Why this matters: The practice of writing up real estate sales transactions is all about documents. And documents are checklists as checklists mitigate risk of arrogance. In turn, reduced risk keeps you in the practice of writing up real estate transactions.

Fundamentally, just two transactional features point directly to the form to grab and use to write up a purchase offer: the type of property to be acquired, and the type of financing the buyer intends to fund the transaction. Know the categories of properties and financing, select the proper purchase form, and the considerations a prudent buyer addresses are all laid out.

The purchase agreement

Whether you are experienced as an agent or a recent entrant into the vocation of soliciting and negotiating real estate transactions, you market and locate property on behalf of clients — acting for your broker — as a seller agent or a buyer agent.

The categories of properties you might work with are:

  • one-to-four unit residential properties;
  • apartment buildings;
  • commercial income properties (offices, retail and industrial);
  • agricultural property; or
  • unimproved parcels.

Real estate sales transactions most often contemplate the conveyance of a fee simple ownership interest in a property to either a user such as an owner-occupant or an investor to let for income. The next most common real estate transaction is the conveyance of a leasehold estate to a user as a tenant-occupant.

For sales transactions, the primary document used by a buyer to negotiate the transaction is a purchase agreement form prepared by the buyer agent. Each type of property requires a different variety of purchase agreement. The various purchase agreements comprise provisions as a checklist of items a buyer agent — and their buyer-client — takes into consideration to negotiate the sale of a particular type of property.

To accommodate agents with documentation, three basic categories of purchase agreements exist for real estate sales. The categories are influenced primarily by legislation, court decisions and buyer needs for property information disclosures and due diligence investigations before and after a purchase agreement is entered into by a buyer and seller.

The three categories of purchase agreements are for sales transactions regarding:

  • one-to-four unit residential property;
  • property improved by other than one-to-four residential units, such as apartments, commercial including retail, offices and industrial, and farming operations; and
  • unimproved parcels of real estate.

Within each category of purchase agreement, several variations exist. The variations cater to the:

  • specialized use of some properties;
  • diverse arrangements for payment of the price; and
  • specific conditions which affect a property, particularly regarding consumer protection mandated for buyers of one-to-four unit residential property.

Related article:

Form-of-the-Week: Purchase Agreement — for One-to-Four Residential Property — with Buyer Broker Fee Provision [RPI Form 150]

Purchase agreement variations by type of property

Purchase agreements prepared for one-to-four unit residential sales transactions vary due to differing mortgage financing and brokerage services, such as:

  • conventional financing of the purchase price negotiated by a broker [See RPI Form 150];
  • government insured financing (FHA/VA) of the purchase price negotiated by a broker [See RPI Forms 150-1 and 150-2];
  • a buyer and seller negotiating directly, neither represented by a broker [See RPI Form 150-3];
  • conventional financing of the purchase price as income property negotiated by a broker [See RPI Form 150-4];
  • a short sale negotiated by brokers [See RPI Form 150-5]; and
  • the sale of an owner-occupied residence-in-foreclosure to an investor, called an equity purchase (EP) agreement, negotiated by brokers. [See RPI Form 150-6]

Variations among purchase agreements used for investor acquisition of income property and buyer-occupant acquisition of business property as prepared by a broker include:

  • conventional financing of the purchase price for any property other than a one-to-four unit residential property [See RPI Form 151];
  • executing a note to finance the down payment on the purchase price [See RPI Form 154-3]; and
  • an exchange of equity in one property for the equity in another. [See RPI Form 171]

Finally, variations of purchase agreements exist for use in highly specified transactions for the acquisition of real estate, such as:

Escrow instructions provide yet another variation on the purchase agreement. For example, a buyer and seller orally agree on the terms of a sale, with or without the assistance of an agent. An escrow company is contacted to go directly to escrow on their transaction.

Escrow instructions are prepared and signed, without first entering into a real estate purchase agreement. Here, the escrow instructions bind the buyer and seller as though they had entered into a purchase agreement. [See RPI Form 401]

Related video:

Purchase agreement addenda

Attached to all these various purchase agreements are one or more addenda referenced in the purchase agreements, regarding:

  • condition of property disclosures;
  • financing for payment of the purchase price;
  • agency relationship law; and
  • special provisions unique to the buyer or seller.

Addenda for adding provisions to a purchase agreement include:

Related article:

Form-of-the-Week: Purchase Agreement — For Other than One-to-Four Residential Units — Form 151