Home Purchase Agreement

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Home Purchase Agreement

A Brief Introduction of Home Purchase Agreement

A simple home purchase agreement is required when you want to either buy or sell a property. The agreement provides information regarding the property being transferred and the consideration being paid for it.

The down payment to be made in case a loan is being taken for the property will also be mentioned in the agreement. The buyer will be given a limited period to respond to the offer and the date by which the sale needs to be completed.

The agreement will include the items that will not be included as part of the sale. The seller needs to provide a guarantee that the title to the property is clear. The responsibilities of the seller, which include utility bill payments, taxes, and insurance are stated in the contract.
If there is a delay in the delivery of the property to the buyer with regard to the occupancy date, then there is a monetary penalty payable by the seller.

What Is a Home Purchase Agreement

A purchase agreement for home would include the terms and conditions to be followed by the buyer and seller of a property. The objective is to ensure that buyers and sellers are protected from any financial or other losses due to non-performance of the agreement by the other party.

What Happens After You Make an Offer on a House

After you make an offer on a house, the seller has the option to either accept the offer at face value, come up with a counteroffer or reject your offer. If the seller accepts the offer with some modifications, then the agreement is signed.

How to Get out of a Home Purchase Agreement

There are certain situations under which you can get out of a home purchase contract. There could be flaws in the title of the property; you may have a financial crisis, insurance problems due to the location of the property or through an amicable discussion with the seller.

Who Takes the Home Purchase Agreement

Home purchase and sale agreement are taken by the parties to the contract, the buyer and the seller of the property.
The buyer of the property will look for the best property available at a fair market price. The seller of the property will try to ensure that they receive the best price for their property. If the buyer and seller agree on the price, they enter into an agreement.

Purpose of the Home Purchase Agreement

A real estate purchase agreement ensures that the interests of both parties to the agreement are protected. The agreement is prepared in accordance with the laws of the state so that any breach of contract by either party would enable the injured party to take legal action.

The identity of the buyer and the seller are clearly stated in the agreement, and they cannot back out of the agreement at the last minute. The property and its location are mentioned, so there is no ambiguity regarding which property is being transacted. The consideration being paid for the property indicates that the price offered by the buyer has been accepted by the seller. The price cannot be escalated later on.

These agreements have a closing date for the sale and transfer of the title of the property to the buyer. There are certain payments to be made by the seller towards special assessments for taxes before the property transfer.

The agreement also mentions the exclusions while determining the value of the property, such as light fixtures, built-in kitchen equipment, or bathroom fixtures. The seller makes certain disclosures in the agreement like any wells in the vicinity, use of lead paints or termites which will ensure that the buyer is aware of any defects in the property before buying.

Contents of the Home Purchase Agreement

There are different types of home purchase contracts such as mobile home purchase agreements which would require some additional provisions as the buyer will own the mobile phone, but not the land on which the mobile phone is kept.
A standard agreement would include the following:

  • The identity of the seller and buyer in the agreement
  • A legal description of the property being sold which should contain the registered address
  • The consideration being paid by the buyer including any earnest money deposit if that is included in the agreement
  • Conditions relating to the mortgage: If the buyer needs to obtain a mortgage to enter into the agreement
  • Closing dates: The date on which the sale is closed, and the property’s title transferred to the buyer
  • Closing costs: The division of closing costs between both parties or if one party decides to bear all costs
  • Payment of taxes related to the sale like property taxes, maintenance fees or fuel needs to be shared by both parties. Payment for special assessment is the seller’s responsibility.
  • Exclusions: Items which do not form part of the purchase agreement like kitchen fixtures, bathroom fixtures, doors or windows
  • Defects in the property: The seller needs to disclose the buyer of any defects such as if there are any wells (whether currently in use or not), use of lead-based paint in the property, underground sewage disposal system and so on
  • Conditions to be fulfilled like an inspection by a third party, appraisals by lenders, exit clause if funding cannot be arranged and demonstration of possession of the title of the property by the owner

How to Draft the Home Purchase Agreement

You may refer to a home purchase agreement template while drafting an agreement. The template can be modified to suit your requirements. The key points to consider are:

