A Purchase and Sale (P&S) agreement is the document received after mutual acceptance on an offer, which states the final sale price and all terms of the purchase. The specific items in this contract vary by state, but will almost always include the following:
Final Sale Price: This is the purchase price agreed upon by the buyer and seller. Note that this price might change during negotiations before the closing date. For instance, if the buyer’s home inspection turns up a problem with the home, the buyer may be able to negotiate a reduced purchase price.
Earnest Money Details: The P&S will include information on the earnest money deposit, such as the dollar amount and instructions for making the deposit. In most areas, the buyer will need to deposit a personal or cashier’s check within one to three days of mutual acceptance. The check will be held by a neutral third party until the completion of the deal.
Closing Date: On your closing date, the purchase will be completed; the transfer of property will be recorded with the local government, and the seller will receive the money for their home. Usually, you’ll sign all the necessary paperwork a day or two before your closing date. Your closing date may change, however, due to unforeseen events, such as your financial paperwork taking longer than expected.
Title Insurance Company: Information about your title company will be included in the P&S document. As the buyer, you always have the right to select a title company, though it may be local custom for the seller to choose. You should talk to your agent or attorney if you have any questions about choosing a title company
Title Condition: The P&S will include an agreement that the seller will provide a clear or marketable title of ownership to the buyer.
Contingencies: Contingencies are conditions that must be met in order for the home purchase to be completed. If one of these contingencies are not met, the sale may be canceled by the buyer or seller. Here are some examples of common contingencies — but be careful — never assume that these contingencies exist in your contract. Always check with your agent or attorney.
- Inspection Contingency: This contingency allows the buyer to have the home inspected before going ahead with the purchase. If the inspection turns up a problem with the home, the buyer can renegotiate with the seller, who may repair or offer a credit for the problem. If the problem is severe, the buyer can back out of the purchase without losing the earnest money deposit.
- Financing Contingency: This contingency requires the buyer to get approved for a mortgage before making the purchase. If the buyer is unable to get mortgage approval after a good-faith effort, he may be able to back out of the deal.
- Title Contingency: This contingency gives the buyer the right to review the home’s title for problems or conflicting claims of ownership. If the title review turns up a serious problem with the title, the buyer can back out of the deal.
- Appraisal Contingency: This contingency allows the buyer to back out of the deal if the home’s appraisal reveals that the home is not worth as much as the buyer intended to borrow and pay for it.
- Home Sale Contingency: Less common than the other contingencies listed above, this contingency gives the buyer the right to back out of the deal if she is unable to sell her current home.
- Addendums: An addendum, also known as a rider, is any additional request from the buyer to the seller that is not included in the actual P&S document. Examples may include a buyer’s request that the seller pay part of the buyer’s closing costs, or that the seller include appliances or furniture not originally included in the home’s sale price.
In states with escrow agents handling the closing process, the buyer’s agent is responsible for preparing the P&S document. In areas where attorneys handle the closing, the attorneys will prepare the document. The buyer, seller and their respective agents will sign the document.
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