Signing a sales contract for a real estate transaction

What Are Real Estate Purchase Agreements, Home Buying Contracts, and Inspection Contingencies

When taking part in a real estate transaction, whether you are the home buyer or seller, you will need to use the appropriate forms, contracts, and people to complete the purchase agreement or sales contract. Read on to learn how your inspection contingency can save your behind if things go south.

What is a Purchase Agreement

Historically, when one thinks of a purchase agreement, it is not odd to automatically be reminded of real estate. This is because a large number of contracts, purchase agreements, and other forms and documents remain under the purview of the real estate industry and markets.

A purchase agreement also referred to as a purchase and sale agreement, is a type of legally binding asset purchase agreement contract that outlines the various conditions that are outlining what terms both the buyer and seller need to abide by or complete for the sale of real property via a residential purchase agreement.

The purchase and sale agreement is associated specifically with the sale and purchase of real property and its fixtures by a chosen closing date, less any personal property not included in the contract, rather than any type of services (contracts for services are often called “service agreements”).

What Are Real Estate Purchase Agreements, Home Buying Contracts, and Inspection Contingencies -

A proper purchase agreement should include all of the information that is pertinent or relevant to the deal, such as the buyer and sellers’ information, the price of the home being purchased, the terms for which the completion of the sale is contingent on and much more.

Any real estate contract must be clearly-written to prevent any misunderstandings relating to the various terms, concessions, and contingencies.

Real Estate Transactions: Title Company, Earnest Money Deposit, and the Sales Contract

What is Earnest Money

Earnest money also called an earnest money deposit or good faith deposit, is an amount of monetary funds, personal or otherwise, that a buyer pays to the seller at the time of entering into a purchase agreement or real estate contract. The primary purpose of the earnest money deposit is to ensure that the home buyer is serious about following through on the purchase agreement terms.

Generally used in real estate transactions, earnest money may be used to offer the homebuyer more time while looking for funding. It also provides the seller with an incentive to continue the sale of their residential or commercial property if the buyer runs into trouble.

The earnest money is not paid directly to the owner of the home for sale. The creation of an escrow account is necessary to make sure the appropriate disbursement of funds, after the real estate transaction’s conclusion, is handled by a professional third-party to the real estate transaction.

Once the owner of the property accepts an offer for purchase, the buyer is required to sign a purchase agreement to make the transaction legal and binding. This contract is generally referred to as the “purchase agreement” or the “purchase and sales agreement.” This contract starts the earnest money procedure, which enters both the home seller and home buyer into a legally binding contract for the purchase of the home at the agreed-upon terms, less any home inspection contingencies, or addendums to the contract.

What Are Real Estate Purchase Agreements, Home Buying Contracts, and Inspection Contingencies -

Title companies can perform title searches for you or the real estate brokerage you are using and is the third party typically responsible for holding and transferring the earnest money deposit as well.

As soon as the purchase agreement is signed, the purchaser or their real estate agent is then required to make the earnest money deposit to be held in escrow by a third party title company. When all the provisions of the sales contract are complete, the title company pays out the earnest money deposit to the seller as part of the purchase sales price. If the purchaser is unable to find funding for the purchase of the property, she/he can get their earnest money back, provided that he/she included the correct inspection contingency in the purchase and sale contract.

How Much Should My Earnest Money Deposit Be

Honestly, the amount of earnest money deposit can be as much or as little as you want it to be. Many times you will run into the ever-dreaded “subject to our terms and conditions” clause, but legally, there is no set amount of money, or a percentage of the cost to buy a home that your earnest money deposit need be. As long as the parties involved come to an agreement on the amount as well as concessions to the transaction, your earnest money deposit can be any amount you want it to be.

The earnest money will generally have to come out of your own pocket as there are not really any mortgage lenders willing to increase their risk of loss by funding the earnest money deposit as well.

Contingent Meaning In Real Estate

The contingent definition in real estate means the seller of the home has accepted an offer to purchase their home, but for the real estate transaction to be completed, the buyer must meet or bring to fruition whatever terms or “contingencies” have been negotiated in the home-buying contract.

For instance, the house might have to pass the appraisal, the buyer may still need to secure financing for the deal (also known as a financing contingency), and a number of other possible contingency clauses or addendums. In either case, the listing is still essentially active up until the home buyer satisfies the contingency, money changes hands via the title company or escrow, and the real estate transaction is completed.

Once the offer is accepted, all that’s left is the final paperwork and closing, then the status of the real estate transaction will change from contingent to pending.

There are various kinds of both contingent and also pending conditions, each one suggesting a various level of chance for other enthusiastic purchasers.

  • Contingent – Continue to Show: The seller has actually accepted a deal that depends upon one or numerous contingencies. While the purchaser is functioning to clear up those contingencies, various other buyers can proceed to view the residential or commercial property and also submit deals.
  • Contingent – No Show/Without Kick-out: The seller has actually accepted a deal with contingencies. However, the seller will certainly no longer be showing the house or accepting offers.
  • Contingent – Release/Kick-out: There’s a target date whereby the purchaser has to meet their contingencies. The seller is still showing the home as well as approving additional bids.

What is an Inspection Contingency and Why are they Important

In real estate, a “contingency” refers to a condition of the Purchase and sale agreement that requires to take place for the real estate transaction to keep moving on. As the buyer, there are numerous contingencies that you can pick to include in your purchase and sale agreement or contract for sale.

In a real estate transaction, home inspections are for your benefit, as the buyer. They permit you to get a full image of the condition of the home that you plan to purchase.

What Are Real Estate Purchase Agreements, Home Buying Contracts, and Inspection Contingencies -

The home inspection contingency along with many other purchase or sale contingencies helps you as a home buyer hold on to your money if and when you need to back out of a deal for legitimate reasons.

The majority of buyers know about the house inspection contingency, which covers a basic assessment of the exterior and interior of the home, as well as its systems, but did you understand house inspections can likewise be useful to sellers too?

When it comes to real estate contracts and protecting yourself as a home buyer, it is important to understand what the different inspection contingencies and real estate contingencies are, and how they can help you. Following is an example of three of the most important contingencies you should include in your purchase and sale agreement:

Most Purchase Agreements are Contingent on What Two Items

The two contingencies most real estate contracts are contingent upon are the financing contingency and the inspection contingency.

The financing contingency will typically look a little something like this: “This offer to purchase the property located at xxx xxx xxx is contingent on the purchaser being able to secure proper financing for the transaction.”

The inspection contingency states that the sale is contingent upon verification of the home’s structure and safety by a third party; a licensed home inspector. The amount of time you have to satisfy the inspection contingency can vary widely depending on the terms of the contract, but five to seven days is pretty typical.

If a satisfactory inspection report is not obtained, the inspection contingency allows the buyer the option to terminate the contract or cancel the contract, ultimately making the current offer null and void unless new terms are negotiated between the buyer and seller.

What Is Seller Financing And Does It Require An Inspection Contingency

With seller financing, the seller handles the role of the loan provider. Rather than offering cash to the buyer, the seller extends adequate credit to the buyer for the house’s purchase cost, minus any deposit or down payment. To make it official, the seller and buyer sign a sellers note or promissory note, a legal document entitling the seller to the ownership of the loan. Then the purchaser repays the loan in time, generally with interest.

These loans are often short-term, for example, amortized over a time frame of 30 years however, with a balloon payment due in five years. Within a couple of years, the theory is that the house will have appreciated enough in value, or the purchasers’ financial circumstances will have improved enough that they can refinance with a conventional loan provider.

Sellers often do not want to be exposed to the dangers of extending credit longer than required. Seller financing is also a great way to avoid having to market the property.

Seller financing is most likely to be used when the house is free and clear of a home loan– that is, when the seller’s mortgage is paid off or can, at least, be settled using the buyer’s down payment.

The Three Most Common Home-Buying Contingencies of a Real Estate Purchase Agreement Explained

  1. Financing Contingency – If you are planning on using financing, conventional or otherwise, in which there is the possibility of being declined, you are going to want to include a financing contingency in your home-buying contract. The financial contingency can say that if you, as the home buyer, are unable to secure financing by the given date, you can back out of the real estate transaction with minimal to no losses.
  2. Appraisal Contingency – When you purchase a home, you expect to receive what you were led to believe you purchased, right? Right! What the appraisal contingency clause can do for you is protect you as the buyer if and when an appraisal of the property comes back significantly under the initially stated value and price of the home.
  3. Home Inspection Contingency – Buying a home sight unseen is just plain stupid if you don’t REALLY know what you are doing. When you purchase a home without a home inspection, it is akin to buying a home sight unseen, in that you never know what kinds of problems might be hiding behind the walls of the home. It is crucial to have a certified home inspector inspect the house you are buying, and if that inspection report comes back unsatisfactory to you for whatever reason, the Inspection Contingency Clause allows you a way out of the deal without breaking the contract. Without this clause, you might end up being forced to purchase a junker of a home when it looked like you were getting a sweet deal… And no one likes it when that happens. The length of time or number of days you have to complete your inspection contingency can be negotiated between you and the seller as long as it is before the date of delivery of the funds.

What To Look For When Buying A House For The First Time Home Buyer: A Complete Guide To Real Estate Transactions

Anyone thinking about purchasing or making an offer on a new home should read, re-read, and make good use of the knowledge contained in this book. The writer takes you step-by-step through the purchase or sale of a house via a traditional real estate transaction. This book is loaded from front to back with tips, tricks, checklists, and recommendations to help you become knowledgeable and confident when dealing with your property’s purchase or sale.

If you are looking for practical information and lists for home buying and home selling, the documentation needed by the home loan provider for mortgages, and how to go about choosing the most competent and compatible realtor. In that case, there is no better place to start than with this book!

This book is loaded from front to back with tips, tricks, checklists, and recommendations to help you become knowledgeable and confident when dealing with your property’s purchase or sale.

Can a Buyer Back out of a Purchase Agreement

Imagine that after signing the purchase agreement, you all of a sudden dream of all the places you’d rather live. Within hours, you have major remorses. Speaking both legally and ethically, getting cold feet is never an acceptable reason for breaking a real estate purchase contract. You must understand you will lose your earnest cash if you choose you do not want to continue. You can avoid this problem by taking your time to decide whether you are all set to buy a home before you make a deal.

No matter how hot the housing market is, do your research. Drive by the house at different times of day to get a sense of how loud the area is. If there are certain breeds of pet dogs that worry you, have a look at your potential neighbors’ family pets. Ask to see a copy of homeowners association (HOA) rules, and decide whether you can live with them. Make the journey from your house to your workplace throughout rush hour to discover the length of time the commute truly is. In other words, do everything you can to avoid home purchaser’s regret.

Long story short, yes, a purchaser can revoke a purchase agreement; however, the wording of the purchase agreement makes a big difference. Purchase arrangements generally consist of contingencies or situations in which you can revoke the agreement without charge.

As long as you’re pulling out of the purchase due to one of the contingencies noted n your purchase contract, you must be golden. If not, you might lose money. In uncommon cases, you might even face court action.

It’s too late to get your cash back if you discover something that makes you unpleasant after the contingency period is up. Ask your genuine estate agent to extend them before presenting the offer if the lengths of the basic contingencies concern you.

There is no chance to buy a residential or commercial property with a 100% guarantee that you will enjoy it. The ideal contingencies can protect you in case you need to back out of a deal.

*Note: This is not legal advice, but meant to educate. Always make sure to speak with your real estate attorney on matters related to an actual real estate contract you have or are trying to form.

What is the Difference Between a Purchase Agreement and a Bill of Sale

A quitclaim bill of sale resembles a quitclaim deed: It transfers property ownership from one party to another. It is used when the seller can’t ensure they own the residential or commercial property and have the right to transfer it. It is also used when the seller does not wish to warrant the title, which leaves the buyer no legal recourse if issues emerge in the future.

On the other hand, a receipt or invoice with a service warranty, such as a purchase and sale agreement, implies the seller can ensure they own the residential or commercial property and are legally capable of making the sale. This will secure the buyer from future claims against the residential or commercial property.

You should never utilize a quitclaim bill of sale when selling a home or purchasing a home because of the intricacies of real estate deals and complications that can arise without full disclosure or if there is a breach in contract by one of the parties to the transaction.

What Provisions are Typically Included In The Real Estate Purchase Agreement

Every transaction is different, so not all realty purchase agreements will look the very same. There are some basic items that need to be consisted of in every purchase agreement:

  • Buyer and seller information
  • Residential or commercial property details/ legal description of the property
  • Pricing and financing
  • Fixtures and appliances included/excluded in the sale
  • Closing and ownership dates
  • Down payment deposit quantity
  • Closing costs and who is accountable for paying
  • Conditions under which the contract can be terminated
  • Contingencies or conditions that need to be met for the sale to go through
  • Whether the property is asserted to be free of liens or other encumbrances
  • Where the court of competent jurisdiction resides, were litigation to arise out of a dispute
  • Any items the applicable laws do not cover

Understanding The Components Of The Purchase Agreement

The statute of fraud in U.S. common law, which requires specific agreements to be made in writing to be legitimate, includes property contracts. It is not enforceable if a contract to buy real estate is not composed and signed by both the purchaser and seller. Handshakes and verbal commitment are inadequate. The purpose is to avoid fraud and avoid circumstances where a court needs to think the word of one celebration over another. It doesn’t exist if it isn’t in writing.

Closing Costs

At closing, there are particular costs and costs that will require to be paid. How much each celebration will pay will depend on what was negotiated in the contract. Closing costs can include things like agent appraisal, examination and commission fees, taxes, lending institutions charges, and insurance coverage.

For purchasers, closing expenses might be 3%– 6% of the purchase priceClosing costs might be slightly higher for sellers.


A real estate purchase and sale contract can include several kinds of contingencies in property contracts on both the purchaser’s and seller‘s sides. It is necessary to understand any contingencies that are consisted of in your purchase contract.

Contingencies are conditions that must be met prior to the sale can go through. Here are some of the more common contingencies you may see in house sale agreements.

Earnest Money Deposit

If between the time you sign the purchase agreement and close on the home, the purchaser chooses they desire to back out for the factor that isn’t stipulated in the contract, they lose their down payment, and the seller gets to pocket it. A purchaser can get their earnest money back if they back out due to a factor stated in the agreement.

Down payment is generally kept in escrow by a 3rd party and is credited toward the down payment or closing costs at closing.


Your property purchase agreement will consist of info about how the buyer will pay for the house. If the buyer isn’t paying in cash, they’ll require some funding (i.e., a loan) to buy the home, the specifics of which will be drawn up in the contract.

The agreement will specify if the purchaser is getting a home mortgage to purchase the home or if they’re utilizing an option, such as presuming the present mortgage on the property or using seller financing. In either of the situations just mentioned, the purchaser makes payments to the seller rather than a traditional home loan lending institution.

Earnest money, often also referred to as an in faith deposit, reveals that a buyer is serious about buying the house. Sellers don’t desire to waste their time; they wish to know that a buyer agrees and  will stick with the contract through closing. The earnest cash deposit gives them that self-confidence.

Real Estate Transactions, Contracts, And Contingencies F.A.Q.s

Most Purchase Agreements are Contingent on Which Two Items

Two of the most prevalent and used contingencies in a real estate purchase agreement or contract to buy are the mortgage or financing contingency, as well as the inspection contingency.

What Does Contingent Mean in Real Estate

Where real estate and real estate transactions are concerned, the idea of a sales contract or purchase agreement being contingent or having contingencies means that there are certain criteria or obligations that must be fulfilled before closing on a house can take place.

How Long Does it Take to Close on a House

If you are wondering; How long does it take to buy a house, chances are what you want to know is the time it takes from making an offer on a house to closing on a house and the close of escrow. Typically, closing on a house will take about 30 days but can be as quick as a week or as long as a few months, depending on the situation. According to research done by LendingTree, in 2019 in the United States, real estate transactions, from start to finish, were taking an average of 47 days to close.

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