Understanding the Purchase and Sale Agreement

Mar 28, 2022

It’s no secret that the home buying and selling process involves a lot of paperwork. But what you might not know is that most of these documents are fairly easy to understand, as long as you know what you’re looking for. The first of these is the Purchase and Sale Agreement (PSA).

Below, we’ll walk you through what to look for and everything you need to know to be successful in the PSA process.

What Is the Purchase and Sale Agreement?

The PSA is a written agreement between the buyer and seller that outlines the terms of a real estate transaction. It is a legal promise that if the terms of the agreement are met, the property will be transferred from the seller to the buyer for the agreed-upon price. In many states, the PSA starts as the buyer’s offer and becomes an agreement upon the seller’s acceptance.

It is the responsibility of both the buyer and seller to review and understand the terms of the PSA before signing. Make sure to carefully read this document!

What’s Included in the Purchase and Sale Agreement?

Although the information can vary from one form to the next, there are items that are standard across every PSA. These are:

  1. Price –  the sale price agreed upon by both the buyer and seller. 
  2. Property address – street address as well as legal description
  3. Closing date – the no later than the date for the PSA terms to be met and the buyer to take possession of the property. Note that if both the buyer and seller agree, this can be sooner than what is set forth in the PSA. 
  4. Earnest money – good faith deposit that shows the seller the buyer is serious about buying the property.  
  5. Contingencies – clauses that protect the buyer’s interests.
  6. Closing costs and prorations – details outlining who pays for inspections, title insurance, taxes, etc

Other information that can be found in the PSA includes but is not limited to the name of the title insurance company, the name of the closing agent, items excluded from the sale, title condition, the amount of the down payment, closing costs and any other terms that apply. 

It is important to understand that the PSA is not a final home purchase agreement, which finalizes the sale of the home and is signed at the very end of the closing process. In contrast, the mutually accepted PSA starts the closing process.

A Little Bit More About Contingencies

Some of the common contingencies that are included to help to protect the buyer’s interests are inspection, appraisal, financing, and title

Depending on which contingencies are included, they could affect the home’s final sale price. For example, if the home inspection uncovers an issue with the home, the agreement might stipulate that the sale price can be renegotiated, the issue repaired or the deal voided.

Take Your Time

Even though the language in the PSA isn’t hard to understand, due to the infrequency of purchasing or selling a home, it will most likely be unfamiliar. Read everything carefully to make sure you know what you are agreeing to before signing. Depending on what contingencies you have in place, it may be possible to cancel the agreement, but it will likely cost you time and money.