purchase and sale agreement

Purchase & Sale Agreement: Real Estate Contract Template [FREE DOWNLOAD]

real estate terms Nov 27, 2023

Are you ready to unlock the doors to your real estate dreams? Imagine sealing the deal on your dream personal property, achieving financial freedom, and securing your future with every pen or keystroke. The power to turn these dreams into reality lies within a document called the purchase and sale agreement (PSA).

A purchase and sale agreement isn't just a piece of paper; it's your roadmap to success, your key to investment prowess, and your ticket to a financially secure future. So, what is it, and how can you make it work for you?

Purchase and sale agreements are as important as the deals they represent, which is why we are breaking down these essential documents into easy-to-understand terms for everyone, from real estate investors to prospective homeowners. In doing so, we have dedicated this guide to teaching you everything you need to know to execute the perfect purchase and sale agreement.

Whether you're a seasoned investor or a first-time homebuyer, we've got you covered. From a comprehensive breakdown of what a PSA is to our very own downloadable contract template, we will cover everything you need to know about executing the perfect purchase and sale agreement, starting with the following:


What Is A Purchase & Sale Agreement?

At the heart of every successful real estate transaction, whether you're buying your dream home or making a strategic investment, lies a purchase and sale agreement. On the surface, a quality PSA real estate contract is just another piece of legal jargon. Beneath the surface, however, a purchase and sale agreement is a document that can make or break a real estate deal.

A purchase and sale agreement—sometimes called a purchase agreement for a house, a real estate sales agreement contract, or simply a purchase agreement—is a legally binding contract between a buyer and a seller. This agreement outlines the terms and conditions that both parties agree to before sealing the deal on a property.

Why is this document so crucial? Well, the answer lies in its ability to provide a structured framework for the entire transaction. In particular, a well-crafted purchase and sale agreement can provide mutual clarity on how each party can expect the transaction to transpire.

purchase and sales agreement definition

For homebuyers, a purchase and sale agreement is a lifeline; it's the document that turns dreams of homeownership into reality while providing a safety net. With this agreement, you have a legally binding contract that spells out the terms and conditions of the purchase, from the price to contingencies. It offers protection against unexpected issues, outlines your rights and responsibilities, and ensures that you're getting what you paid for. A good PSA will guide you through the intricate process of buying a home, offering peace of mind and a clear path to homeownership.

Real estate investors, on the other hand, may view the purchase and sale agreement a little differently. If for nothing else, investors understand that every property transaction is an investment opportunity. A purchase and sale agreement is their strategic tool for turning opportunities into profit. It allows investors to negotiate favorable terms, protect themselves from unexpected hiccups, and specify their investment goals. In particular, purchase and sale agreements are a vital instrument for mitigating risks, planning their exit strategies, and maximizing returns on investment.

Comprised of essential and legally binding details, the purchase and sale agreement is the glue that holds a real estate transaction together. As a result, a PSA simultaneously mitigates risks associated with buying or selling a property and creates a legal framework that clarifies every aspect of the deal. Whether you're a novice homebuyer or an experienced investor, understanding the power of this document is essential for ensuring successful real estate transactions.

Purchase & Sale Agreement Vs. Purchase Agreement

While purchase and sale agreements may sound interchangeable with purchase agreements, there are important distinctions to make between the two contracts. As a result, we’ve broken down the aspects that make each type of contract unique:

  • Purchase Agreement: A purchase agreement for house transactions typically outlines the basic terms of a real estate transaction. It includes details such as the purchase price, any contingencies, and the timeline for the sale. Sometimes, a purchase agreement might be non-binding or preliminary, serving as a starting point for negotiations. It's often used to secure the property briefly, allowing the buyer to conduct due diligence before finalizing the deal. In other words, a purchase agreement for house sales is essentially a less formal sales agreement.
  • Purchase & Sale Agreement: A purchase and sale agreement, on the other hand, is a more comprehensive and legally binding document. It contains all the specific terms and conditions that the buyer and the seller have agreed to, including property details, the purchase price, contingencies, closing date, and more. Once signed, a PSA holds both parties accountable for fulfilling their obligations, and it serves as the formal contract that finalizes the transaction.

