While selling your real estate property is no walk in the park, it does not need to be nearly as difficult as most people make it out to be. Many real estate investors handle these types of real estate purchase agreements regularly with no problems at all.

There are a lot of forms and documents that are required when conducting a real estate transaction, not to mention other important considerations, such as property taxes, closing costs, earnest money, escrow fees, seller financing, as well as home sale contingency issues.

However, even with so many factors to consider, a real estate purchase agreement can be made easy with the right assistance. As long as the buyer and seller agree, the process should be smooth if all the required parameters are met.

If you are feeling weighed down by the requirements of your real estate purchase agreement, you are in the right place.

Doorloop is your one-stop shop for all things real estate! Meeting the agreed-upon purchase price is just one of many steps involved in the sale of a real estate property.

Before you consider selling your house, read this article and learn all you need to know about a real estate purchase contract in 2023!

Definition of a Real Estate Purchase Agreement

A real estate purchase agreement is a legally binding contract that outlines all the terms and conditions agreed upon by both the buyer and seller regarding the sale of a real estate property.

Usually, when a property is put up for sale, prospective buyers who can meet or negotiate the purchase price can submit a real estate purchase agreement through a licensed real estate agent to the seller.

Financing, earnest money deposit, closing date, home sale contingency, legal description of the property, and all relevant disclosures are just a few of the things discussed in a real estate purchase agreement.

Depending on the State laws where the real estate transaction is being undertaken, a real estate purchase agreement can go by other names, such as:

  • Real Estate Sales Contract
  • Home Sale Contract
  • Real Estate Purchase Contract

Regardless of the state laws, though, one thing that is common with all real estate purchase agreements is that once both parties agree on the purchase price and sign off on the contract, the purchase agreement becomes a legally binding contract from the closing date onwards.

It is for this reason that great care needs to be taken by both the buyer and seller when signing a real estate purchase agreement because breaching any terms of the contract, whether knowingly or unknowingly, could result in severe penalties.

Important Terms Both the Buyer and Seller Must Understand

important real estate purchase agreement terms

Conducting due diligence before signing a real estate purchase agreement means, as a seller or buyer, the first step you need to make is understanding the different terms regularly used in this industry.

In that regard, the following terms are essential:

Licensed Real Estate Agent

A licensed real estate agent is a person who is allowed, by the state where they operate, to oversee the sale and purchase of real property after having completed the necessary courses and passing the mandatory state exam.

The exam is only a demonstration that they understand the state's real estate laws and is not enough to allow them to work as a real estate agent. This requires them to join a real estate agency that is overseen by a licensed broker.

real estate agent Vs. realtor

While there are many similarities between a licensed real estate agent and a Realtor, the two have some important distinctions.

A realtor has all the licensing and training that licensed real estate agents have but goes one step further by being affiliated with the National Association of REALTORS®. Membership in this prestigious body means that, unlike real estate agents, Realtors:

  • Have extra credentials that further legitimize the agent
  • Are held to a higher standard than your average salesperson
  • Have access to the group’s various resources that can help facilitate a sale
  • Follow a certain code of ethics that is enforced by the association

In short, if you are drafting a real estate purchase agreement for the sale of a very large and expensive property, it would be in your best interest to put your trust in a Realtor to oversee the transaction.

However, the cost of securing the services of a Realtor is usually higher than a regular real estate agent, therefore this will have a significant impact on your closing costs and is something you will need to consider carefully.


When any additional form is attached to the original copy of the real estate purchase agreement, this is called an addendum.

In it, you will find any additional terms that have a bearing on the original purchase contract that both parties agree on.

An addendum can be added at the time the original real estate purchase agreement is drafted or as an addition that comes at a later date and as long as both parties have signed the addendum, it becomes just as legally binding as the house purchase agreement.

Many addendums can be added to purchase agreements, such as:

  • Closing Date Extension Addendum
  • Third (3rd) Party Financing Addendum
  • Condominium Association Addendum
  • Termination Letter to Purchase Agreement
  • Earnest Money Receipt
  • Short Sale Addendum
  • Earnest Money Release
  • Owner (Seller) Financing Addendum
  • Escrow Holdback Agreement Addendum
  • Inspection Contingency Addendum
  • Estoppel Certificate Addendum

What is important to note is that one party cannot add an addendum to the original real estate purchase agreement without the knowledge or signature of the other party responsible for the purchase contract.

Earnest Money Deposit

To prove to the seller that they are serious about purchasing the property, a buyer may be required to make an earnest money deposit as part of the purchase agreement.

