Purchase Agreements, Earnest Money and Contingencies

Contract Formation, Legal Requirements, and Modifications

A purchase agreement is a legally binding, bilateral contract in which the seller agrees to sell and the buyer agrees to buy real property under specified terms. Until the transaction closes and all contractual duties are fulfilled, an executed purchase agreement is classified as an executory contract. For a real estate purchase agreement to be enforceable, it generally requires competent parties, mutual assent achieved through offer and acceptance, a lawful purpose, consideration, and a writing that satisfies the applicable statute of frauds.

In a purchase agreement, the mutual exchange of promises constitutes valuable consideration. The contract must also identify the real property with sufficient certainty. A legal description is commonly used for this purpose, though specific property identification requirements vary by state. If personal property is included in the real estate sale, it should be clearly identified in the purchase agreement and may be transferred at closing by a bill of sale rather than through the real property deed.

Standard purchase agreements frequently feature a merger or integration clause, which explicitly states that the written purchase agreement is the final agreement between the parties and generally supersedes all prior oral and written agreements on the same subject. Should a party die while the contract is executory, the death generally does not terminate the purchase agreement; the deceased party's contractual rights and obligations ordinarily pass to their estate, unless the contract or applicable state law provides otherwise.

When parties wish to supplement or alter their agreement, they use addenda and amendments. An addendum adds terms or disclosures to a purchase agreement and becomes part of the agreement when properly incorporated and agreed to by the parties. When an addendum contains terms that conflict with standard preprinted contract language, the negotiated terms of the addendum generally control. In contrast, an amendment is a subsequent document used to modify, alter, or remove terms from an existing, executed purchase agreement. An amendment generally requires the mutual agreement of the parties and should be documented in writing and signed by them, subject to applicable state law.