The primary difference lies in the binding nature and the level of detail each document provides. A purchase agreement is often an initial, less detailed agreement that precedes the more comprehensive purchase and sale agreement, which is legally binding and includes all the specifics of the real estate transaction.


What Does A Purchase & Sale Agreement Include?

To be completely clear, a purchase and sale agreement may include anything the buyer and seller mutually agree upon. As a result, the number of line items a purchase and sale agreement may consist of depends entirely on the parties it concerns. However, several elements are more common than others. Here’s a list of the most common agreements included in a well-crafted PSA:

  • Property Description: A detailed description of the property, including its address, legal description, and any inclusions or exclusions; this ensures that both parties have a clear understanding of the property being transferred, preventing disputes and misunderstandings.
  • Purchase Price: Specifies the agreed-upon purchase price for the property. It sets the financial terms of the deal, giving clarity to both buyers and sellers about the cost.
  • Earnest Money Deposit: An EMD is the initial deposit the buyer pays to demonstrate their serious intent to purchase the property. It protects the seller by compensating if the buyer backs out without a valid reason.
  • Financing Contingency: Indicates whether the purchase is contingent on the buyer securing financing; this protects the buyer, allowing them to exit the agreement if they can't obtain the necessary funding.
  • Inspection Contingency: Allows the buyer to have the property inspected and, if necessary, negotiate repairs or back out of the deal based on the inspection results; this safeguards the buyer's interests by ensuring they don't inherit hidden issues.
  • Closing Date: Specifies the date the property transaction will be finalized. It sets a clear timeline for both parties, ensuring the deal progresses efficiently.
  • Title & Ownership: Confirms that the seller has the legal right to sell the property and that the title is clear; this protects the buyer from potential ownership disputes or legal issues.
  • Closing Costs: States which party is responsible for various closing costs, such as taxes, title insurance, and attorney fees; this clarifies the financial obligations of each party and avoids last-minute surprises.
  • Contingencies: These may include clauses for issues like the sale of the buyer's current property, appraisal, or zoning compliance. Contingencies protect both parties by providing exit options if certain conditions are unmet.
  • Disclosure Statements: These statements require the seller to disclose any known defects or issues with the property. They protect the buyer from hidden problems affecting the property's value or safety.
  • Default & Remedies: Outlines the consequences if either party fails to fulfill their obligations under the agreement. It provides a straightforward course of action in case of a breach, offering security to buyers and sellers.
  • Prorations: Details how property-related expenses, such as property taxes and homeowner association fees, are divided between the buyer and the seller; this ensures a fair distribution of costs.
  • Signatures: Contains spaces for the signatures of both the buyer and the seller, making the agreement legally binding once signed.

A comprehensive purchase and sale agreement is essential for all parties involved in a real estate transaction. It provides transparency, safeguards, and a clear roadmap, smoothing the process and reducing the risks of buying or selling a property. For buyers, it ensures they get what they paid for and have an exit plan if issues arise. Sellers benefit from a clear understanding of the terms and conditions. Investors, in particular, rely on PSAs to formalize their investment strategies, protect their interests, and maximize returns.

*For in-depth training on purchase and sale agreements, Real Estate Skills offers extensive courses to get you ready to make your first investment! Attend our FREE training and gain insider knowledge, expert strategies, and essential skills to make the most of every real estate opportunity that comes your way!

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[FREE Download] Purchase & Sale Agreement Template

Are you ready to break into the real estate industry but aren’t confident about your own purchase and sales agreements? Look no further. Real Estate Skills ensures you have all the tools you need to execute the perfect purchase and sale agreement (PSA) for your next real estate deal.

We understand that navigating the intricacies of a PSA can be a challenging task, especially if you're new to the real estate landscape. That's why we're offering you a FREE and meticulously crafted purchase and sale agreement template.

Not unlike today’s best warranties, our template is designed to streamline the process and safeguard your interests. With the best practices of the real estate industry incorporated, it's the ideal tool to help you close a safe and profitable deal. Whether you're a novice homebuyer, an investor on the rise, or a seasoned pro, our PSA template is your key to better real estate transactions.

