What is the Purchase and Sale Agreement?
The Purchase and Sale Agreement (also called a Property Sale Agreement) is a binding legal document that spells out the terms of the sale along with the conditions that must be met for the sale to go through.
Who drafts the P&S Agreement?
In most states, the Purchase and Sale Agreement is a standard form drafted by a real estate agent. In more complicated sales, such as an in-law apartment or a multi-unit house you plan to partially or full rent, real estate attorneys are generally involved. Some states require an attorney to draft the document. Standardized forms are available online, but buyers and sellers who work without a real estate agent, for instance in For Sale by Owner situations, should hire an attorney to review the documents.
What information is included in a P&S Agreement?
An agreed-upon purchase price. This number can be renegotiated if the home inspection finds issues that need addressing, or the appraisal value is less than the purchase price.
The amount of the Earnest Money Deposit (EMD). The EMD is a negotiated good faith payment made by buyers to sellers in competitive real estate markets where sellers want proof a buyer is serious.
The planned closing date, sometimes called the settlement date, when the buyers will take possession of the home. It is subject to change if issues arise.
A legal description of the property size and location, including a map with property lines.
The name of the title insurance company and a record that the seller is providing a clean title to the buyer.
The name of the escrow company, if the buyer is not paying in full.
Riders that spell out specific terms of the sale, such as the seller paying some of the buyer’s closing costs, or personal items such as a washing machine and window treatments being included in the purchase price.
What are the main contingencies included in the Agreement?
A key part of a Purchase and Sale agreement is the list of contingencies that must be met for the sale to go through. The five most common contingencies are:
A home inspection to ensure the property is as reported.
An appraisal to ensure the home is worth the selling price
A financing contingency in case the lender refuses to finance the loan.
A sale of a current house if the buyer is also selling a home. This contingency usually gives the buyer a set amount of time after which the contract is voided and the house goes back on the market.
A title search to make sure the title is free and clear to be sold.
There are sometimes additional contingencies relating to inspections for termites and pests, radon and lead paint.
How has COVID-19 affected the Purchase and Sale Agreement?
The Purchase and Sale Agreement sometimes include a Coronavirus addendum, also called a COVID Clause or COVID amendment, that lays out additional potential issues and how they will be dealt with. These include:
- A lack of inspectors or appraisers to provide the services required by the contract.
- A delay due to someone involved in the contract being subject to a quarantine.
- Delays related to lenders, government agencies, title or escrow companies or other related services closed or operating with minimal hours due to the virus.
- A sudden loss of income due to being laid off, furloughed or switched to part time that affects the loan application.
Some contracts also include Force Majeure clauses, also known as Act of God clauses, that allow a contract to be suspended for reasons outside the control of either party. According to the American Bar Association, these clauses could apply to delays and issues related to COVID-19 since it was deemed a pandemic.