When purchasing a home, you must complete a lot of necessary paperwork before moving day. A purchase and sale agreement is one of the most critical pieces of paperwork.
Read on to learn the details about a purchase and sale agreement. Whether searching for Ann Arbor, MI, real estate or settling down in a different location, it’s essential to understand what a purchase and sale agreement includes.
What Is a Purchase and Sale Agreement?
A purchase and sale agreement, or PSA, is written up and signed after a buyer and seller come to terms on a real estate transaction. Depending on state laws, a real estate agent or attorney will prepare the PSA.
A PSA is a document that demonstrates a mutual agreement on a potential offer. It includes all terms of the purchase in a real estate transaction, including the final sale price. The contents of a PSA can vary according to state, but there are basic features that every PSA usually includes.
What’s In a Purchase and Sale Agreement?
Depending on the transaction’s size, a significant amount of content within a purchase and sale agreement may exist. A purchase and sale agreement may include the following sections.
Purchase Price
One of the primary purposes of the PSA is to establish a written agreement about the sale price signed by both parties. This agreement is called the purchase price.
However, in some cases, this sale price can change even after the signing of the PSA. Therefore, negotiations can happen when problems arise and threaten the sale. For example, if the home inspection reports a significant issue or the appraisal comes back low, the buyer may negotiate a lower final sale price with the seller.
Earnest Money Details
Earnest money is a small deposit the buyer pays to show serious interest in the PSA. It’s also a good faith deposit for the buyer to buy the property. The PSA covers many details about earnest money, including:
- How much money the buyer should deposit.
- The deadline for depositing earnest money.
- Any contingencies that can cause the buyer to receive a refund.
- How long the buyer has to perform due diligence, such as a home inspection.
- Who manages the earnest money (usually a third-party escrow agent or title company)
Closing Date
The purchase and sale agreement includes the planned closing date, which sets the sale process in motion. Some steps that need to happen before the closing date include a home inspection, a title search, and an appraisal and mortgage underwriting.
When you close on a house, these components come together at one meeting at a real estate attorney or title company’s office.
Title Insurance Company
Information about the title company is also in the purchase and sale agreement. As a home buyer, you always have the right to choose a title company. You should speak to your real estate agent or attorney if you have questions about selecting a title company.
Title Condition
The purchase and sale agreement will also include an understanding that the seller will transfer the title to the buyer. In addition, it consists of financial responsibility for the title policy, how the title is insured, and the conveyance of the title.
Contingencies
Contingencies include conditions to meet before the home purchase can complete. These conditions explain why a buyer or seller can withdraw from the transaction without losing money. Typical purchase and sale agreement contingencies include an appraisal contingency, financial contingency, and home inspection contingency.
PSA vs. Purchase Agreement
A purchase and sale agreement isn’t the same as a purchase agreement. Instead, a PSA outlines the specific terms and conditions of the transaction between the buyer and seller. After signing the PSA, both parties will move forward with the final paperwork for the home sale.
The purchase agreement is the final paperwork both parties sign for the home sale — similar to a sales contract. After signing the purchase agreement, the sale of the property is complete. It’s a legally binding contract for the purchase of a home.
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