So why choose Real Estate Skills? We've already done the hard work for you, compiling the essential elements a PSA should include. Don't leave your next property deal to chance. Download our FREE purchase and sale agreement template today and embark on your journey with confidence. Let's close those deals safely and profitably together.


Common Contingencies In Purchase & Sale Agreements

A contingency is a condition that must be met for a purchase and sales contract to proceed. It's a way for all parties involved to protect their interests and have an escape plan in case unforeseen issues arise. If for nothing else, uncertainties are an inherent part of the game, and they serve as an important safety net that can be included in a PSA contract.

Contingencies can be triggered by various events, which begs the question: How do they protect everyone involved in a deal? Let’s take a look at how each position in a transaction can take advantage of their protection:

  • For Buyers: Contingencies allow buyers to back out of the contract if certain conditions aren't met. For example, if the home inspection reveals significant problems, the buyer can request repairs or cancel the deal without losing their earnest money.
  • For Sellers: Contingencies protect sellers, too. If a buyer fails to secure financing or sell their property (if that's a condition), the seller can retain the right to put the property back on the market.
  • For Investors: Real estate investors often rely on specific contingencies to ensure their investment strategy aligns with their goals. Contingencies provide a way out if the deal doesn't meet their predetermined criteria, whether the condition of the property or the financing terms.

Now that we know who contingencies protect, let’s explore the most common contingencies you can expect to find in a purchase and sale agreement:

  • Home Inspection Contingency: This allows the buyer to have the property inspected by a professional. If significant issues are discovered, the buyer can request repairs or renegotiate the terms, providing them with peace of mind regarding the property's condition.
  • Financing Contingency: Protects the buyer by making the sale contingent on securing financing. If the buyer can't obtain a mortgage, they can exit the deal without losing their earnest money.
  • Appraisal Contingency: This contingency ensures that the property's appraised value matches the purchase price. If the appraisal falls short, the buyer can renegotiate or cancel the deal.
  • Sale Of Buyer's Property Contingency: If the buyer needs to sell their existing property to fund the new purchase, this contingency gives them time to do so. If their property doesn't sell within the specified timeframe, the buyer can cancel the transaction.
  • Title Contingency: Ensures the property's title is clear and free from legal disputes or claims. If title issues arise, the buyer has the option to back out.
  • Zoning & Permit Contingency: Protects the buyer by allowing them to verify that the property complies with local zoning regulations and has the necessary permits for any improvements. If issues are found, they can negotiate or exit the deal.
  • Home Sale Contingency: If the seller is simultaneously buying a new home, they may include a contingency that makes their sale dependent on successfully purchasing the new property.

While the common contingencies mentioned above cover the fundamental aspects of a real estate transaction, it's important to note that the possibilities are nearly limitless. In a purchase and sale agreement, buyers, sellers, and investors can include contingencies for just about anything, provided both parties mutually agree.

Real estate deals can be as unique as the properties themselves, and contingencies can be tailored to address specific concerns or conditions relevant to a particular transaction. Whether it's an unusual repair request, a clear timeline requirement, or any other consideration, the flexibility of contingencies allows for a customized approach to meet the needs and expectations of all parties involved. This flexibility is one of the strengths of PSAs, making them versatile tools for ensuring that every real estate transaction aligns with the interests and goals of the individuals involved.


Purchase & Sale Agreement FAQs

psa real estate faq

In the dynamic and ever-evolving real estate market, knowledge truly is power, and this principle extends to every facet of the industry, including purchase and sale agreements. To succeed in real estate, individuals must equip themselves with a comprehensive understanding of these vital documents. Consequently, the best way to achieve this result is by asking the right questions and seeking the answers that lead to informed decisions.

To facilitate this learning journey, the upcoming sections of this article are dedicated to addressing some of the most frequently asked questions about PSAs, ensuring that you have the knowledge and insights needed to navigate the intricate terrain of real estate transactions with confidence.

What Happens After A Purchase & Sale Agreement?

