Washington Real Estate Fundamentals
Lesson 9:
Purchase and Sale
Agreements
© 2011 Rockwell Publishing
Purchase and Sale Agreements
Purchase and sale agreement: Contract
between real estate seller and buyer.
Also called:
 sales contract
 earnest money agreement
 purchase agreement
 contract of sale
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Purchase and Sale Agreements
Purpose and effect
Main purpose: to bind buyer and seller to
terms of agreement until transaction closes.

Contract can’t prevent one party from
backing out, but gives other party a legal
remedy if that happens.
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Purchase and Sale Agreements
Creating the contract
Like any contract, purchase and sale
agreement created through offer and
acceptance.

Offeror: buyer

Offeree: seller
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Purchase and Sale Agreements
Functions of contract form
Form initially serves as buyer’s offer.

When seller signs form to accept offer, it
becomes binding contract.
 Buyer
has equitable title (court could
order seller to deed property).
 Seller
still has legal title.
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Purchase and Sale Agreement
Who may prepare the contract
Generally, only lawyers may draw up
contracts for other people.

Non-lawyer drafting a contract is
unauthorized practice of law.

Exception: real estate agents may fill in
blanks on approved purchase and sale
agreement form.
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Who May Prepare the Contract
Standard of care
Agent preparing purchase and sale
agreement:
 held to same standard of care as an
attorney
 can’t use ignorance of legal requirements
as defense against claims of negligence
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Who May Prepare the Contract
Limitations
Agent should not go beyond filling in blanks
and attaching simple addenda.
If more complicated clauses needed, agent
should:
 find more appropriate form for client’s
needs, or
 arrange for parties to have agreement or
addendum drawn up by attorney
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Who May Prepare the Contract
Limitations
Agent cannot:
 fill out form in transaction where agent
isn’t representing either party
 charge separate fee for filling out forms
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Summary
Purchase and Sale Agreements
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Purpose of purchase and sale agreement
Creating the contract
Offeree and offeror
Functions of contract form
Who may prepare the contract
Unauthorized practice of law
Standard of care
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Elements of the Agreement
Elements of a purchase and sale agreement
include:
 Parties
 Property description
 Price and method of payment
 Closing date
 Possession date
 Type of deed and condition of title
 Liens and other encumbrances
 Conditions or contingencies
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Elements of the Agreement
Parties
Both buyer and seller must have capacity to
contract.
 If a party is underage or mentally
incompetent, agreement is voidable or
void.
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Parties to the Agreement
Who must sign
Agreement must be signed by everyone with
an ownership interest in the property.
 Otherwise contract may only be partially
enforceable (or not enforceable at all).
If a party is married, always best to have
spouse sign, too.
 Joinder requirement for community real
property.
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Elements of the Agreement
Property description
Agreement must contain description
adequate to identify the property.
 Full legal description always best.
 If it won’t fit in space available, agent
should add attachment.
Any attachment to agreement must be:
 referenced in main form (addenda)
 initialed by all parties
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Elements of the Agreement
Price and method of payment
Agreement should state:
 total purchase price
 earnest money and downpayment amounts
Assumption: attach payment terms addendum.
Seller financing: attach payment terms
addendum and copy of finance instruments.
Institutional loan: agreement should usually
include financing contingency.
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Elements of the Agreement
Included items
Provision lists appliances, window coverings,
and other items that will be included in sale and
covered by purchase price.
 Many items listed would be included
anyway, since they qualify as fixtures.
Any fixtures seller plans to take should be
specifically excluded from sale in an
addendum.
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Elements of the Agreement
Closing date
Agreement must set closing date, usually
defined as date on which:
 deed delivered to buyer
 sales proceeds disbursed to seller
 documents recorded
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Closing Date
Contingencies
Closing date must allow parties enough time
to meet various contingencies, such as:
 buyer arranging financing
 buyer selling home
 seller making repairs
 seller clearing liens
If either party doesn’t want transaction to
close before a certain date, clause stating
that may be added.
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Closing Date
Extension
Closing date is also termination date of
purchase and sale agreement.