Also known as a good faith deposit, earnest money is not necessarily a down payment because it usually only accounts for 1% to 5% of the agreed-upon purchase price.

Once all the terms and conditions of the purchase agreement have been met and the buyer has secured financing, for example from a local financial institution such as a bank, the earnest money deposit will be credited to the buyer's down payment.

If the transaction falls through due to the fault of the seller, the earnest money deposit is usually returned in full to the buyer unless it is otherwise stipulated in the purchase agreement or any of the addendums.

When the fault lies with the buyer, for example in cases where the buyer's lender pulls out of the transaction, the earnest money or good faith deposit may be kept by the seller as damages.


If any clause is included in the real estate purchase agreement that specifies a requirement or action that needs to be met for the purchase agreement to be considered legally binding, this is referred to as a contingency.

As an example, the buyer may say the real estate purchase agreement is contingent upon the seller fixing certain issues that have been identified on the real property before the earnest money deposit is handed over or before the closing date arrives.

In this scenario, if the seller fails to meet such contingencies then the buyer can claim breach of contract and is free to back out of the purchase agreement whether the seller agrees or not.

Contingencies can be directly inserted as part of the main body of the real estate purchase agreement or attached separately as an addendum. A real estate agent is the best person to help you identify important contingencies that need to be included to make the purchase agreement more secure.

In most states, it is normal for real estate purchase agreements to come with the following items attached or included as contingencies:

Homeowners Insurance

Depending on the region of the country that the property is located in or other underlying factors, insurance companies may refuse to provide coverage for these high-risk real estate properties.

This means that backing out of the real estate transaction can be contingent upon the buyer's failure to secure insurance for the property.


Before the transfer of real property can be sanctioned, most banks require an appraisal to be conducted. Appraisal fees will be incurred, which will ultimately add to the closing costs of the purchase agreement.

If the appraisal contingency is included and it finds that the estimated property value is higher or lower than the agreed-upon purchase price, the buyer has three options,

  • Terminate the real estate contract
  • Renegotiate the purchase price with the seller
  • Obtain financing from a different lender

Home sale and kick-out clause

The purchase agreement can be contingent upon the buyer being able to sell their residential property before the closing date. This means if the buyer fails to sell their personal property, they will be free to back out of the deal without any repercussions.

Sellers usually do not accept this type of agreement and will generally look for a buyer offering an earnest money deposit to guarantee the transaction.

As a counter to the home sale contingency, if a seller agrees to forego the earnest money deposit and to allow the buyer a time period to sell their residential property, the seller may include a kick-out clause contingency.

This will allow the seller to keep on marketing the real estate property and terminate the purchase agreement should they find another buyer offering earnest money and not requiring any time to sell their personal property.


This states that the purchase agreement is contingent upon the property being free and clear of any debts, loans, or liens. To confirm this, the buyer may require to see the title insurance or secure the services of a title company that will run a search and issues their findings through a title search report.

If at any point, an issue arises regarding the title or ownership of the property, the buyer has the right to terminate the purchase agreement and demand any earnest money deposit they may have made to be returned.


After entering into a purchase agreement, the inspection contingency allows the buyer a period to conduct inspections of the house and also bring in professionals to provide their assessment of how well-maintained the property has been.

This real estate contract contingency will also determine who is responsible for the payment of the inspection fees. Any finding that indicates there are structural defects that the seller did not disclose will mean the buyer can choose to either have the purchase agreement terminated or renegotiate the terms and purchase price.


A disclosure is a statement that is attached to the purchase agreement detailing key information about the property that the buyer needs to know before signing any property transactions.

If the seller fails to reveal important information that later on comes to light, they face serious consequences, especially in cases where such disclosures are required by state, local, or federal law.

These issues are usually addressed in the form of a disclosure form that is attached as an addendum to the purchase agreement, such as:

  • Lead-based paint disclosure form
  • Property disclosure statement
  • Toxic substances, such as asbestos or radon disclosure
  • Death at the property disclosure
  • Property taxes disclosure

Buyer Beware

In states where the "buyer beware" way of conducting real estate transactions is used, it means that the seller is under no obligation to reveal certain issues regarding the property's condition.

It is also commonly referred to as "caveat emptor," meaning the buyer is agreeing to buy the property "as is."

The following are the states that subscribe to the "buyer beware" way of completing a purchase agreement:

  • Wyoming
  • West Virginia
  • Virginia
  • New Jersey
  • New Hampshire
  • Montana
  • Missouri
  • Massachusetts
  • Indiana
  • Florida
  • Colorado
  • Arkansas
  • Alabama

Important Inclusions on a Typical Real Estate Purchase Agreement

While most people only seem to worry about obtaining financing for an investment property, it is the details of the purchase agreement that usually have the biggest bearing on a real estate transaction.

