There’s a lot of paperwork involved with buying a home. Understanding what you’re filling out and signing is essential because buying a home may be one of the largest purchases you’ll likely make. The purchase and sale agreement (PSA) is a crucial document that details the terms and conditions of your home purchase.
Read on to learn everything you need to know about the purchase and sale agreement, such as what info it includes, and get answers to some frequently asked questions.
A purchase and sale agreement, or PSA, is a document that is written up and signed after a buyer and seller mutually agree on the price and terms of a real estate transaction. Depending on state laws, either a real estate agent or real estate attorney will prepare the PSA.
The PSA includes details like the required earnest money deposit, the closing date and contingencies the buyer and seller have agreed to. The PSA is where the seller and buyer agree on the terms for purchasing the home and set the transaction in motion toward closing.
While they sound similar and are sometimes used interchangeably, a PSA is different from a purchase agreement. A PSA outlines the terms of a real estate transaction, including the closing date, among other details.
Signing a PSA doesn’t complete the sale of a home, but signing a purchase agreement does. Where the PSA lays out the transaction’s details leading up to the closing date, the purchase agreement is what you sign to finalize the transaction.
While every contract differs, most PSAs include some or all of the following components.
This is a description of the asset for sale. In the case of a home, the property information would include a physical address, the size of the property, etc. This information should be clearly spelled out. There should be no ambiguities.
One major purpose of a PSA is to establish the agreed sales price between the buyer and the seller in writing. In many cases, the sales price may change or be renegotiated between signing the PSA and closing on the home.
These negotiations can occur when there are problems that may cause a sale to fall through. For instance, if a home inspection comes back with a significant issue or the appraisal comes back low, the buyer may try to negotiate a lower house price with the seller.
Earnest money, also known as a good faith deposit, is a deposit a buyer puts down to support the seriousness of the PSA. The PSA outlines many details of the deposit, including how much to deposit, the deposit deadline and details on who’ll manage the earnest money, which is usually a third-party escrow agent or title company.
The PSA states the planned closing date, which sets the sale process in motion. A home inspection, a title search, an appraisal and mortgage underwriting typically happen before the closing date. When you close on a house, all these components come together in one meeting at a real estate attorney or title company’s office.
When buying a property, it’s generally recommended to check the status of the home’s title and purchase title insurance in case of potential problems. The PSA contains info on the title company you’re using, including their name and address. The title company usually holds the escrow money, and in some states, this is where you go to close on the property.
Your PSA also contains information on how the house title will be transferred, including who pays for the title policy, how the title is insured and how the title is conveyed.
The PSA also gives information regarding the escrow company, including who the escrow agent is, who pays escrow agent fees and when delivery of the loan proceeds to the escrow agent must take place. Unless otherwise noted, the escrow agent and the title insurance company are usually the same.
Contingencies allow buyers to legally back out of a real estate transaction without losing their earnest money deposit. Common contingencies include an appraisal contingency and a home inspection contingency.
These are documents added to the standard PSA. Addendums and riders contain requests from the buyer to the seller to keep the sale on track. Some examples include a septic inspection addendum if the property has a septic tank and closing date extensions in case the date needs to change.
Some addendums are optional, and others are required by law. Work with your agent or real estate attorney to determine which you must include.
If you want a generic purchase and sale agreement, you can find free templates online. Searching “purchase and sale agreement for (your state)” will pull up many results.
You can use these samples to see what a PSA agreement looks like. However, it’s highly recommended that you consult a real estate attorney or another real estate professional before drafting or signing a contract.
Confusion and misunderstandings can happen with any type of legal paperwork . While every PSA is tailored to the specifics of a transaction, we’ve collected several commonly asked questions about purchase and sale agreements.
It depends on who sends the offer. Typically, the buyer starts by sending a signed PSA to the seller. If the seller accepts the terms, they’ll sign it. If the seller counteroffers, they’ll sign the counteroffer and send it to the buyer. If the buyer accepts the terms, they’ll sign the PSA.
The PSA is typically part of the seller’s agent’s commission fee, which the seller pays at closing.
While a PSA will provide most of the necessary information to complete a sale, it usually doesn’t include details like closing costs. Closing costs are typically included in the Closing Disclosure a lender sends to a buyer for review and approval 3 days before closing.
Yes, PSAs are legally binding contracts. If the buyer or seller doesn’t uphold the contract’s terms, the other party has the right to take legal action. They can sue the noncompliant party to uphold their part of the contract.
If you need to negotiate anything, the time for negotiating the contract is before you sign it. Both parties are legally bound to the contract once they’ve signed it.
Your home purchase may be one of the biggest financial transactions you make – and one of the more complex purchases, too. The purchase and sale agreement is a vital document that gets the transaction rolling. Knowing the ins and outs of a PSA will help ensure every detail is covered before you sign.
Ready to begin your house search? Start an application online today with Rocket Mortgage ® .
Miranda Crace is a Senior Section Editor for the Rocket Companies, bringing a wealth of knowledge about mortgages, personal finance, real estate, and personal loans for over 10 years. Miranda is dedicated to advancing financial literacy and empowering individuals to achieve their financial and homeownership goals. She graduated from Wayne State University where she studied PR Writing, Film Production, and Film Editing. Her creative talents shine through her contributions to the popular video series "Home Lore" and "The Red Desk," which were nominated for the prestigious Shorty Awards. In her spare time, Miranda enjoys traveling, actively engages in the entrepreneurial community, and savors a perfectly brewed cup of coffee.
Home Buying - 9-MINUTE READ
Katie Ziraldo - Apr 3, 2024
Home inspections are a critical part of buying a home. Inspections verify the safety and integrity of a home. Learn which red flags to watch out for.
Home Buying - 6-MINUTE READ
Victoria Araj - Feb 25, 2024
Closing on a house typically takes 30 – 45 days, but common delays can lengthen the timeline. Get the statistics and learn how you can speed up your closing.
Home Buying - 6-MINUTE READ
Patrick Chism - Mar 1, 2024
Wondering if matters whether you close on a house early or late in the month? Learn why the answer is yes, and why later is usually better.