What Is a Purchase and Sale Agreement?

A real estate purchase and sale agreement is a legally binding contract that contains all the details of a home sale. It’s sometimes referred to as a PSA or a P&S, and is signed when the buyer and seller agree to the terms of the sale.

Note that the purchase and sale agreement is not the same document as the similarly named purchase agreement. The PSA outlines the key terms of the sale and sets a closing day for the transaction, while the purchase agreement is signed at the end of the process to finalize the sale and make the transfer of property official.

What’s Included in a Purchase and Sale Agreement?

Here’s what you can expect a PSA to look like.

The Basics

Some of the more common elements of the purchase and sale agreement include:

• Home purchase price.
• Description of the property.
• Identities of the buyer and seller.
• Proposed closing date.
• Down payment amount.
• How much earnest money is being paid.
• Title transfer and insurance details.
• The escrow company for the transaction.
• How the sale will be financed.

Contingencies

Contingencies are conditions that must be met for the deal to close. If contingencies aren’t met, then that typically means the buyer can back out of the sale. When buyers cancel due to unmet contingencies, the seller usually must refund the earnest money deposit.

Common contingencies include:

• Satisfactory home appraisal.
• Satisfactory home inspection.
• Successful financing.
• Buyer’s ability to sell their current home.
• Clean title.

Who Writes a Purchase and Sale Agreement?

When the seller accepts the buyer’s offer on a house and both parties agree to the details of the sale, then it’s time to draw up the purchase and sale agreement. The PSA typically is drafted by a real estate agent — though some states require a real estate attorney to write it.

FAQ

Here are answers to some frequently asked questions about purchase and sale agreements.

What’s the difference between a PSA and a purchase agreement?

It’s easy to mix up the similarly named purchase and sale agreement and purchase agreement — but there’s a key difference. The PSA marks the start of the transaction process, and outlines the terms and timeline for closing. The purchase agreement concludes the process and finalizes the sale.

Can a seller back out of a purchase and sale agreement?

A seller can back out of a purchase and sale agreement if the buyer fails to meet a contingency, or the buyer agrees to cancel it. Backing out for other reasons, however, risks breaching the contract and could leave the seller open to legal action from the buyer. All parties should consult their own attorneys before deciding to back out of a purchase and sale agreement.

What is the most common reason for a purchase and sale agreement to fall through?

One of the most common reasons that purchase and sale agreements fall through is if one of the deal’s contingencies isn’t met. For example, if the buyer is unable to secure financing or the inspection reveals serious issues with the home, the buyer can simply walk away from the deal.