Real estate purchase agreement
IN PLAIN ENGLISH

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.