchase contingent on the buyer selling their current home first. Sellers don't like this because it introduces uncertainty; in competitive markets, they may reject offers with this contingency or accept them with a "kick-out" clause that lets them keep marketing the property.

• Default and remedies

  What happens if one party breaches the contract. If the buyer defaults (fails to close without a valid contingency out), the seller typically keeps the earnest money as liquidated damages, though some contracts allow the seller to sue for specific performance (forcing the sale) or actual damages. If the seller defaults, the buyer can usually recover their deposit and may have the right to sue for specific performance or damages.

• Dispute resolution

  Whether disputes go to mediation, arbitration, or court. Many standard forms require mediation before either party can sue, and some include binding arbitration clauses. Read this section — it determines your legal options if something goes wrong.

• Closing costs and prorations

  How closing costs (title insurance, escrow fees, recording fees, transfer taxes) are split between buyer and seller, and how ongoing expenses (property taxes, HOA dues, prepaid insurance) are prorated as of the closing date. Local custom often dictates the default split, but everything is negotiable.

• HOA and CC&Rs

  If the property is in a homeowners association, the buyer should receive the HOA's governing documents (CC&Rs, bylaws, rules, financials) and have a period to review them. The contract may include a contingency allowing the buyer to cancel if they object to the HOA terms.

Red flags to watch for

• Waived inspection contingency

  Skipping the inspection to win a bidding war means accepting the property as-is, with no recourse if major problems surface. At minimum, consider a pre-offer inspection or an "inspection for informational purposes only" clause.

• Waived appraisal contingency without cash reserves

  Agreeing to cover an appraisal gap sounds reasonable until the property appraises $50,000 low and you have to wire the difference to close. Know your limit before waiving.

• Non-refundable earnest money

  A clause that makes the deposit non-refundable under any circumstances, even if contingencies fail. Standard agreements allow earnest money recovery for valid contingency failures; a non-refundable deposit shifts risk heavily to the buyer.

• Short contingency deadlines

  Tight timelines for inspection (3-5 days), financing (2 weeks), or appraisal that don't give you enough time to complete diligence. If you miss a deadline, you may lose the right to cancel and forfeit your deposit.

• "As-is" with no disclosures

  A seller offering the property "as-is" is not required to make repairs, but they should still provide disclosures about known defects. "As-is" without disclosures — or with a broad disclaimer like "buyer to rely on own inspection" — is a warning sign.

• Vague fixtures language

  A contract that doesn't specify what stays and what goes invites disputes. If you're expecting the appliances, chandeliers, or outdoor furniture to remain, get it in writing.

• No financing contingency with a lender pre-approval only

  Pre-approval is not the same as final loan approval. If you waive the financing contingency based on a pre-approval letter and then can't close, you lose your deposit.

• Arbitration clause with limited discovery

  Binding arbitration can be faster than court but may limit your ability to investigate the seller's conduct. If you later discover fraud or concealed defects, arbitration rules may work against you.

Frequently asked questions

• Can I back out after signing a purchase agreement?

  Usually only if you have a valid reason built into the contract — most often a contingency (financing, appraisal, or inspection) that fails before its deadline, which typically lets you cancel and get your earnest money back. If you walk away without a valid contingency, the seller generally keeps your earnest money as liquidated damages and, in some cases, could sue. This is general information, not legal advice.

• Will I lose my earnest money deposit if the deal falls through?

  It depends on why it falls through. If a contingency you kept in the contract fails (your loan is denied, the appraisal comes in low, the inspection reveals problems), you usually get your deposit back. If you simply change your mind, miss a contingency deadline, or waived the relevant contingency, the seller typically keeps it. Watch for any clause making the deposit non-refundable.

• Do I really need a home inspection, or can I skip it to win the bid?

  Skipping it is risky. Waiving the inspection contingency to win a bidding war means accepting the home as-is, with no way to renegotiate or cancel if a cracked foundation, bad roof, or major system failure turns up after you're committed. If you feel you must waive it to compete, consider a pre-offer inspection or an "informational only" inspection so you at least know what you're buying.

• What happens if the appraisal comes in lower than the price I offered?

  Your lender won't finance more than the appraised value, so a low appraisal creates a gap you'd have to cover in cash. If you kept an appraisal contingency, you can usually renegotiate the price or cancel and recover your deposit. If you waived it, you've agreed to pay the difference out of pocket — so know your cash limit before waiving.

• Is the seller required to tell me about problems with the house?

  In most states, yes — sellers generally must disclose known material defects (past flooding, foundation issues, roof leaks, and in some states things like a death on the property), usually on a separate disclosure form. "As-is" doesn't eliminate the duty to disclose what they actually know. Failing to disclose can expose a seller to liability after closing, but disclosure laws vary by state — review the disclosures carefully and ask questions before signing. This is general information, not legal advice.

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