What Is A Real Estate Purchase Contract And How Is It Prepared?

Are you considering selling or purchasing property? When buying or selling property in Texas, the cornerstone of the transaction is the real estate purchase contract. This document is vital, as it outlines all the terms of the sale, protecting both parties involved.

In this guide, we aim to simplify these contracts for you, whether you’re a buyer or a seller, ensuring you understand every step of the process. We’ll break down what a purchase contract includes, who’s responsible for drafting it, and how it guides you from the initial offer to the final closing, making your real estate experience smooth and straightforward.

What Is a Purchase Contract?

A purchase contract in real estate is a legally binding agreement between a buyer and a seller regarding the sale of a property. This document outlines the terms and conditions of the sale, specifying details such as the purchase price, the property description, the closing date, and any contingencies that must be met before the sale can proceed. These contingencies might include the buyer obtaining financing, the completion of a satisfactory home inspection, or the sale of the buyer’s current home.

The purchase contract serves several key functions:

Establishes the Agreement

It officially records the buyer’s offer to purchase the property and the seller’s acceptance, marking the agreement for both parties to proceed under defined terms.

Details of the Transaction

It specifies the financial aspects (purchase price, deposit amounts, closing costs), the timeline for the sale, and the responsibilities of both buyer and seller.

Legal Protection

It provides legal recourse for both parties if there’s a breach of the agreement. For instance, if the seller backs out without a justified reason, the buyer may seek to enforce the contract or claim damages.

Guides the Closing Process

The contract acts as a roadmap for the transaction, guiding both parties through the steps needed to complete the sale, from escrow to closing.

To be valid, a real estate purchase agreement or a real estate purchase contract must be in writing and signed by both parties. It often goes through several rounds of negotiation before both the buyer and the seller agree to the terms and sign the document. Once signed, both parties are legally committed to fulfilling their part of the agreement, assuming all contingencies are met.

balancing the property sector The real estate agent is explaining the house style to see the house design and the purchase agreement.Wooden house at modern office

Who Prepares The Purchase Contract?

The preparation of a real estate purchase contract can vary depending on the region and the specifics of the transaction. Typically, the responsibility falls to one of the following parties:

Real Estate Agents or Realtors

In transactions where both buyer and seller are represented by real estate agents, the agent representing the buyer often drafts the initial purchase contract. This is common in many regions, as real estate agents are familiar with the required terms and conditions for such contracts in their area.


In some cases, particularly in areas where it’s customary or required by law, attorneys prepare the purchase contract. This can happen when transactions are complex or when the parties want to ensure that their legal interests are fully protected.

Title Companies or Escrow Agents

In certain jurisdictions, title companies or escrow agents might prepare the purchase contract as well, especially during the closing process, to ensure that all terms and conditions are met before the property title is transferred.

The Buyers Themselves

In situations where a buyer is not represented by an agent or prefers a more direct approach, the buyer might prepare the purchase contract using standard forms or templates that comply with local real estate laws.

Regardless of who prepares the document, it’s crucial that the purchase contract is comprehensive and accurately reflects the agreement between the buyer and seller. It’s also advisable for both parties to review the contract carefully, potentially with legal counsel, to ensure that their rights and interests are adequately protected.

Components Of A Real Estate Sales Contract

Real estate sales contracts are comprehensive documents that outline the terms and conditions of property transactions. These components ensure that both the buyer and seller are clear on the terms of the sale, their rights, and their obligations, helping to prevent misunderstandings and disputes during the real estate transaction process.

Here are the essential components typically included in such contracts:

1. Parties Involved

This part identifies the buyer(s) and seller(s) by full name, ensuring clarity on who is entering into the contract.

2. Property Description

This section provides a detailed description of the property being sold, including its address, legal description (as recorded in public records), and any specific details pertinent to the property itself.

3. Purchase Price and Payment Terms

The contract should also indicate the total purchase price agreed upon by the parties and outline the payment terms, including any deposit or earnest money required, financing details, and how any remaining balance will be paid.

4. Contingencies

This part lists conditions that must be satisfied for the transaction to proceed, such as financing approval, home inspections, and the sale of the buyer’s current home, among others.

