A purchase and sale agreement (PSA) is a legally binding contract that explicitly outlines the terms and conditions governing the sale and transfer of a property. It is not the actual transfer of the property. Instead, it creates an obligation for the two parties to fulfill. The seller agrees to sell the property, and the buyer agrees to buy the property. However, the sale is only effective when both sign a purchase agreement.
How is it different from a purchase agreement?
A purchase agreement is the document that completes a real estate transaction. It is the final document necessary to transfer the property from the seller to the buyer. Conversely, the PSA provides a framework for how the transaction will proceed before the interested parties sign the purchase agreement. It basically outlines the negotiation process. A PSA will include:
- Title searches and asset identification
- Inspections and contingencies
- Purchase price and conditions
- Title transferability
- Loan documents
- Money transfers
- Cancellation penalties
- Closing date and other deadlines
A PSA is necessary because it legally obligates the buyer and seller to enter negotiations in good faith and serves as the foundation of the sale transaction. The parties agree to fulfill their obligation with due diligence and recognize that each has a right to terminate the deal under certain circumstances.
How can a PSA protect a seller and buyer?
Real estate is a substantial asset that can come with many issues, risks and disputes. It gives the buyer ample time to identify the relevant stakes involved with making the purchase while securing their commitment to the seller. They can both renegotiate the terms of the transaction whenever appropriate.