P&S Agreement (also known as SPA): All You Need to Know

Dan is the Vice President of Marketplace Lending at Own Up. Throughout his career, he has held executive leadership positions in the mortgage and banking industry.

Death, divorce, moving, major illness or injury, and job loss. These are considered the five most stressful life events. What makes moving—clearly the most positive—so stressful? Maybe it’s the fact that a house is the biggest investment most people make. Or the fact that buyers must sign their names and initials on multiple pages of the Purchase and Sale Agreement, each one filled with language they might not fully understand that boils down to one fact: You are one step closer to making the biggest purchase of your life.

Most of the stress of selling or buying a house comes from the complicated and confusing nature of the home buying process. To feel more at ease, the best place to start is the Purchase and Sale Agreement.

So what is a P&S Agreement?

The Purchase and Sale Agreement (also called a Property Sale Agreement) spells out the terms of the sale, along with the conditions that must be met for the sale to go through. It is a binding legal document that states the final price for the house and the terms of the purchase, as negotiated between the buyer(s) and seller(s). Most states rely on a standard form, but some states require attorneys to draft the document. The document also includes a list of contingencies, that if not met, voids the agreement.

Read the Fine Print

A Purchase and Sale Agreement is a legal document signed by both parties in good faith and usually prepared by a real estate agent. Except in states where it’s mandated, ordinary home sales don’t require an attorney’s help. Only in cases of more complicated sales, such as an illegal in-law unit or a desire to rent it out, are real estate attorneys generally involved.

Because reviewing the purchase and sale agreement is generally left to buyers and sellers, it is important to understand the details of the transaction. Think of it as a financial vocabulary test where it really pays to get an A.

• An agreed-upon purchase price. It is important to know this number can be renegotiated if the home inspection finds issues that need addressing, or the appraisal value is less than the purchase price.
• The amount of the Earnest Money Deposit, or EMD. The EMD is a negotiated good faith payment made by buyers to sellers in competitive real estate markets where sellers are receiving multiple offers and want proof a buyer is serious.
• The planned closing date, sometimes called the settlement date, when the buyers will take possession of the home. It is subject to change if issues arise.
• A legal description of the property size and location, including a map with property lines.
• The name of the title insurance company and a record that the seller is providing a clean title to the buyer.
• The name of the escrow company, if the buyer is not paying in full.
• Riders that spell out specific terms of the sale, such as the seller paying some of the buyer’s closing costs, or personal items such as washing machines and window treatments being included in the purchase price.
• Contingencies written into the contract to protect the buyer. All contingencies must be met for the purchase to go through. The five most common contingencies are:
  • a home inspection to ensure the property is as reported
  • an appraisal to ensure the home is worth the selling price
  • A financing contingency in case the lender refuses to finance the loan
  • sale of a current house if the buyer is selling a home
  • a title search to make sure the title is free and clear to be sold.

  A sixth contingency relating other inspection for termites and pests, radon and lead paint, are also sometimes part of the contract

  The Purchase and Sale Agreement has a lot of information, but is in the end a living document with a lot of moving parts that are subject to change. Understanding the different elements is critical.

  A Document, Not a Deal Set in Stone

  A Purchase and Sale Agreement lays out the terms of a real estate transaction, but it is not set in stone. Just as buyers and sellers must understand what is in the document, they also must understand what it is not. Three things you need to know:

  1. A P&S Agreement is not a final contract. It is signed after the two parties agree to the terms, but before the official closing where ownership changes hands to the buyer.
  2. It is not an insurance policy. It is up to the buyer to do due diligence and have the necessary inspections.
  3. It is not a final sale. The deal can voided if contingencies or agreements laid out in the document are not met.

  Just because buying a house can be stressful, it doesn’t mean it has to be. Own Up wants everyone to achieve the dream of homeownership. This starts with education, so you can be empowered to make the best decision. Becoming a student of the real estate market isn’t hard; it just takes time and the right teacher. At Own Up, our interests are aligned with yours, so we can be objective about assessing the landscape and your options.

  Do you have questions about the Purchase and Sale Agreement, or any other aspect of the home buying journey? Contact us! We are here to help.