Once both the buyer and the seller sign a purchase and sale agreement, a sequence of crucial steps unfolds, marking the progression of a real estate transaction. It's important to note that until this agreement is signed, neither party is legally bound to the deal.

Here's what typically happens after a PSA is signed:

  • Earnest Money Deposit: The buyer is typically required to deposit earnest money into an escrow account to show good faith and commitment to the transaction. This deposit acts as collateral, indicating that the buyer is serious about purchasing the property. If the deal falls through due to contingencies outlined in the PSA, the earnest money is usually returned to the buyer. If not, it may go to the seller as compensation for taking the property off the market.
  • Home Inspections: The buyer will conduct inspections of the property, often within a timeframe specified in the PSA. These inspections may include a general property inspection, pest inspection, and, if necessary, specialized examinations like radon or mold tests. If significant issues are found, the buyer can negotiate repairs with the seller or, depending on the contingencies, choose to walk away from the deal.
  • Title Search: The title company conducts a comprehensive title search to ensure that the property's title is clear and free from any liens, disputes, or encumbrances. This step is crucial for protecting the buyer's ownership rights.
  • Financing & Loan Agreements: If the PSA includes a financing contingency, the buyer will work on securing a mortgage or loan to complete the purchase; this often involves communicating with the lender, providing financial documentation, and satisfying the lender's requirements. If the buyer cannot secure financing within the specified timeframe, they can exit the deal per the terms of the contingency.
  • Appraisal: The lender typically arranges a property appraisal to determine its market value. If the appraisal value falls short of the purchase price, the buyer and seller may need to renegotiate the terms or come to a resolution outlined in the PSA.
  • Contingency Removal: Once all contingencies have been met or removed as per the PSA, the deal proceeds to the closing stage. If any contingencies remain unmet, the parties may have the option to extend or terminate the agreement.
  • Closing: The final step involves the buyer and seller meeting to sign the necessary paperwork, exchange funds, and transfer ownership. The closing is facilitated by a brokerage, title company, escrow agent, or attorney (depending on the state), ensuring that all financial obligations are met and the property's ownership is legally transferred from the seller to the buyer.
  • Possession: After the closing, the buyer typically takes possession of the property, and the transaction is considered complete.

The specifics of what happens after a PSA may vary based on the unique terms and contingencies outlined in the agreement. It's essential for all parties involved to adhere to the timeline and obligations specified in the PSA to ensure a smooth and successful real estate transaction.

Is A Purchase & Sale Agreement Required To Wholesale Real Estate?

While a purchase and sale agreement is not always a strict requirement for wholesaling real estate, buyers, sellers, and real estate investors are advised to use them for many reasons. A PSA, when used, becomes an integral part of the wholesale contract and plays a critical role in ensuring a transparent and secure transaction.

There are very few reasons (if any) not to use a purchase and sale agreement, which begs the question: Why are all the parties involved in a real estate transaction encouraged to use a PSA? Here are some of the most important reasons to use a PSA:

  • Legal Protection: A PSA provides legal protection to both the buyer and the seller by clearly outlining the terms and conditions of the real estate transaction. It sets the expectations and obligations of all parties, reducing the risk of disputes and legal complications.
  • Transparency: It offers transparency by detailing the purchase price, property description, contingencies, and other essential terms. This transparency is vital for maintaining trust and facilitating a smooth transaction.
  • Contingencies: Contingencies specified in the PSA protect all parties involved. For example, a financing contingency ensures the buyer has the necessary funds, while a home inspection contingency allows for essential repairs or renegotiations.
  • Record Keeping: The PSA serves as an official record of the transaction, making it easier to track the progress and history of the deal.

Outside of mitigating risk and facilitating transactions, PSAs play a crucial role in wholesaling, especially in the assignment of contract and double-close methods. Let’s explore how PSAs impact wholesaling exit strategies:

  • Assignment Of Contract: In this approach, the wholesaler enters into a PSA with the seller and includes an assignment clause. This clause allows the wholesaler to assign their right to purchase the property to another buyer (usually an investor) before the closing date of this agreement. The assignment contains a copy of the original PSA between the seller and the wholesaler, giving the new buyer complete insight into the terms, conditions, contingencies, and prices involved in the deal.
  • Double Close: In a double close, the wholesaler initially buys the property and then immediately resells it to the ultimate buyer. The PSA is part of both transactions and stipulates that the new buyer will assume property ownership, purchasing the home from the wholesaler. This arrangement effectively absolves the wholesaler from all responsibility for the property once the deal is closed.