It is, therefore, important to make sure that the buyer and seller both include all the important aspects of the real estate transaction, such as the following:

  • Personal details of both parties involved in the transaction, such as names, addresses, phone numbers, and emails
  • A complete property description, such as the one available at the County Recorder's Office detailing the location, ownership, fixtures, improvements, privileges, and appurtenances associated with the real estate
  • Clearly stated and agreed upon purchase price, as well as the required down payment and earnest money deposit
  • The terms of financing the home sale transaction, if the buyer requires financing, as well as any third-party financing addendums that the seller may need to be made aware of
  • A title policy at the seller's expense that will be issued to the buyer to guarantee that the ownership of the property, as well as other issues with liens and loans, are exactly as stipulated in the real estate purchase contract
  • A survey of the property inspected at the seller's expense which is issued to the buyer and the title company handling the transaction
  • The seller must issue a property disclosure stating that they do not know of any material defects that the property may have that may affect its value other than those stated in the purchase agreement
  • Specific statutory disclosures, such as a lead-based paint disclosure, are one of the seller's obligations to the buyer by law
  • Property inspection report to be conducted, at the buyer's expense or added to the closing costs, by any professionals of their choosing
  • Details of the escrow agent handling the transfer of property from the seller to the buyer as well as all the associated payments and closing costs
  • The request for and completion of, any necessary repairs and improvements to the property that the buyer may have identified during their due diligence
  • The closing date on which all the terms and conditions mentioned in the purchase agreement will become legally binding
  • Possession of the property in its current or required state with accepted signs of wear and tear will be delivered to the buyer by the seller on the agreed-upon closing date provided that the terms and conditions of the purchase agreement are met
  • Both parties agree that the escrow agent is necessary but not a part of the purchase agreement nor liable for any loss of or interest made on earnest money
  • The buyer agrees to withhold 10% of the purchase price to be submitted to the IRS unless the seller meets certain conditions for exemptions, such as when the total proceeds from the sale do not exceed $300,000 and the buyer will be using the property as their residence
  • Signatures from both parties involved in the real estate purchase contract to make the document legal

Other Forms and Documents Required for Real Estate Transactions

required forms and documents required for real estate transactions

To cut down on closing costs, some people usually try to cut corners and end up leaving out important documents that are necessary for all legal real estate contracts.

The following are some of the documents you need to include, depending on the nature of the real estate purchase agreement:

  • Land Contract

This document is required to document any loan that is agreed upon between the buyer and the seller that states that the deed of the property will only be transferred to the buyer once the full amount of the loan has been paid.

  • Deed of Trust

A deed of trust is required when the property is transferred to a trusted third party, such as an escrow agent, to hold in trust until the loan has been paid off.

  • Warranty Deed

This is the document issued to the buyer that proves that the property in question is not under any liens from third parties that would otherwise mean a renegotiation of the purchase price.

  • Quitclaim Deed

A quitclaim deed is used when transferring the title of a property to another person even though there are no title warranties.

Change of Heart? Backing Out of a Real Estate Transaction

Once a real estate contract has been signed by both parties involved and is handed over to the escrow agent overseeing the transaction, it is very difficult for either party to back out of the agreement after the closing date has passed.

However, life sometimes leaves very few options to choose from in certain situations and as such, you may find yourself wanting to back out of a purchase agreement.

The following are common reasons for terminating a real estate purchase agreement:

  • Failure to pay a deposit
  • By mutual agreement
  • Material defects found during the inspection period
  • Failure to obtain financing
  • Cancellation during the inspection period

However, as a legally binding document, a real estate contract is not an easy thing to back out of without incurring penalties.

If you feel you must back out of a deal at all costs, there are a few options that you can exploit, such as:

  • Request to the Buyer

Sometimes the best solution to a problem is the easiest one. Terminating a real estate contract can be as easy as simply calling the buyer and requesting that you need to back out of the deal. The buyer may be sympathetic to the reasons why you need the get the purchase agreement terminated.

Even if that is not the case, it is always best to alert the other party of your intentions as soon as possible before they, for example, sell their personal property in preparation for moving to a new one.

  • Claim Breach of Contract

With so many factors to consider when signing a real estate sales contract, it is no wonder that a lot of people usually find themselves in breach of contract for several reasons, such as the buyer failing to secure financing from an acceptable financial institution in time.