If contingency may not be fulfilled by
agreed closing date, parties should sign
extension agreement.
 Extension
agreement amends original
contract to defer closing date.
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Elements of the Agreement
Closing agent and closing costs
Agreement usually includes provisions:
 appointing escrow agent or other closing
agent
 allocating payment of closing costs
between parties
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Elements of the Agreement
Possession date
Possession of property ordinarily transferred
from seller to buyer on closing date.
 If possession will be transferred before or
after closing, parties should execute
separate rental agreement.
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Elements of the Agreement
Casualty loss
Agreement may address what happens if
property destroyed or damaged before
closing.
 Typically, buyer won’t be required to
complete the transaction.
 Possible exception if buyer has already
taken possession of property.
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Elements of the Agreement
Conveyance and title
Agreement should specify type of deed that
will be used to convey title.
 Ordinarily warranty deed
Seller agrees to provide marketable title: title
free of undisclosed encumbrances or title
defects.
 Seller will remove any liens buyer is not
assuming before closing.
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Elements of the Agreement
Time is of the essence clause
Time is of the essence clause: Provision
stating that deadlines set in agreement may
be strictly enforced.
 Failure to meet deadline may be treated
as material breach of contract.
 Non-breaching party decides whether to:
 sue for breach of contract
 waive deadline and proceed
© 2011 Rockwell Publishing
Summary
Elements of the Agreement
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Parties
Property description
Price and method of payment
Included items provision
Closing date
Possession and casualty loss provisions
Conveyance and title
Time is of the essence clause
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Elements of the Agreement
Default provisions
Purchase and sale agreement usually allows
parties to choose what seller’s recourse will
be if buyer defaults (breaches contract):
 election of remedies, or
 liquidated damages
Election of remedies: After buyer breaches,
seller will be able to choose between keeping
earnest money or suing for damages.
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Default Provisions
Liquidated damages
In most cases, instead of giving seller election
of remedies, parties agree earnest money will
be liquidated damages.

Liquidated damages: Sum the contracting
parties agree in advance will serve as
compensation if one party breaches.
 Nonbreaching
party gives up right to
sue for more money.
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Default Provisions
Liquidated damages
If purchase and sale agreement provided that
earnest money will be liquidated damages,
seller keeps deposit if buyer defaults.

Seller doesn’t need to prove any actual
financial loss.

But seller also can’t sue buyer for more
money.

Keeping deposit is seller’s sole remedy.
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Default Provisions
Liquidated damages
In Washington, real estate seller may keep no
more than 5% of sales price as liquidated
damages.
Under provision in many listing agreements,
seller’s brokerage firm entitled to half of seller’s
liquidated damages as compensation.
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Default Provisions
Attorneys’ fees
Purchase and sale agreement usually has
attorneys’ fees provision.

In lawsuit related to contract, losing party
required to pay other party’s court costs
and attorneys’ fees.
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Elements of the Agreement
Agency disclosure
Washington law requires agents in a
transaction to disclose, in writing, which party
they’re representing.
 Disclosure must be made to each party
before that party signs an offer.
 Most purchase and sale agreements
have provision that fulfills this disclosure
requirement.
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Elements of the Agreement
Earnest money
Purchase and sale agreement has space to fill
in amount of buyer’s earnest money deposit.
Agreement also usually has checkboxes to
indicate form of deposit:
 cash
 check
 promissory note
 other
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Earnest Money
Holding check pending acceptance
Buyer may give deposit check to selling agent
before offer submitted to seller.

Form may authorize agent to hold check
undeposited until seller decides whether
to accept offer.

If seller rejects offer, agent returns check
to buyer.
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Earnest Money
Delivering check after acceptance
Form may also allow buyer to wait until after
seller accepts offer to deliver check to agent.