5. Closing and Possession Dates

Contracts should also specify the date by which the sale will close and when the buyer will take possession of the property.

6. Closing Costs and Adjustments

This section details which party is responsible for various closing costs (e.g., title insurance, escrow fees, and real estate taxes) and how these costs will be divided between the buyer and seller.

7. Disclosures

The contract should provide any disclosures required by law, such as lead-based paint disclosures for older homes or other material facts about the property’s condition.

8. Inspection Rights

Inspection rights grant the buyer the right to have the property inspected within a certain timeframe and outline the procedures for addressing any issues discovered during inspections.

9. Warranties

This portion describes any warranties that will be provided with the property, covering aspects such as appliances, systems, and structural integrity.

10. Legal and Binding Agreement

This clarifies that the contract is legally binding and outlines the consequences for failing to meet the terms of the agreement.

11. Signatures

Don’t forget the signatures. A contract requires the signatures of all parties involved, making the contract enforceable. The date of signing is also recorded.

12. Additional Provisions

The contract may also include other specific terms or conditions agreed upon by the buyer and seller, such as items to be included or excluded from the sale or special arrangements for the transfer of utility services.

Real estate agent talked about the terms of the home purchase agreement and asked the customer to sign the documents to make the contract legally, Home sales and home insurance concept.

How a Purchase Contract Works

The process begins when the buyer makes an offer to purchase a property, which includes specifics such as the offer price, contingencies (like financing approval or home inspection results), and the proposed closing date. The seller can then accept, reject, or counter the offer. Once both parties agree on the terms and sign the contract, it becomes enforceable, committing both to fulfill their respective obligations as outlined in the document.

Contingencies within the contract play a crucial role in protecting both parties. For example, a financing contingency allows the buyer to back out of the contract without penalties if they cannot secure a mortgage. Similarly, an inspection contingency can enable the buyer to negotiate repairs or withdraw their offer based on the inspection results. These contingencies ensure that significant conditions must be met before the transaction can proceed to close.

Upon satisfying all contingencies and completing necessary preparations for the sale—such as securing financing, completing inspections, and obtaining title insurance—the closing process begins. At closing, legal ownership of the property is transferred from the seller to the buyer, and the seller receives the purchase payment. This final step concludes the transaction, with both parties fulfilling their contractual obligations, thereby making the buyer the new owner of the property.

Different Types of Texas Purchase Contracts

In Texas, the real estate market is diverse, accommodating various types of properties and transactions. As such, the Texas Real Estate Commission (TREC) and other entities provide several different types of purchase contracts to address the specific needs and considerations of these transactions. Here are the primary types of Texas purchase contracts:

One to Four Family Residential Contract (Resale)

This is the most commonly used contract for the sale of residential properties that comprise one to four family units. It covers all the essential terms of the sale, including financing conditions, property inspections, and legal descriptions.

New Home Contract (Completed Construction)

Designed for the purchase of newly constructed homes, this contract addresses issues unique to new constructions, such as warranties from the builder and any obligations for finishing touches before closing.

New Home Contract (Incomplete Construction)

This type of contract is used when purchasing a home that has not yet been completed. It includes terms regarding the completion schedule, any selections or customizations to be made by the buyer, and builder responsibilities.

Farm and Ranch Contract

Tailored for transactions involving larger parcels of land used for farming or ranching, this contract includes provisions for water rights, mineral rights, and any agricultural equipment or livestock included in the sale.

Residential Condominium Contract (Resale)

This contract is specific to the resale of condominium units and includes considerations relevant to condominium ownership, such as homeowners association fees, common areas, and management.

Unimproved Property Contract

Used for the sale of vacant land or property without any buildings or structures. It addresses unique aspects of land sales, such as zoning restrictions, easements, and access to utilities.

Questions to Ask Before Signing a Purchase Contract

Before signing a purchase contract for a property, it’s essential to ask several critical questions to ensure you fully understand the terms of the agreement and to protect your interests. Here are some key questions to consider:

  • What are the contingencies, and how do they work?

Understand the conditions that must be met for the transaction to proceed, such as financing approval, home inspection results, and the sale of your current home, if applicable.

