Purchase Agreement

A purchase agreement is the legally binding contract between buyer and seller. It must include: (1) Parties: full legal names of buyer(s) and seller(s); (2) Property description: legal address and parcel identification; (3) Purchase price: agreed price and down payment amount; (4) Earnest money: deposit amount, who holds it, and forfeiture conditions; (5) Closing date: date of title transfer and key delivery; (6) Contingencies: conditions that must be met for the sale to proceed (financing, inspection, appraisal, sale of buyer's home); (7) Inclusions and exclusions: fixtures, appliances, and personal property; (8) Closing cost responsibilities: which party pays which costs; (9) Default provisions: what happens if either party cannot close. See NAR — Real estate transaction standards.

The most common contingencies in a US purchase agreement: (1) Financing contingency: buyer can withdraw if unable to obtain mortgage approval — typically 21 days, specifying loan amount, type, and maximum interest rate; (2) Inspection contingency: buyer can negotiate repairs, request credits, or withdraw based on home inspection results — typically 10 days; (3) Appraisal contingency: protects buyer if appraised value is below purchase price — allows renegotiation or withdrawal; (4) Title contingency: sale cancels if title search reveals unresolvable defects; (5) Sale of current home contingency: purchase is conditional on buyer's existing home selling — makes offer weaker. In a seller's market, buyers often waive contingencies to compete. In Canada (Agreement of Purchase and Sale), common conditions include financing condition, home inspection condition, and status certificate condition (for condos). See mortgage contingency glossary.

The signed purchase agreement is the trigger that starts the formal mortgage application: (1) Lender requires a fully executed purchase agreement to process your mortgage application; (2) The agreed purchase price establishes the loan amount and LTV for the appraisal; (3) The closing date in the agreement determines your rate lock period — the rate lock must extend at least to the closing date; (4) Contingencies in the agreement must align with your financing timeline — if your financing contingency expires in 21 days, your pre-approval process must be on track; (5) If the agreed purchase price drops (after inspection negotiation), the lender must update the loan estimate and loan amount. Never commit to a closing date in the agreement that is faster than your lender can process the loan. See how to get pre-approved.

Buyer backs out: (1) Within a valid contingency: buyer is typically entitled to full earnest money refund; (2) Outside contingency or without valid reason: buyer forfeits earnest money deposit (typically 1%–3% of purchase price); (3) Seller may also sue for specific performance (forcing the sale) or additional damages, though this is rare. Seller backs out: the buyer is entitled to a full refund of earnest money and can potentially sue for: specific performance (forcing the sale), additional costs incurred (inspection fees, appraisal, moving costs), and in some cases consequential damages. Seller backing out is generally more legally risky. Both parties should review the default provisions in their state/province-specific form carefully. See earnest money glossary.

In Canada, the purchase contract is called an Agreement of Purchase and Sale (APS) and differs from US contracts in several ways: (1) Standard form: real estate boards in each province have standardized APS forms — Ontario uses the OREA Form 100; BC uses the BCREA Contract of Purchase and Sale; (2) Conditions: Canadian conditions are typically tied to specific dates (e.g., "condition date: 5 business days from acceptance") — if not waived or satisfied by that date, the deal is null; (3) Deposit: typically 5% of purchase price due within 24 hours of acceptance (not at closing as in the US); (4) Status certificate (condos): condo purchases must include a condition to review the status certificate (financial health of the condo corporation) — buyer has 2 days to review; (5) Buyer beware: most Canadian provinces operate under caveat emptor — sellers don't have extensive disclosure obligations that US sellers have. See RECO Ontario — Making an offer.