Start off strong, no matter what type of sale or purchase you need to complete. Commonly, Purchase Agreements, or Sales and Purchase Agreements, or Residential Purchase Agreements, or RPAs are required for both the buyer and the seller in a large transaction.
Several different parties can use a sales and purchase agreement, including a buyer of a home, a seller, or the buying brokerage firm, the selling broker, or even a financial company offering a loan. Even an escrow company or insurance company may need to make use of the SPA or RPA, especially if there are provisions relating to them.
You’ll need to do all of the proper research and homework first, but this template will give you a head-start and a good framework. You should always consult a lawyer though before finalizing any contracts.
In this article, we’re going to explain as best as we can the different terms and provisions that are commonly found in an RPA or SPA (Residential/Sales and Purchase Agreement), which are required for the sellers, buyers, insurance companies, and different parties which may require a provision to mention some conditions and terms in the course of the transaction. Purchasing a home generally takes a long time, and during this period there are often complications. Preparing for those complications and having a contingency plan along the way is always the best course of action, so buckle up, it gets a bit complicated.
A purchase agreement is arranged during the final stages of buying or selling property. If you are buying, the first copy of the SPA/RPA that you prepare and send is generally made by your broker. Brokerages can benefit greatly from having a go-to template to use for sales, and customize it for different types of transactions and localities, such as counties, states or provinces that the brokerage operates in, but needs to change the terms to match these locales’ differences in regulations.
As a buyer, you are in the most vulnerable position- about to spend a large amount of money, for a potentially high-risk item. In order to lower your risk, we are including a few tips before you buy. When you first view a property, treat it as a multi-stage interview process. The first time that you look at a property can not be the last. When you view a property the first time, know a few things to focus on, and a few things not to focus on. For example, follow the 1% rule. Anything less than 1% of the purchase price, don’t pay attention to, because all in all, it will be an easy thing to fix and increase the property’s value much more than the amount that you have to put into it to fix it.
If you hate a kitchen in a 3 million dollar home, keep in mind that it may fall below the 1% rule ($30k in this case). If the items which you don’t like are relatively cheap to fix, then you should ignore them. Paint, minor cosmetic things, and finishes are generally within this 1% budget.
One of the most hidden gotchas with properties is the location. It’s the one thing you really can’t change. If it’s too far away from your work, or there are loud neighbors, you should strongly reconsider the purchase. You’re going to need to do your homework on this one. Research nearby and try to find any venues that might be holding events, and visit the location at different times of the week and of the day. Your commute might be a very short one during a Saturday when you attended the open house, but be unbearably long on a typical Tuesday morning. The local high school students might hang out on your street, or the local golf course valet might park cars on your street during events. Ask around and get the lay of the land before making any commitments.
Another thing to look out for with the location is Utilities. The available ISP at your location might not be good, and there might be very little you can do about it. The local HOA might have rules about solar roofs or electric car chargers. Make sure you do your homework.
Don’t make any large purchases within 6 months (or more) of applying for the loan to purchase a property. Even making inquiries can lower your credit score, and be seen as a potential liability to the lender. If you are trying to maximize your credit, always get the largest loan (i.e. the one for the property) first, then apply for any smaller loans like for a car that you might be interested in.
Now, on to the contract. This contract template is fairly generalized and works well for brokerage firms, escrow, and buyers and sellers, that want to insulate themselves from a large range of liabilities. With most purchase agreements, the majority of the text is about defining the property, defining the price and the payment methodology and timing, and defining what might go wrong and how to deal with it.
As a buyer or buyer’s representative, the first contract that is submitted is known as the offer. The timing, inspection terms, type of loan, and most importantly, the price, is indicated on the contract. The contract is usually delivered in several copies so that the bank, escrow, buyer and seller all get copies. If the offer is acceptable to the buyer, this contract includes an “acceptance” clause, which is left unfilled by the buyer. When the seller accepts, they fill in the acceptance terms in this section.
When the seller or selling broker rejects the initial offer, the contract is re-filled with the changes and submitted in response. This issuance of the SPA/RPA is called the “counter-offer”. And, any subsequent re-submissions of this document become counter-offers. It can become a lot of paper if many provisions are being edited each time.
After acceptance of an offer, there are generally contingency, inspection, and disclosure periods. These are the periods of time that the buyer has to finish getting a loan, or for an appraisal to be completed, inspections to be completed, or for disclosures (such as hazard disclosures) to be completed. These timelines are different for each regulatory structure, so keep them in mind so that they don’t surprise you.
Lastly, we include many provisions for you that may or may not be in accordance with your local legal jurisdiction. You should always confirm that these provisions actually are in accordance with local, state, and country regulation codes. You may need to attach addendums to conform with requirements for city, state, county, or other special rules, such as rules put into place by homeowners associations. If you are a brokerage firm or independent broker, please take extreme care with using this contract at face value, and do have a lawyer make sure all of your needs are being met to protect yourself and your clients and abide by the laws of your area.