  • Is there a financing contingency, and what are its specifics?

If you’re relying on a mortgage to finance the purchase, ensure there’s a clause that allows you to back out if you can’t secure financing under specified conditions.

  • What are my obligations regarding home inspections, and what happens if issues are found?

Clarify your rights to inspect the property, the timeline for inspections, who is responsible for repairs, and your options if significant problems are discovered.

  • What items are included or excluded from the sale?

Confirm whether fixtures, appliances, and other personal property are part of the purchase to avoid surprises later.

  • What are the closing costs, and who is responsible for paying them?

Understand all the expenses associated with closing the transaction, including who pays for what, to accurately budget for your costs.

  • What is the timeline for closing, and what happens if there are delays?

Know the expected closing date and any penalties or rights you have if either party causes a delay in closing.

  • How is the property’s title transferred, and are there any known issues with the title?

Ensure that you will receive a clear title to the property and ask about any easements, liens, or encumbrances that may affect your use of the property.

  • What warranties or guarantees are provided with the property?

Ask about any warranties on the home’s structure, systems, or appliances that will be transferred to you.

  • Can I terminate the contract, and under what conditions?

Understand the circumstances under which you can withdraw from the contract without penalty, including any deadlines for doing so.

  • Has the property been subject to any major repairs or renovations?

This can help you understand the property’s condition and any potential issues that may not be immediately apparent.

Asking these questions before signing a purchase contract can provide clarity and peace of mind as you proceed with one of the most significant investments of your life. It’s also advisable to consult with a real estate professional or attorney to ensure that your interests are fully protected.

Can I Get Out of a Home Purchase Contract?

Yes, you can get out of a home purchase contract under certain conditions, but the specifics depend on the terms of the contract itself and the contingencies it includes. Most real estate contracts are designed with specific clauses that allow either party to terminate the agreement under predefined circumstances without facing legal penalties. Here are some common situations that might allow a buyer to exit a purchase contract:

Financing Contingency

If the contract includes a financing contingency and you are unable to secure a mortgage approval within the specified timeframe, you can typically withdraw from the contract without penalty.

Inspection Contingency

Many contracts allow the buyer to have the property inspected. If the inspection reveals significant issues that the buyer and seller cannot agree on how to address, the buyer may have the right to terminate the contract.

Appraisal Contingency

If an appraisal contingency is included and the property appraises for less than the purchase price, the buyer may have the option to renegotiate the price with the seller or exit the contract.

Title Issues

If the title search reveals problems that cannot be resolved before closing, such as liens, encumbrances, or disputes over property boundaries, the buyer may be able to back out of the purchase.

Sale of Existing Home

Some buyers include a contingency that the purchase is subject to the sale of their current home. If the buyer’s home does not sell within the specified period, the buyer can opt out of the contract.

It’s important to note that the ability to exit a purchase contract without penalty relies on the specific contingencies outlined in the agreement and adhering to any stipulated procedures and timelines for notifying the seller of the intent to terminate. Exiting a contract outside of these contingencies may result in the forfeiture of any earnest money deposit or could potentially expose the buyer to legal action for breach of contract.

Before attempting to get out of a home purchase contract, it’s advisable to consult with a real estate attorney to understand your rights and obligations under the contract and to explore the termination process in a legally sound manner.

Real estate broker and customer shaking hands after signing a contract: real estate, home loan and insurance concept

Ensure a Smooth Real Estate Transaction with Apex Realtors

Going through a real estate transaction is a significant undertaking. This is why understanding the nuances of a real estate purchase contract and how to prepare for it is important. This document binds the promise of a new beginning for buyers and a successful sale for sellers.

Are you ready to buy or sell property? Partner with a top commercial and residential real estate agency in Houston today to help you out with your real estate purchase contract. Apex Realtors is dedicated to guiding you through each step of this process, ensuring that every transaction is as transparent and straightforward as possible.

Visit them now at 444 Westheimer Rd. Suite 1620, Houston, 77056. With Apex Realtors, clients can expect not only to achieve their real estate goals but to do so with an assurance of professional integrity and support every step of the way.


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