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What are the essential elements of a purchase and sale agreement?

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A purchase and sale agreement (PSA) is a legal document that outlines the terms and conditions of a real estate transaction. It is a binding contract between the buyer and the seller, and it specifies the details of the property, the price, the closing date, the contingencies, and the responsibilities of each party. A well-written PSA can help avoid disputes, delays, and lawsuits, and protect the interests of both parties. In this article, we will discuss the essential elements of a PSA and provide a checklist for drafting one.

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1 Property Description

The first element of a PSA is the property description, which identifies the location, size, and features of the property being sold. It should include the street address, the legal description, the parcel number, and any easements, encumbrances, or restrictions that affect the property. The property description should also state whether the property is being sold as-is or with any warranties, and whether it includes any fixtures, appliances, or personal property.

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Rich Curtis

Realtor, Entrepreneur, Author, Coach
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It is helpful to know that you don't need to reinvent the wheel here, most states real estate trade association will have standard forms for this purpose that they provide to their members. If you are using a licensed Realtor in your state or a real estate attorney they will have access to standard forms that have most of the boiler plate terms laid out for you and a few plug and play boxes to establish the specific terms of your transaction. These standardized forms have been written by attorneys who have done the heavy lifting for you. As such they include many valuable clauses in regards to dispute resolution, instructions to escrow holders and handling of monies so that you don't have to come up with those terms on your own.

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2 Purchase Price and Terms

The second element of a PSA is the purchase price and terms, which state how much the buyer is paying for the property and how they are financing it. It should include the amount of the earnest money deposit, the balance of the purchase price, the method of payment, and the closing costs. The purchase price and terms should also specify the date and place of closing, the escrow agent, and the proration of taxes, utilities, and other expenses.

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3 Contingencies and Disclosures

The third element of a PSA is the contingencies and disclosures, which are conditions that must be met or waived before the sale can be finalized. They may include the buyer's ability to obtain financing, the seller's ability to provide clear title, the results of inspections, appraisals, surveys, or environmental tests, and the disclosure of any material defects, hazards, or liabilities that affect the property. The contingencies and disclosures should state the time frame, the consequences, and the remedies for each condition.

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Rich Curtis

Realtor, Entrepreneur, Author, Coach
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Bear in mind that this works differently depending on the state you are in. In some states some contingencies sunset automatically on a certain date at a certain time, in other states contingencies aren't removed until they are actively removed in writing with a specific form. Also all of the timelines associated with contingencies and who is going to pay for the professionals to aid in the due diligence process are matters of negotiation. There are local conventions but you can structure this any way the seller and buyer are willing to agree to.

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4 Representations and Warranties

The fourth element of a PSA is the representations and warranties, which are statements that the buyer and the seller make to each other about the property and the transaction. They may include the seller's ownership and authority to sell, the buyer's financial capacity and legal status, the accuracy and completeness of the information provided, and the compliance with laws and regulations. The representations and warranties should also state the indemnification and liability clauses for any breaches or misrepresentations.

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Stephen Edetanlen

Principal at Orobosa Solicitors
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Try and obtain the warranty certificates or documents, anywhere possible. Check the dates, to see if they are still valid, and check to see what it includes and excludes.

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5 Default and Remedies

The fifth element of a PSA is the default and remedies, which define what constitutes a breach of contract and what actions the parties can take in case of a default. It should include the notice and cure provisions, the liquidated damages, the specific performance, the termination and cancellation rights, and the arbitration and litigation options. The default and remedies should also state the governing law and jurisdiction of the contract.

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Rich Curtis

Realtor, Entrepreneur, Author, Coach
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Realtors can't practice law, as such the contracts that a residential Realtor uses have prewritten dispute resolution clauses that have been laid out by attorneys. The names of these process can cause confusion for buyers. For instance in California we have a mediation clause built in to our agreement and an arbitration clause that both parties can agree to. Many people think that the mediation and arbitration process will be free or cheap versus say just hiring an attorney and suing someone. In fact, the mediation and arbitration processes cost money and can take quite some time to complete. It's important to question your representative about the time, cost and options for dispute resolution before signing an agreement agreeing to one.

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6 Additional Provisions

The sixth element of a PSA is the additional provisions, which cover any other aspects of the transaction that are not addressed in the previous sections. They may include the assignment and delegation clauses, the amendment and modification clauses, the entire agreement and integration clauses, the severability and waiver clauses, and the signatures and acknowledgments of the parties. The additional provisions should also state the date and effectiveness of the contract and the attachments and exhibits that are incorporated by reference.

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7 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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Rich Curtis

Realtor, Entrepreneur, Author, Coach
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The main consideration when preparing a PSA is representation. If you are not experienced in preparing one you want to find a professional that can help you. Depending on where you live that may be a Realtor, attorney or title company even in some states. You want to make sure the person preparing that agreement for you has been doing it a while and can explain the agreement to you line by line so you know exactly what your signing and what your rights and responsibilities will be once you agree to those terms.

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What are the essential elements of a purchase and sale agreement?

1

2

3

4

5

6

7

1 Property Description

2 Purchase Price and Terms

3 Contingencies and Disclosures

4 Representations and Warranties

5 Default and Remedies

6 Additional Provisions

7 Here’s what else to consider

Real Estate

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What are the essential elements of a purchase and sale agreement?

1

2

3

4

5

6

7

1 Property Description

2 Purchase Price and Terms

3 Contingencies and Disclosures

4 Representations and Warranties

5 Default and Remedies

6 Additional Provisions

7 Here’s what else to consider

Real Estate

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