A man is signing a purchase agreement for a house while drinking coffee

Signing a Purchase Agreement on a House: What To Decode Before the Ink Dries


What You Need To Know

  • The purchase agreement for a house is the legal glue that holds a home purchase together
  • Home buyers need to make sure they can live with everything in the final purchase agreement before they sign it – no matter how eager they are to get the house
  • Purchase agreement “escape hatches” or contingencies are usually included


Although we set out looking for the perfect house to buy, we may come to realize that ours just isn’t out there – yet. 

That’s why, as a home buyer, it’s so important to make sure you work out a real estate purchase agreement that lands you the best deal you can swing with the home seller.

By negotiating purchase details that benefit you and then signing a purchase agreement that accurately states those details, you can get yourself into a solid position as a new homeowner

Here’s what you need to know about purchase agreements to help your home buying experience be as smooth and predictable as possible. 

What Is a Real Estate Purchase Agreement and Why Is It Important?

Home buyers and home sellers enter into a purchase agreement to make sure each party is on the same page about the details of the home purchase. It’s a binding legal document that spells out the terms of the sale, including what the seller is getting, what the buyer is getting and what the next steps are for both. 

Without a signed real estate purchase agreement, a home seller can’t transfer their house to a buyer. 

The purchase agreement also provides essential information that the real estate attorney in charge of closing and the buyer’s mortgage lender needs (if the purchase is being financed through a home loan).

So, yeah, it’s kind of a big deal. You’ll want to make sure everything in it is just right before you sign your name on the dotted line and give the purchase agreement to the seller.

What’s in a Purchase Agreement?

Every home purchase includes a lot of moving parts and considerations, from the house to the unique requests made by the buyer or seller. In general, most purchase agreements include the following items:

  • Purchase price of the home
  • If and how the purchase is being financed
  • Property details about the house and land
  • Seller statements about the property’s condition
  • Buyer and seller names and contact info 
  • Earnest money deposit amount
  • Who’s paying the closing costs
  • Who’s paying for title insurance (you or the seller)
  • What fixtures and/or appliances are included in the sale
  • What date do all terms need to be met by (aka the effective date)
  • Purchase contingencies (like the home inspection or appraisal contingency)
  • Closing date (when ownership of the house will be transferred to YOU) 🥳

Let’s take a closer look at some of the key elements in a purchase agreement:


In a home sale, contingencies are extra conditions added to the purchase agreement that can give the buyer or seller a way out of the deal under certain circumstances. 

Contingencies will state one of the following things:

  • Something you or the seller needs to do before the sale can go through
  • What information, when discovered, could allow you or the seller to back out of the deal 

Contingencies are agreed on during negotiations before they’re added to the purchase agreement. 

Here are some common ones:

  • Financing contingency: Lets you back out of the purchase if your mortgage loan doesn’t get approved
  • Home-sale contingency: Makes the purchase of the home dependent on the sale of your current house (in case you need the money from your home sale to pay for the new house)
  • Inspection contingency: Lets you back out of the purchase (or ask the seller to pay for repairs) if the home inspection uncovers any major problem(s) with the house’s condition
  • Appraisal contingency: Allows you or your lender to back out of the purchase if the home is appraised for more (or less) than the agreed amount. It’s your green light to ask the seller to lower the purchase price if the house’s appraisal comes in lower. If it comes back higher, you’d have to pay the difference between your loan amount and the appraisal value unless you back out.

Earnest money deposit

Often called “good faith money,” an earnest money deposit is a set amount of money used to show the seller you’re serious about buying the house. 

The purchase agreement will state the exact amount of the deposit, when it’s due and who will hold it until closing (usually a neutral, third party holds it in an escrow account).

This deposit is different from a down payment, but if the deal goes through, you’ll be able to apply it toward the down payment. 

If you need to back out of the purchase because of something discovered during the inspection or appraisal, make sure the purchase agreement says you’ll get your earnest money refunded.

If you’re using a Department of Veterans Affairs (VA) loan, you may still need to include earnest money in your purchase agreement even if you don’t have to make a down payment. The agreement should confirm whether the money will be returned to you at closing or if it will be used for the seller’s closing costs. 

Closing costs

The final step before you unlock the front door to your new home! 

Closing costs are the loan processing fees, legal expenses and upfront homeowner costs that need to be paid for the home sale to go through and for the property title to be transferred to you.

The purchase agreement will not say what the closing costs are going to be, but it will state whose responsibility it is to pay them. It could be you, the seller or both of you. Sometimes, the seller will pay a percentage of the buyer’s closing costs.   

Who Creates the Purchase Agreement Document – And When?

After you and the seller agree on your purchase offer, your real estate agent will create the purchase agreement. 

In most real estate transactions, you have what is known as the early purchase agreement. It’s based on what you originally offered to pay for the house. The agreement becomes a mature purchase contract after negotiating with the seller and hammering out the final price, seller concessions and purchase contingencies. 

From there, your agent will prepare the purchase agreement for you and the seller. 

Because agents usually work from the standard purchase agreement template that was already drawn up by the real estate attorney, it usually takes 1 – 2 days to prepare the agreement. Your agent just fills in the specific terms of the sale where necessary.

After you, the seller and the seller’s listing agent have all reviewed and approved the agreement, you’ll each sign. 

At this point, the agreement is a legally binding contract, and the house is considered “under contract.” The seller can’t accept any other buyer offers as long as the contract is in effect. 

Can a Real Estate Purchase Agreement Be Canceled?

A purchase agreement can technically be canceled at any time. And financial penalties for backing out (like losing your earnest money deposit) can be minimized by including contingencies in the purchase agreement.

Some home buyers end up wanting to cancel the purchase for a variety of reasons. But there’s no purchase contingency for suddenly deciding that you don’t want to own a house or for spotting a cooler house after you’ve gone under contract. 

In other words, the simplest way to avoid cancellation is to be a committed buyer. Make sure that you’re all-in on homeownership and the home you’re making an offer on.

What if You’re Not Using a Real Estate Agent?

If you’re buying a house without a real estate agent, you can find purchase agreement templates for your state online. 

If you can, have a real estate attorney review the completed agreement before you sign it. Making sure everything passes the legal test now can help you avoid future (and often costly) headaches later.

Purchase Agreement Signed, Buyer Feeling Fine

When you sign a purchase agreement that you and the seller both agree on, you’re one step closer to being a homeowner. 

If you ever need to put a smile on your face while you’re hard at work getting the final approval on your mortgage loan, we suggest hopping online for a sec and scrolling to find two words under the house listing: under contract. It’ll give you warm ‘n’ fuzzy feelings and remind you why everything you’re doing to get that house is worth it.

Find out what you can afford.

Research what your monthly payment might look like with our intuitive mortgage calculator.


In Case You Missed It

  1. Negotiate the final conditions of the home sale between the period when you make the purchase offer and when you sign the purchase agreement

  2. Purchase agreement contingencies usually have expiration dates – know them ahead of time

  3. Purchase agreement contingencies usually have expiration dates – know them ahead of time

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