Chapter 11 · National foundations
Purchase Agreements and Transaction Decisions
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Read a purchase agreement as an operating plan
A purchase agreement should identify the parties, property, price, financing terms, included and excluded items, deposit arrangements, material deadlines, Title The legal ownership interest or rights in property, distinct from the deed documenting transfer. See Chapter 7. Glossary requirements, allocation of costs, closing and possession terms, remedies, and required disclosures. