Sales and Purchase Agreement (SPA)

A Sales and Purchase Agreement (SPA) is a legal contract that details the agreement’s terms and conditions. It safeguards both buyer and seller by clarifying the transaction’s specifics. SPAs are particularly valuable for transactions involving real and personal property, such as homes, businesses, vehicles, and other personal items.

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Table of Contents

• By State
• By Type
• What Is a Purchase Agreement?
• What to Include in a Purchase Agreement
• How to Buy a House
• Amendments, Addendums, and Disclosures
• Buyer Beware
• Earnest Money Deposits
• How to Write a Real Estate Purchase Agreement
• Purchase Agreement Sample
• Other Purchase Agreements
• Frequently Asked Questions

What Is a Purchase Agreement?

A purchase agreement is a legal contract between a buyer and a seller. It describes the circumstances of the sale, including the property being sold and the agreed-upon purchase price.

It fulfills three main purposes:

1. It identifies the property the seller is selling.
2. It explains the steps necessary to complete the transaction.
3. It outlines each party’s obligations, liabilities, warranties, and rights.

Purchase Agreement vs. Purchase Order

A purchase order primarily signals a buyer’s intent to acquire specific items, including details such as price, quantity, and product type. It initiates the purchasing process but doesn’t finalize the terms of the sale.

A sales and purchase agreement, on the other hand, is a comprehensive and binding contract often negotiated and executed following the issuance of a purchase order. This agreement formalizes the sale, outlining the agreed-upon terms and conditions, including payment and delivery specifics.

The key difference lies in the stages of the transaction they represent: a purchase order indicates a desire to purchase, while a sales and purchase agreement cements the commitment to the transaction’s terms.

What to Include in a Purchase Agreement

1. Parties’ Information: Include the buyer’s and seller’s full names and contact information to identify the contracting parties clearly.
2. Detailed Property Description: In addition to the address and legal description of the land, be as specific as possible in describing the property to ensure all parties are clear about the asset being transferred. This might include the size, shape, color, condition, and any other identifying details for personal property or real estate.
3. Financial Terms: State the purchase price, including any deposits, down payments, or adjustments. Highlight how the purchase will be financed, whether through a third party, seller funding, or assuming the seller’s existing mortgage. Details about earnest money deposits, which demonstrate the buyer’s intent and are held in escrow, should also be mentioned, as well as whether a promissory note will be used as part of the payment structure.
4. Inclusions with the Sale: List any appliances or fixtures that come with the property, like refrigerators, washers, dryers, or furniture, to avoid future disputes.
5. Property Taxes: Describe any property taxes imposed by the seller on the buyer for the purchased property, including who is responsible for paying them and any proration of taxes.
6. Representations and Warranties: Outline specific claims about the property’s condition. The seller should attest to having the legal right to sell the property and guarantee its stated condition.
7. Contingencies: Define actions or conditions that must be met for the contract to proceed, including financing, home inspections, appraisal, and homeowner’s insurance requirements. These contingencies protect both parties from unforeseen circumstances that could impact the sale.
8. Method of Conveyance: Specify the method for transferring the property, such as a bill of sale for personal property or a real estate deed for a home.
9. Title and Title Insurance: Ensure there are clauses addressing the title investigation to uncover any issues with the property’s title and include the requirement for title insurance to protect against future discoveries of defects in the title.
10. Timing and Key Dates: Clearly state key dates relevant to the sale, including a period for the buyer’s due diligence, the intended date of the final sale, and any contingency deadlines.
11. Closing Details and Possession Dates: Indicate when the legal transfer of the property will occur and when the buyer will gain possession.
12. Escrow Agent or Company: Identify any preferred escrow agents or companies responsible for opening and managing the escrow account.
13. Contract Expiration: Mention the timeframe for the other party to respond to the purchase agreement offer.
14. Termination Options: Provide clarification on the buyer’s option to retract their offer and end the contract by a specific date before closing, detailing any associated conditions or penalties.

How to Buy a House

Buying a house is a significant milestone in anyone’s life. It involves steps that demand careful planning and attention to detail. Here’s a comprehensive guide to navigating through the process smoothly.

