Before we can open a file in the system, we must collect a purchase agreement in an acceptable format. It needs to tell us enough about a transaction to figure out who is involved, what is involved in the sale, and who pays the costs.
A purchase agreement must contain, at minimum, the following items:
- Names of the buyers and sellers
- Identification of the property (using any of the following: parcel number, street address, legal description)
- The purchase price
- Signatures of all parties
Any purchase agreement that doesn’t contain at least these must be returned to the sending party for completion. Any edits to the agreement should be initialed by both parties, and any addenda must identify the original contract being modified and be signed by both parties.
A purchase agreement should contain the following additional items to make our job easier:
- Earnest money deposit amount
- Whether cash or financing will be used
- Allocation of closing costs
- Whether a tax or rent proration will be provided
- Closing date
While we can work with a purchase agreement that doesn’t contain these items, it is important to find out and document the missing items, like who is paying closing costs, etc.
Ultimately, when both parties sign the Escrow Agreement and the HUD-1, they agree to modify the original contract with the HUD-1 and accept the allocation of costs in accordance with the HUD-1, but the best practice is of course to document the parties’ intent prior to closing and try to make the transaction match their intent as closely as possible. Oftentimes, however, it’s impossible to do this because both parties refuse to pay a certain closing cost (for instance, the transfer tax) so these issues are best resolved well before production of the closing documents.
A note on signatures
It is common to see a purchase agreement signed electronically with the name of the LLC that owns the property and no indication as to who signed on behalf of the LLC. Since legal entities are not (yet) capable of signing documents on their own, this is not a valid signature until we figure out who is behind the entity clicking the ‘sign’ button on Dotloop or Docusign. If you’re signing on behalf of your LLC, just make sure to put your name on the document indicating that you are signing for the LLC.
When in doubt, we recommend using a standard form realtor’s purchase agreement, reviewed and modified as needed by a competent real estate attorney if necessary.