While a purchase and sale agreement isn't always obligatory for wholesaling, it is a highly recommended and valuable tool for ensuring a transparent, secure, and legally sound transaction. It forms an essential part of the wholesale contract, whether through assignment or double close, providing the necessary structure and protection for all parties involved.

*Looking to learn more about purchase and sale agreements and how to wholesale real estate? We invite you to view our video on How To Wholesale Real Estate Step by Step (IN 21 DAYS OR LESS)! Host and CEO of Real Estate Skills, Alex Martinez, provides a comprehensive, step-by-step guide for beginners to start wholesaling real estate!

Who Drafts Purchase & Sale Agreements?

The responsibility for drafting purchase and sale agreements typically depends on the state in which the real estate transaction takes place. However, regardless of the specific state requirements, the core elements of the PSA are usually shaped by the wants and needs of the buyer and seller involved in the deal.

Here's a detailed look at who typically drafts PSAs and how this process unfolds:

  • Buyer's Agent: In many real estate transactions and escrow states, the buyer's agent plays a significant role in drafting the PSA. The buyer's real estate agent is responsible for understanding the buyer's requirements, financial capabilities, and any specific conditions they want in the agreement. They then use this information to draft a PSA that aligns with the buyer's goals and safeguards their interests. The agent will present the PSA to the seller's agent for negotiation and finalization.
  • Real Estate Attorney: In some cases, especially in states where real estate attorneys are commonly involved in transactions, it may be the attorney's responsibility to draft the PSA. Real estate attorneys have a deep understanding of the legal aspects of real estate transactions and can ensure that the agreement complies with state laws and regulations. They work closely with the buyer, seller, and agents to create a PSA that reflects the terms and conditions agreed upon by the parties.

Regardless of whether the buyer's agent or a real estate attorney drafts the PSA, it's important to emphasize that the terms and conditions included in the covenants are driven by the negotiations between the buyer and the seller. The PSA serves as a formal representation of the agreed-upon terms and provides the legal framework for the transaction.

Who Signs The Purchase & Sale Agreement First?

It's typically the buyer who takes the initial step by signing the purchase and sale agreement. The buyer sends a signed copy of the PSA to the seller, representing their formal offer and commitment to purchasing the real property under the specified terms and conditions.

However, it's important to note that the process can involve negotiation and an addendum or two, often leading to counteroffers. In such cases, the seller may review the buyer's initial offer, propose changes, or counter the offer with different terms. If the seller decides to counter, they would then send a subsequent signed copy of the PSA back to the buyer. This exchange of signed documents may go back and forth until both parties come to a mutual agreement on the terms of the sale.

While the buyer often starts the process by sending the initial signed PSA, it's not uncommon for the seller to respond with their signed document as negotiations progress.

When Do You Sign A Purchase & Sale Agreement?

A purchase and sale agreement is typically signed once the buyer and seller have agreed to the terms and conditions of the real estate transaction. The signing of the PSA marks a pivotal moment in the process because it formalizes the agreement and sets the stage for all subsequent steps in the transaction.

The PSA is signed before proceeding with any further steps for several important reasons:

  • Legal Formalization: The PSA serves as the legal document that formalizes the intent of both parties to engage in a real estate transaction. It outlines the agreed-upon terms, including the purchase price, property description, contingencies, and other vital details. By signing the PSA, the buyer and seller legally commit to fulfilling their obligations as outlined in the document.
  • Clarity & Protection: Signing the PSA provides clarity and protection to both parties. It establishes a framework for the entire transaction, reducing the likelihood of misunderstandings or disputes. This clarity ensures that the transaction proceeds smoothly and efficiently.
  • Framework For Further Steps: The PSA is the foundation upon which all other steps in the real estate transaction are built. It sets the timeline and terms for actions such as property inspections, assessments, easements, waivers, written notices, paying attorneys’ fees, effective date of closing, disclaimers, representations and warranties, time period, title insurance company, arbitration, down payment, title searches, financing arrangements, and the ultimate transfer of ownership. Without a signed PSA, these subsequent steps lack a structured framework.