  • Are the parties to the contract competent to enter into a contract? They should be of sound mind and not under the influence of drugs while signing the contract. No party should be coerced into entering the contract
  • The consideration paid for the contract: The amount paid by the buyer, including down payment if any. The due date for payment and the penalty should also be stated
  • Contract terms: The contract terms should be fair to both parties. If there is any deception by any party, then the contract will be void. The agreement should be entered in good faith
  • Confidentiality clause: There should be no disclosure of confidential information contained in the contract to a third party
  • Dispute Resolution Clause: The buyer and the seller need to decide on a method for dispute resolution, whether it will be arbitration or litigation, the sharing of fees of the attorney and the jurisdiction where the dispute is to be settled
  • Exiting the contract: There should be provisions in the agreement where both the buyer and the seller have the right to exit the contract provided certain conditions are fulfilled

Negotiation Strategy

In case of a home purchase agreement, the buyer will have the property inspected by a third party to find out the condition of the property. If there are a lot of repairs to be undertaken, then the buyer will negotiate the price offered by the seller and make a counteroffer. The location of the property will also impact the price.

Benefits & Drawbacks of the Home Purchase Agreement

The benefits of a home purchase agreement are:

  • Protection of interest: The interests of both the buyer and the seller are protected under this agreement. The buyer is assured that the title to the property is clear and the price is fair according to the condition of the property. The seller is guaranteed the selling price as the property is inspected by the buyer
  • Withdrawal from the agreement: The buyer and the seller can withdraw from the agreement under certain circumstances such as financial problems faced by the buyer or if the seller does not deliver the title to the property within the closing date
  • The time limit for responding to offer: The buyer needs to respond to the offer made by the seller within a certain time period
  • The time limit for responding to offer: The buyer needs to respond to the offer made by the seller within a certain time period

The drawbacks of a home purchase agreement are:

  • No guarantee of purchase or sale: The buyer and the seller may back out of the transaction if there is no contract. The seller cannot take legal action against the buyer for non-payment or delayed payment
  • No time limit for the buyer: Without a contract, the seller cannot set a time limit for the buyer. This will mean that the property will remain unsold for a long time as there will be no serious buyer
  • Difficulty in getting a mortgage: The buyer will have difficulty in getting a mortgage from a financial institution without an agreement

What Happens In Case of Violation?

There are certain clauses that you can find in a sample home purchase agreement. If there is a violation of any clause, then the injured party can seek legal recourse. The legal remedies available in case of violation of the agreement are:

  • Money Damages: The party violating the contract has to pay the injured party monetary compensation depending on the type of breach. If there is a total breach of contract, then the injured party has to be compensated for the benefit they would have got had the contract been fulfilled, including any lost profits.
  • The buyer or the seller has to be restored to the position they were in before the contract. If the seller cannot deliver the title deed before the closing date, they will have to compensate the buyer the entire amount paid by them
  • Rescission: If the buyer or the seller has made the other party enter the agreement by fraud or by mistake, then the entire contract is canceled. No party has any further contractual obligation
  • Reformation: This remedy again is sought when fraud or deception in involved while inviting the other party to enter into the contract. Unlike rescission, a fresh contract is drafted by the court which is fair to both parties
  • Specific performance: The party which has violated the agreement has to fulfill their contractual obligations and monetary damages are not acceptable as the contract has reached an advanced stage

Both parties to the agreement, the buyer and the seller, should take an informed decision when it comes to entering a home purchase agreement.
The buyer must ensure that the seller can provide the title deed(1) to the property, and the title should be free of encumbrances. The buyer also needs to get a third-party inspection(2) done to determine the condition of the property. The market price of the property in the area should also be checked through a licensed broker before making an offer to the seller.

The seller should set a time limit to the buyer in the agreement regarding making the payment for the property. They should ensure that the buyer has obtained a mortgage and are in a position to pay for the property.
There should be an exit clause in the agreement so that if the buyer or seller doesn’t want to continue with the transaction, they can withdraw from it.