When this happens, as the seller, it offers you an opportunity to terminate the contract without any consequences on your part, If you can prove that the buyer knowingly or unknowingly breached the terms and conditions of your contract, you are free to end the transaction at any time.

The other advantage of this is you may be able to keep any earnest money that the buyer may have already paid as compensation for any damages due to the purchase agreement falling through.

  • Include a Back Out Addendum

If you enter into a purchase agreement knowing that there is a chance you may end up having to back out, it is always a good idea to include a back-out addendum in the agreement. This will ensure that if the worst happens, you will not be accused of breaching the contract by the buyer and as such will not suffer any penalties.

However, the downside of including this addendum is that many buyers may be reluctant to enter into an agreement that has a high risk of falling through at any time. Not only will this open the door for them to add addendums of their own, but some may even take the opportunity to negotiate for a lower price.

  • Exit While Contract is Under Review

The best point to terminate the purchase agreement is during the very early stages while the buyer is still reviewing the contract. At this stage, the buyer is unlikely to have made any drastic decisions, such as selling their own homes in preparation for moving into yours.

If the closing date has not yet arrived, this means terminating the contract will not be a legal offense and so you can do so without receiving any penalties.

Real Estate Agent Vs. FSBO: Pros and Cons

FSBO stands for "For Sale By Owner." The question that many sellers ask themselves is whether it is better to try selling their own house or whether they should approach a real estate agent. In most cases, homeowners end up opting for the security and convenience of hiring a real estate agency to handle the sale of their property.

However, that does not mean if you want to give it a go yourself you cannot do that. There are certain benefits to selling your own house that you do not get when using an agency. There are also some disadvantages, so in the end, it is best to look at the situation objectively and choose the best option.

The following, are the pros and cons of choosing FSBO over a real estate agent that you need to remember:


  • No agent fees to consider and therefore the closing costs are kept at a minimum
  • You have a lot more say in the asking price rather than just relying on the valuation of the agent
  • Negotiations, showings, and advertising are all under your full control, so you can tailor them to suit your needs and schedule
  • If prospective buyers underestimate your negotiation skills it will give you an advantage when discussing the price


  • FSBO properties usually end up selling for significantly less than those sold by agents
  • You will still be liable for the fees charged by the buyer's agent
  • There is a lot of paperwork that needs to be done when handling a property sale
  • You will be liable for any laws and statutes that you fail to follow
  • Your lack of skills and experience may be your downfall
  • FSBO has a more limited pool of potential buyers than properties sold by agencies

Selling Real Estate in Six Simple Steps

how to sell real estate in six steps

If you are determined to take charge of your own investment decisions and sell your property, you can do so in the following six simple steps:

Step 1: Prep for Marketing

You have to make sure that the property is as market-ready as it is ever going to be. This means going through the entire building and surrounding landscape with a fine-tooth comb to identify any areas that may require maintenance or repairs.

Step 2: Set the Purchase Price (Based on Market Value)

Look around at similar houses being sold in areas such as yours and get a feel of what the market value should be. Make sure you include all the important fixtures that your house comes with, such as wall-to-wall carpeting and special light fixtures, as well as any renovations that you may have made.

Once you are clear on what the true market value of your home is, you can set the price a little higher than that to leave room for negotiations.

Step 3: Show the Property

Make time to show the property on days that are convenient to your potential buyers, such as weekends or holidays. When showing your house, be sure that you are courteous and friendly in all your interactions.

If you have any valuables, it is better to lock them away and be sure that the house is always neat.

Step 4: Receive Offers

When you receive offers for the house, take time to consider all of them carefully before you decide on the best one. Never take the first offer that comes your way because, with a little patience, you can get a little more than that.

Step 5: Meet the Terms of Real Estate Purchase Agreements

You must meet all the terms of the real estate sales contract, including the required disclosures and any addendums that either party may have included.

Step 6: Close on the Property

Once you and the buyer agree, it is time to set the closing date for the contract. Remember that this is the date on which everything in the purchase agreement becomes legally binding, so sign it with caution.


There is no need to spend months struggling to sell your property because you are finding it difficult to formulate a real estate purchase agreement. If you visit, you will find all the forms, documents, and resources that you need.

Sell your property the right way by going to right now and downloading all the forms that you need for every state in the USA!

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David is the co-founder & CMO of DoorLoop, a best-selling author, legal CLE speaker, and real estate investor. When he's not hanging with his three children, he's writing articles here!

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The information on this website is from public sources, for informational purposes only and not intended for legal or accounting advice. DoorLoop does not guarantee its accuracy and is not liable for any damages or inaccuracies.