The world of real estate transactions is governed by a multitude of legal documents and agreements, and among the most critical is the Purchase and Sales Agreement (PSA). This binding contract outlines the terms and conditions of a property sale, protecting both the buyer and seller throughout the process. In this article, we will take a comprehensive journey through the components of a typical Purchase and Sales Agreement, shedding light on its significance and various options available within each section. Whether you're a seasoned real estate professional or a first-time homebuyer, understanding the nuances of this document is essential for a successful and secure transaction. Let's dive in!
Sections 1 & 2: Parties and Property Information
- This section identifies the parties involved: the "Seller" and the "Buyer." It also includes their addresses.
- You may include additional details like phone numbers, email addresses, or other contact information for better communication.
- The property's location is crucial, including the city/town, state, and ZIP code.
- Legal descriptions are specific and precise descriptions of the property's boundaries. This can include lot numbers, metes and bounds descriptions, or references to recorded survey maps.
Section 3: Selling Price and Deposit
- The selling price should be agreed upon by both parties. It's important to have a clear and mutually accepted amount.
- The deposit amount varies but is typically 1-5% of the purchase price. A higher deposit may indicate stronger commitment from the buyer.
- The form of deposit could be a personal check, cashier's check, certified check, or even a wire transfer, depending on what both parties agree upon.
- The entity holding the escrow deposit, often a real estate brokerage or attorney, should be specified.
Sections 4 & 5: Deed and Transfer of Title
- This section mentions that a deed will convey ownership from the seller to the buyer. Different types of deeds (e.g., warranty deed, quitclaim deed) may be specified here.
- The term "free and clear of all encumbrances" means the property should not have any liens or claims against it, except for usual public utilities.
- The transfer of title typically happens at a mutually agreed-upon location, which should be stated in the agreement.
Section 6: Possession
- The possession date indicates when the buyer will have the right to occupy the property, usually after the closing.
- The condition in which the property is to be delivered should be detailed. "Broom clean" means the property should be clean and free of debris.
- Exceptions to the property's condition, if any, should be listed.
- The buyer's right to conduct a walk-through inspection ensures the property meets the agreed-upon condition before closing.
Section 7: Representation
- The role of agents is clarified here. Agents may be acting as seller agents, buyer agents, facilitators, or even disclosed dual agents.
- In the case of disclosed dual agency, both the buyer and seller acknowledge this arrangement and may have signed a Dual Agency Informed Consent Agreement.
Section 8: Insurance
- This section requires the seller to maintain insurance on the property until the closing date.
- It outlines the procedure for handling insurance proceeds in case of a loss.
- The section allows for flexibility regarding how the insurance proceeds are handled or whether the agreement may be rescinded.
Section 9: Title
- The marketability of title ensures that the buyer receives a clear and legally sound title to the property.
- If title defects are found, this section outlines a process for the seller to remedy them within a specified timeframe.
Section 10: Prorations
- Prorations involve dividing certain costs, like property taxes, between the buyer and seller based on the closing date.
- The section specifies how these costs will be calculated and divided.
Section 11: Property Included
- Lists the fixtures and items included in the sale. It clarifies which items are considered part of the property and will be transferred to the buyer.
Sections 12, 13 & 14: Inspections
- This section addresses various types of inspections the buyer may want to conduct, such as a general building inspection, lead paint inspection, pest inspection, and more.
- It sets timeframes for inspections and specifies how issues discovered during inspections will be handled.
Section 15: Due Diligence
- It requires the buyer to review documents like restrictive covenants, easements, and park rules to ensure they are acceptable.
Section 16: Liquidated Damages
- Liquidated damages are predetermined amounts that a party agrees to pay if they breach the contract. In this case, the deposit may become the seller's liquidated damages if the buyer defaults.
Section 17: Prior Statements
- This clause emphasizes that verbal agreements or representations made outside the written agreement are not legally binding.
Section 18: Financing
- This section allows the buyer to make the agreement contingent upon obtaining financing. It specifies the loan amount, term, interest rate, and mortgage type.
- The contingency typically requires the buyer to secure a conditional loan commitment letter, demonstrating their creditworthiness and the lender's intent to provide the loan.
- It also defines the various courses of action if the buyer cannot obtain financing or fails to provide the commitment letter by the determined deadline
- WIRE FRAUD ALERT - This serves as a warning about the risk of wire fraud in real estate transactions and advises secure communication methods for sensitive financial information.
Section 19: Additional Provisions
- This is a flexible section where parties can add specific conditions, obligations, or details unique to their transaction.
Section 20: Addenda Attached
- Specifies whether any additional documents or addenda are included with the agreement.
Section 21: Choice of Law and Venue
- Establishes the legal framework for resolving disputes, specifying the state's laws and the preferred venue for legal proceedings.
Section 22: Effective Date/Notice
- Explains the effective date (the date with which the agreement begins) of the agreement and sets the rules for notice and communication.
Each section serves a specific purpose in the real estate transaction, ensuring clarity, protection, and adherence to applicable laws and regulations. Parties should carefully review and consider the implications of each section and may seek legal advice when needed to tailor the agreement to their specific circumstances.