Sets time limit for delivery (certain number
of days after acceptance).
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Earnest Money
Depositing check
Once seller has accepted offer, selling agent:

delivers buyer’s check to designated
closing agent, or

deposits check into brokerage trust
account.
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Earnest Money
Amount of deposit
Appropriate amount varies with local custom.
 Can be any amount acceptable to both
buyer and seller.

But seller can keep no more than 5% of
price as liquidated damages.
 Any amount over 5% must be refunded
to defaulting buyer.

Entire deposit applied to purchase price if
transaction closes.
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Earnest Money
Handling disputed deposit
If transaction falls through and parties can’t
agree who’s entitled to deposit:

In some states, brokerage turns funds
over to court by filing interpleader action.

Under Washington law, brokerage notifies
all parties of intention to disburse funds.

Purchase and sale agreement may also
have provision concerning disputed funds.
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Elements of the Agreement
Brokerage fee provision
Purchase and sale agreement usually has
brokerage fee provision.
 Seller and buyer agree to compensate
agents as promised in any earlier
agreements.
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Elements of the Agreement
Deadline for acceptance
Form has clause in which buyer sets deadline
for acceptance of offer.
 Required manner of acceptance may
also be specified.
 Acceptance must always be in writing
to satisfy statute of frauds.

If seller fails to accept in required manner
by deadline, offer expires.
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Purchase and Sale Agreements
Counteroffers
Offeree who changes any terms is making
counteroffer, not accepting offer.
 Counteroffer terminates offer, so
contract formed only if other party
accepts counteroffer.
 Best to use separate counteroffer form
to avoid confusion.
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Purchase and Sale Agreements
Amendments
Once purchase and sale agreement signed,
can be modified only with:
 written amendment
 signed by all parties
Amendment changes terms after contract
signed.
 In contrast, addendum adds to or
changes terms before contract signed.
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Purchase and Sale Agreements
Backup offers
Backup offer: Offer submitted by prospective
buyer, even though seller has already
accepted another offer.
 Backup offer is contingent on failure of
existing sales contract.
 If seller accepts backup offer, the
parties will have a deal in place if
original sale fails to close.
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Summary
More Elements of the Agreement
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Default provisions
Seller’s election of remedies
Liquidated damages
Attorneys’ fees
Agency disclosure
Earnest money provision
Interpleader
Brokerage fee provision
Counteroffer
Amendment
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Purchase and Sale Agreements
Contingencies
Most purchase and sale agreements are
contingent on one or more events or conditions.
 If a condition not fulfilled, agreement
terminates without liability.
 Buyer entitled to have earnest money
refunded.
Contingency addendum form should be
attached for most contingencies.
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Contingencies
Good faith effort and waiver
Good faith effort to fulfill contingency required.
 Party can’t get out of contract by failing to
take steps to meet condition on time.
However, party benefited by contingency may
choose to waive it and proceed with contract.
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Contingencies
Types of contingencies
Common types of contingencies:
 financing contingency
 sale of buyer’s home contingency
 inspection contingency
 second buyer contingency
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Types of Contingencies
Financing
Most residential transactions contingent on
whether buyer can obtain needed financing.
 Contingency sets:
 type of loan
 downpayment amount
 application deadline

Special requirements for FHA, VA, or RD
financing.
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Types of Contingencies
Sale of buyer’s home
Residential transactions often contingent on
whether buyer can sell current home.
 Contingency should set deadline and
specify what event will fulfill it:
 Acceptance of offer?
 Closing?
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Sale of Buyer’s Home
Bump clause
Contract contingent on sale of buyer’s home
usually has bump clause.
 Bump clause: Allows seller to keep
property on market pending fulfillment of
contingency.

