How to Draw a Contract Agreement: Everything to Know

Whether you're buying or selling a home, a purchase agreement (sometimes called a contract agreement) is one of the most important steps in securing the deal.3 min read

Wondering how to draw a contract agreement? Whether you're buying or selling a home, a purchase agreement (sometimes called a contract agreement) is one of the most important steps in securing the deal. A purchase agreement is a written document that lays out the terms of the sale.

Usually, the seller's real estate agent is the person who provides the purchase agreement. Occasionally, a home is listed for sale by owner (FSBO), and therefore, the owner doesn't actually have real estate agent representation. This usually occurs when the market favors sellers and when the seller intends to maximize their profits by avoiding agent commission fees.

Who Draws The Contract Agreement?

The question remains: if the buyer and seller agree on a sale, who will be responsible for drafting the purchase agreement? In most cases, if the seller doesn't have an agent, the buyer's agent will end up doing the majority of the work. Under these circumstances, the buyer's agent will work as a transactional agent, also called a dual agent. It's best to think of this agent as neither representing the buyer nor the seller, but a facilitator of all necessary documents. However, some states do not permit dual agency, as it may be seen as an ethical dilemma.

If you decide to buy real estate directly from the owner and your agent agrees to draw up the purchase agreement, your agent will need to be paid for their work. This doesn't mean that you must pay the bill. Be prepared to ask the seller to pay that part of your agent's commission. Before you agree on a sale, ask your agent to approach the seller and discuss the possibility of compensation. Often, sellers are willing to pay the buyer's agent if they've brought them a ready and willing buyer.

Agreement Terms and Clauses

When drafting a purchase agreement, keep in mind that complicated legal words are not necessary. Clearly and simply state each clause, and include all relevant details. Although not a comprehensive list, make sure to include the following information:

• Date - Include the full date when the contract was executed.
• Names of all parties - Make sure to use full legal names. Avoid using nicknames or abbreviated names.
• Agreement - Also known as the “general scope,” this brief statement explains the basis of the contract. It includes what each party will do for the other.
• Payment terms - Not only must you include the final cost, but also state the down payment amount and any other repeating or incremental payments related to the sale. If interest is being charged, include the percentage. Make sure to state the date payments will be made and what payment methods will be accepted. If the buyer accepts credit card or PayPal transactions, they may wish to pass on the appropriate fees to the seller.
• Closing date and other deadlines
• Additional conditions - Both buyer and seller may wish to add additional conditions to the purchase agreement, such as a home inspection or appraisal. Once again, be sure to include deadlines by which these actions must be performed.
• Signatures and dates - Leave room for all parties to print and sign their names and date. You may wish to have a witness observe and sign the contract as well.
• Boilerplate - If you work with an attorney, you may wish to have them add their own boilerplate language at the bottom of the contract. This will help ensure that your agreement conforms to local and state laws. If you don't have an attorney, you can look up boilerplate language for the type of contract you wish to execute by conducting an online search, although it's best to seek counsel from a legal professional with experience in your jurisdiction and contract type.

Drawing up a contract agreement or purchase agreement requires a thorough understanding of your state's contract law, as well as the subject matter and terms of the agreement. Before you start drawing up a contract agreement, it's best to seek counsel from a local contract attorney who can help you determine whether any special considerations must be considered you begin drafting your terms. Depending on the subject matter and substance of your contract, certain federal or state laws may be relevant to your contractual terms.

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