Step 1: Assess Your Financial Situation

Before embarking on the house-hunting process, it is crucial to evaluate your finances. Understand your credit score, savings, debt-to-income ratio, and how much you can afford. This will give you a clear picture of your budget and help you set realistic expectations.

Step 2: Prequalify for a Mortgage

Securing a mortgage prequalification is an essential step. Based on your financial overview gives you an idea of the loan amount you might qualify for. This will further refine your budget and make you a credible buyer in the eyes of sellers.

Step 3: Find the Right Property

Finding the perfect property can be conducted online or through a real estate agent. To streamline your search, consider your priorities, such as location, size, amenities, and neighborhood.

Step 4: Make an Offer

When you’ve identified the perfect house that meets all your criteria, it’s essential to proceed to the next step, which involves making an offer. Consider drafting a real estate letter of intent to ensure your offer is competitive and clearly communicates your interest and conditions. This document allows you to outline the terms of your offer professionally, making it clear that you are serious about the purchase while remaining within your financial capacities.

Step 5: What Happens After You Submit an Offer?

• If the seller accepts the offer, you move to the next stages, including the earnest money deposit and purchase agreement.
• If the seller rejects the offer, it’s back to the drawing board. Consider other properties or adjust your offer.
• If the seller sends back a counteroffer, you must decide whether to accept it, negotiate further, or walk away.

Step 6: Mention Earnest Money Receipt

Upon agreement with the seller, an earnest money deposit is required to demonstrate your commitment to the purchase, which is typically held in an escrow account.

Step 7: Write the Purchase Agreement

This legal document outlines the terms of the sale, including the purchase price, contingencies, and closing date. It’s a crucial step to solidify your intentions and protect both parties.

Step 8: Conduct Inspections and Appraisals

• Home Inspection – It is advisable to conduct a thorough inspection to identify potential issues. Consider using a home inspection checklist to ensure all areas are covered.
• Home Appraisal – An appraisal will determine the property’s fair market value, vital for mortgage approval.

Step 9: Negotiate Repairs

You may need to negotiate repairs with the seller based on the home inspection findings. This can either fix the issues or adjust the purchase price accordingly.

Step 10: Finalize Your Mortgage

Select the best mortgage option based on your financial situation. It could be a fixed-rate mortgage, an adjustable-rate mortgage, or another type that suits your needs. Ensure that all necessary documentation for loan processing is gathered and submitted.

Step 11: Close the Deal

Before you finalize the transaction, perform a last walkthrough of the property. This ensures that all repairs agreed upon in the contract are completed and that the house is in the expected condition. After this, it’s time to sign the necessary documents, including the warranty deed, which legally transfers property ownership to you. Once everything is in order, you’ll close the deal and receive the keys to your new home.

Amendments, Addendums, and Disclosures

Addendums are terms that are added to the purchase agreement and are not found elsewhere in the document. Contingencies are one type of purchase agreement addendum.

Here are some common addendums within a real estate purchase agreement:

• Release of Earnest Money: This section states that a seller must release the earnest money deposit to the buyer under certain conditions.
• Escrow Holdback Agreement Addendum: This addendum outlines the regulations for funds held in an escrow account, typically mandating that the buyer be awarded any accrued interest.
• Closing Date Extension: Pushes the closing date, allowing the buyer and seller more time to prepare.

Disclosures in a purchase agreement provide the buyer with information about potential property issues or other information they should know. The items outlined could impact the home’s value or legal mandates about specific safety or health problems. Some examples of disclosures include the following:

• Lead paint disclosure: Required for properties built before 1978.
• Property disclosure: Reveals any defects with the property, including foundational or structural issues.
• Boundary disputes disclosure: States if there have been prior boundary disputes.
• Death on property disclosure: Reveals if anyone has passed away on the property.
• Sexual offender disclosure: Discloses if a sexual offender has lived on the property.
• Environmental hazards disclosure: Clarifies if any environmental hazards exist that affect the property’s habitability.
• Condition of water/sewer systems disclosure: Reveals if the property’s water or sewer systems have serious issues.

Amendments are legal documents that modify the original real estate purchase agreement. It is typically used to address unexpected changes or correct errors in the original contract. When properly created and signed, the amendment becomes a legally binding document.

Buyer Beware

When buying a home, it’s essential to understand that in some states, laws don’t require sellers to tell you about major problems with the property. This rule is known as “buyer beware” or “caveat emptor,” which means you’re buying the property in its current condition, whatever that may be.

Here’s how you can safeguard your interests:

• Make Sure to Do Your Homework: It’s vital to examine the results of your property inspections carefully.
• Take a Good Look at Your Purchase Agreement: Consider the following important questions:
  • What kind of inspections do I need?
  • Does sealing the deal depend on the inspection outcomes?
  • If the seller doesn’t make certain repairs, can I back out of the sale?
  • If the inspection uncovers problems, by when do they need to be fixed?

Getting a detailed inspection is crucial, particularly in states that follow the “buyer beware” principle: Alabama, Arkansas, Georgia, North Dakota, Virginia, and Wyoming.

Earnest Money Deposits

Earnest money is a crucial part of the home-buying process, serving as a buyer’s deposit to demonstrate their commitment to a property purchase. The exact amount of this deposit varies, typically ranging from 1% to 10% of the home’s sale price, depending largely on the current real estate market dynamics. This deposit not only signifies the buyer’s seriousness but also acts as a protection for the seller against potential buyer withdrawal.

A detailed contract accompanies the earnest money exchange, outlining specific conditions that dictate the circumstances under which the deposit can be refunded. This agreement is vital for protecting both parties involved and ensuring clarity and fairness in the transaction.

However, the arrangement also contemplates situations where a buyer might legally retract their offer without losing their earnest money. These provisions, known as contingencies, cover various scenarios—like the discovery of significant property flaws during an inspection or the buyer’s inability to secure financing—allowing the buyer to back out of the deal under predefined terms.

If a buyer breaches the contract without a covered contingency, they risk forfeiting their earnest money deposit as compensation to the seller for the lost opportunity. To safeguard the deposit, it is typically held in escrow by a neutral third party until the transaction concludes or a dispute arises, ensuring fairness and security for both buyer and seller. Interest earned on the deposit while in escrow usually benefits the buyer, contributing towards their closing costs or down payment. This framework ensures a balanced, committed approach to the real estate transaction process.

How to Write a Real Estate Purchase Agreement

Before filling in the details of your real estate purchase agreement, identify the state where you will execute the contract.

Additionally, provide the effective date of the agreement.

Step 1 – Fill Out the Buyer and Seller Information

1. Seller. Write down the seller’s full name. Indicate if the seller is an individual or entity, such as a corporation, LLC, or trust. Provide the seller’s street (physical) address.

2. Buyer. Enter the buyer’s full name. Indicate if the buyer is an individual or entity, such as a corporation, LLC, or trust. Provide the buyer’s street (physical) address.

Step 2 – Describe the Property

3. Property. Fill out the street (physical) address of the property the buyer is purchasing. Include any unit or apartment number, if applicable. Enter the legal description of the property.

A legal description is a geographical description of the property, commonly identified by a government survey, metes, bounds, or lot and block. You can find the legal description in the property’s deed or through the county assessor.

Step 3 – Identify Personal Property

4. Included. Summarize what the sale will include. The purchase includes all real estate, buildings, improvements, appurtenances, and fixtures. You have the option to include additional personal property items in the sale.

5. Excluded. You can choose whether to exclude certain fixtures and items from the sale. If you do, provide a list of those items so the buyer isn’t confused when they don’t receive certain items.

Step 4 – Provide the Purchase Price and Details

6. Purchase Price. Fill in the total purchase price for the property.

7. Earnest Money Deposit. Write the total amount of the earnest money deposit (or the “good faith deposit”), which is the deposit the buyer makes showing good faith and commitment to purchase the property. At closing, the earnest money deposit shows as a credit toward the purchase price.

The earnest money deposit amount varies depending on several factors but is generally 1 to 3% of the purchase price.

8. Payment Method. Enter the payment method (how the buyer will pay the seller).

 

Step 5 – Describe Disclosures

9. Disclosures and Defects. You can specify seller disclosures, such as environmental hazards, flooding or drainage issues, etc.

Step 6 – Write Assumption of Loan Details

10. Assumption of Loan. State whether the buyer will take over the seller’s mortgage. If yes, provide the following mortgage details:

• • Name of financial institution
  • Date of mortgage and current balance

Also, choose whether the seller or buyer will pay the fees related to the mortgage transfer.

Step 7 –  Identify Financing Contingencies

11. Terms of Mortgage. Choose what you want the terms of the mortgage to be.

12. Buyer’s Obligations. Write whether you want the agreement contingent upon an appraisal with a value equaling or exceeding the purchase price.

Step 8 – Enter Sale Contingencies

13. Sale of Another Property. State whether the agreement is contingent upon the buyer first selling a property, also called a home contingency. If yes, provide the street address of the property the buyer must sell first.

Step 9 – Fill in Representations and Warranties

14. Standard Seller Representations and Warranties. The purchase agreement provides for these standard sellers’ representations and warranties regarding title, authority to sell, and the property not violating government rules, codes, permits, and regulations.

15. Additional Seller Representations. You can add any additional seller’s representations and warranties listed on a purchase agreement and add your own.

Step 10 – Provide Inspection Details

16. Inspection Contingency. The agreement provides that the purchase is contingent upon the buyer’s inspection. The buyer can request the seller fix or repair any unsatisfactory conditions. You can choose whether to include a date by which the buyer and seller must agree on repairs.

Step 11 – Write Down Title Insurance Details

17. Title Insurance Policy. This section pertains to a title insurance policy. You choose who pays for the title insurance, who selects the insurance company, and whether or not you want to include any allowable exclusions or exceptions to the policy.

18. Dates for Objections. Provide the days the buyer has to notify the seller of any objections to the title after receiving the preliminary report. Enter the days the seller has to correct or address the complaints after receiving the buyer’s notice.

Step 12 – Enter Closing Details and Deliverables

19. Closing Date and Location. Provide the date and location (street address) of the transaction’s closing.

20. Seller Deliverables. The purchase agreement provides for some standard seller closing deliverables. Add any additional seller closing deliverables on a purchase agreement form or identify your own.

21. Buyer Closing Deliverables. The purchase agreement provides for some standard buyer closing deliverables. You can choose to add any additional buyer closing deliverables of your own.

22. Seller Closing Costs. Choose the closing costs the seller is responsible for.

23. Buyer Closing Costs. Identify the closing costs the buyer is responsible for.

24. Delayed Closing. Decide whether to allow the buyer to delay closing due to the buyer’s lender requiring additional documentation or information. If yes, provide the days the buyer can extend the closing.

Step 13 – Write Down the Property Possession Date

25. Possession of Property. Provide the date the seller must deliver possession of the property.

Step 14 – Identify Assumption of Leases

26. Lease Information. Write whether the seller is currently leasing the property. If yes, provide the name and date of the lease agreement as well as the name of the lessee.

Step 15 – Fill in Governing Law, Disputes, and Miscellaneous Information

27. Governing Law. Choose the state’s laws that will govern the construction of the purchase agreement.

28. Disputes. If there are disputes, choose whether the buyer and seller will resolve disputes through court litigation, binding arbitration, mediation, or mediation then arbitration.

Miscellaneous. You can include additional provisions to the purchase agreement.

Step 16 – Fill in Lead-Based Paint Disclosures

29. Seller’s Disclosure. If the property was built before 1978, the seller must disclose the presence of known lead-based paint or lead-based paint hazards and provide records and reports about lead-based paint and lead-based paint hazards.

30. Buyer’s Acknowledgement. The buyer must initial and sign the lead disclosure/warning statement, acknowledging the buyer received copies of all information about lead-based paint and lead-based paint hazards. The buyer must also acknowledge receiving a pamphlet titled “Protect Your Family from Lead in Your Home.”

31. Agent’s Acknowledgement. Suppose an agent is involved in the transaction. In that case, the agent must initial and sign the lead disclosure/warning statement, acknowledging the agent informed the seller of the seller’s obligations under 42 USC §4852d.

Purchase Agreement Sample

Below, you can see a purchase and sale agreement sample. Download our free blank purchase agreement template in Word or PDF format:

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