In summary, the PSA is signed once the buyer and seller have acknowledged the terms of this agreement. It is a critical starting point that provides legal formality, clarity, and a structured framework for all the subsequent actions and processes involved in the real estate transaction.

Are Purchase & Sale Agreements Legally Binding?

Yes, purchase and sale agreements are legally binding contracts in the real estate industry, and this lawfully binding nature is paramount in facilitating secure and orderly deals.

Let’s dig into why PSAs are legally binding and the significance of their legality:

  • Legal Enforceability: A PSA is a formal contract between the buyer and the seller. When both parties sign the entire agreement, they are legally committing to fulfill the terms and conditions stipulated within it. This legal enforceability is crucial for ensuring that all parties involved honor their obligations as outlined in the contract.
  • Protection Of Interests: PSAs are meticulously crafted to safeguard the interests of both the buyer and the seller. They include essential details such as the home purchase price, property description, contingencies, and timelines, leaving no room for ambiguity. This level of specificity is vital for protecting the rights and interests of all parties throughout the real estate transaction.
  • Clarity & Expectations: The binding nature of a PSA provides clarity and sets clear expectations. It significantly reduces the chances of misunderstandings or disputes by providing a comprehensive framework for the entire real estate transaction. Buyers and sellers can confidently proceed, knowing the contract's terms and conditions are legally upheld.
  • Remedies For Breach: When a PSA is legally binding, it also means that there are legal remedies available in the event of a breach of contract. If one party fails to meet their obligations, the other party can seek remedies in a court of law; this not only enforces accountability but also provides a recourse to resolve disputes or recover damages.

To be clear, the signatures of both parties are typically enough to make a PSA legally binding. However, it's essential to note that some states or local jurisdictions may have specific regulations that necessitate notarization for real estate contracts. Additionally, some individual PSAs may include a notary requirement as part of their terms.

Whether a real estate purchase and sale agreement needs to be notarized is generally dependent on state and local regulations, as well as any specific requirements outlined in the contract itself. In many real estate transactions, PSAs do not require notarization, as they are considered legally binding once both the buyer and seller sign the document. The signatures of the parties involved, along with the contract's terms and conditions, are typically sufficient to establish the agreement's validity.

In the intricate and often high-stakes real estate industry, the legally binding nature of PSAs is a cornerstone of safe and reliable transactions. It ensures that the commitments made by all parties are honored, thus reducing risks and enhancing the security of the real estate deal. The binding contract status of a PSA establishes a structured and protected environment within which buyers, sellers, and investors can confidently navigate the complex process of real estate transactions.


Final Thoughts On Purchase & Sale Agreements

The purchase and sale agreement is the foundation of every successful transaction. It's the contractual roadmap that paves the way for buyers, sellers, and investors to navigate the complexities of property deals with confidence and security.

Having said that, knowing how to execute a PSA is not just a skill; it's a powerful asset. Informed decisions and a solid understanding of the intricacies of these agreements can make the difference between a safe, profitable deal and one fraught with uncertainties. That's where Real Estate Skills comes in. Our commitment is to empower you with the knowledge and tools you need to master the art of PSAs and real estate transactions.

From understanding the common contingencies that protect your interests to offering a comprehensive PSA template for your convenience, we are here to guide you through every step of the process. We aim to ensure you have the resources and expertise to make well-informed choices and take your real estate endeavors to new heights.

Ready to take your real estate career to the next level? Contact Real Estate Skills today and unlock the full potential of your real estate ventures. Our experts are here to provide guidance, resources, and strategies to help you thrive in the real estate investing industry. Don't miss out on this opportunity to enhance your skills and boost your success. Get in touch with us now and elevate your career in real estate.

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