May 29, 2025 | Uncategorized

What Is a Purchase Agreement?

Buying or selling a home can represent an exciting, if not slightly nerve-wracking, milestone in your life. Along the way, you’ll typically encounter a lot of paperwork containing various terms and clauses. Real estate contracts are not like the terms and conditions on a website that you blindly check off. Understanding what you are signing is essential to avoiding any unpleasant surprises after your closing date. Recently, we covered everything you needed to know about listing agreements. Today, we’ll look at a different side of the transaction, and exactly what is a purchase agreement.

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Types of Real Estate Contracts

To eliminate confusion, let’s first review the types of real estate contracts you may encounter when moving from one home to the next. These can be between a buyer and seller or between a client and the real estate brokerage.

Listing Agreement: An agreement between a homeowner seeking to sell their property and the real estate brokerage. The contract is with the brokerage, not the individual agent.

Buyer Representation Agreement: This contract is between a real estate brokerage and a client seeking to purchase a home.

Agreement of Purchase and Sale (APS): When a buyer is ready to place an offer on a home, they will submit an Agreement of Purchase and Sale to the seller, which is sometimes called a purchase agreement. This contract outlines all the pertinent elements of the offer, including the purchase price, closing date, conditions, inclusions, and other relevant details. In most cases, the buyer is the one who first places an offer; however, in some cases, you might see an APS initiated by a seller, too!

Agreement of Purchase and Sale

We often refer to “purchase agreements,” but the official term in real estate is “Agreement of Purchase and Sale.” Unlike a listing agreement, an Agreement of Purchase and Sale is between the buyer and seller rather than a Realtor® and their client. While all real estate contracts are legally binding, an APS is especially stringent.

When a contract is between you and a real estate brokerage, you could let it expire as long as you haven’t submitted or accepted an offer. Once both signatures are on an APS, it’s a done deal, unless there are conditions that are not met.

If you buy a home, you must be sure you can and will follow through. If you sell, there’s no backing out without consequences unless both parties agree to a mutual release – which is rare.

It goes without saying you should only ever sign a contract when you are absolutely certain you want to move forward and you understand all of the terms. Expert advice is also highly advisable under these circumstances.

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Agreement of Purchase and Sale Versus Buyer Representation Agreement

These two terms can cause confusion, and some people might use them interchangeably, which is inaccurate. As we mentioned previously, an Agreement of Purchase and Sale is essentially a home offer between the homeowner and a buyer. A buyer submits their bid. If the seller agrees, the transfer of ownership soon takes place.

The Buyer Representation Agreement is the counterpart to a Listing Agreement. Just as it sounds, it’s a contract between a real estate agent and a client seeking to purchase a home. Under the latest version of the Trust in Real Estate Services Act, a Realtor® cannot provide services or even offer personalized advice without a contract.

If you decide to sign an agreement, you are obligated to work with that real estate agent to purchase your home. In turn, they are under fiduciary duty and legally obligated to represent your best interests.

What happens if you change your mind about buying a house altogether? Until you sign an APS and the seller accepts, you cannot be forced to buy a home.

However, Buyer Representation Agreements and Listing Agreements are both legally binding contracts. Each has a clear commencement date and an expiry date. Once that time passes, the contract is null and void. Just remember that there could be a holdover clause entitling the agent to compensation if you buy a house they showcased within a specific timeframe.

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Key Elements of an Agreement of Purchase and Sale

Most clauses on an Agreement of Purchase and Sale are relatively straightforward. Still, it doesn’t hurt to review them so you better understand what you are agreeing to.

Offer Date

In busy markets, some sellers will set an offer date where buyers must wait before submitting their offer. The idea is for the seller to generate as much interest as possible in the hopes of generating multiple offers. Buyers must remain objective and be ready to negotiate or walk away if the bidding goes beyond their budget.

Property Description

A house is a big decision, and the buyer wants to make sure you know exactly what they are getting. All contracts will have a detailed description of the property, including its address, age, and any recent updates.

Purchase Price

The final price the buyer and seller agree to. The number is negotiable, but you want to ensure your offer is competitive under the circumstances. In a buyer’s market, it might be a little under the asking price, or over in a seller’s market. Remember that the final price doesn’t cover closing costs or administrative expenses so be sure to budget accordingly.

Deposit

This is the amount the buyer will pay within 24 hours. It can range between 3 to 5% of the total price. A higher deposit can make the offer more compelling and encourage the seller to accept. Upon the closing date, the deposit combines with the remaining down payment and all funds are released to the seller.

Irrevocability Period

If the buyer is assertive, they may include an irrevocable period in which they cannot withdraw the offer. This provides extra incentive to the seller to carefully consider and accept within that time.

Conditional Period

With conditional offers, certain terms must be met to finalize the sale. The conditional period gives both parties a chance to follow through. The timeframe is negotiable, but five days is standard for home inspections or financing conditions.

Closing Date

The official day the transfer of ownership will take place. The buyer becomes the new legal owner and the seller receives the funds from the sale. You may also encounter the term “Completion Date,” which means the same thing.

Possession Date

This is the day the buyer gets the keys and takes possession of the property. It often coincides with the closing date, but not always.

Inclusions and Exclusions

The buyer and seller agree on what is included in the sale, such as appliances and window coverings. It also details anything that will be excluded, such as a new BBQ or outdoor furniture.

Each of the above components can be instrumental when it comes to negotiations. The seller might accept an offer right away, but could also make a counter offer with new terms and conditions. A price concession may not happen depending on the demand, but other possibilities could be on the table, such as a valuable inclusion to entice the buyer.

This back and forth is why working with an expert is essential to your next steps. Your real estate agent will work diligently to ensure a transaction with the best terms possible.

Do you have more questions about buying or selling your home? Our Pickering real estate agents are happy to offer expert advice. Reach out today at info@teamrajpal.com or call 647-875-8000 to talk about your next steps.

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