If seller gets another offer, can demand
the first buyer:
 waive contingency, or
 rescind contract
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Types of Contingencies
Inspection
Agreement may have contingencies for
various types of inspections or tests, such as:
 structural inspection
 geologic inspection
 pest control inspection
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Inspection
Standard for judging results
Inspection contingency should establish
standard for acceptable inspection results.
 May just say results must be
“satisfactory” to buyer.
 Or objective standard may be set.
 For example, “if necessary repairs
don’t exceed $500.”
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Inspection
Other provisions
Contingency clause should also establish:
 who orders and pays for inspection
 how buyer will give seller notice of
objection to inspection report contents
 seller’s option to perform repairs or to
terminate sale
 time limit for re-inspection of repairs
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Types of Contingencies
Second buyer
Second buyer contingency allows seller who
already has a contract to accept second offer.
 Second sale is made contingent on
failure of first sale.
 If contingency in first sale not fulfilled or
first sale fails for some other reason,
second contract becomes binding.
© 2011 Rockwell Publishing
Summary
Contingencies
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Contingency
Good faith effort
Waiver
Financing contingency
Sale of buyer’s home contingency
Bump clause
Inspection contingency
Second buyer contingency
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Property Disclosure Laws
Under state and federal statutes, sellers in
residential transactions must make certain
disclosures to buyers.
Unless exempt, a seller must:
 provide a seller disclosure statement
 comply with the lead-based paint
disclosure law
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Property Disclosure Laws
Seller disclosure statement
Washington law requires seller of real
property to provide disclosure statement to
buyer.
Not required in:
 agricultural land sales
 foreclosures
 bankruptcy transfers
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Seller Disclosure Statement
Disclosures
Statutory form requires seller to disclose what
seller knows about:
 condition of the property (including
utilities)
 existence of easements or
encumbrances
 other material information
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Seller Disclosure Statement
Liability
Statement is for disclosure purposes only.
 Not part of contract between buyer and
seller.
 Not a seller’s warranty.
If inaccuracies in statement:
 neither seller nor seller’s agent liable,
 unless they knew information was wrong.
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Seller Disclosure Statement
Deadline and waiver
Statement must be given to buyer within 5
business days after purchase and sale
agreement signed, unless:
 parties agree in writing to different deadline
 buyer gives written waiver of right to
receive statement
However, buyer can’t waive right to receive
Environmental section of form, if seller would
answer any of those questions Yes.
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Seller Disclosure Statement
Right of rescission
Buyer may rescind purchase and sale
agreement within 3 business days after
receiving disclosure statement.
 For any reason, or for no reason.
 Must notify seller or seller’s agent in
writing.
 Entitled to full refund of deposit.
If no disclosure statement provided, buyer may
rescind agreement any time up to closing.
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Seller Disclosure Statement
New information
If new information about property discovered
after seller disclosure statement provided but
before closing, seller must:
 give buyer amended statement, or
 take corrective action to make original
statement accurate
Buyer then has 3 business days to accept
amended statement or rescind contract.
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Property Disclosure Laws
Lead-based paint
Federal law requires sellers and landlords of
housing built before 1978 to:
 disclose location of any known
lead-based paint to buyers or tenants
 provide a copy of any existing inspection
report concerning lead-based paint
 provide EPA pamphlet on lead-based
paint
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Lead-based Paint Law
Requirements
Buyers must also be given 10 days to have
home tested for lead-based paint.
 This 10-day testing period doesn’t apply
to tenants.
Purchase and sale agreement or lease must
have specific warnings and signed
acknowledgments that law’s requirements
were fulfilled.
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Lead-based Paint Law
Agent’s responsibilities
Real estate agent in transaction with housing
built before 1978 is required to make sure:
 seller or landlord knows and fulfills
requirements of lead-based paint law
 purchase and sale agreement or lease
contains required warnings and
signatures
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Home Warranty Plans
Home warranty plan: Insurance policy that
reimburses homeowner for cost of replacing
failed systems, components, or appliances.
 Also called home protection plan.

Usually short-term (a few years).

Buyer may purchase coverage, or seller
or agent may offer to purchase it.
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Summary
Property Disclosure Laws
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Seller disclosure statement
Deadline for providing statement
Waiver rules
Right of rescission
New information
Lead-based paint disclosure law
Home warranty plan
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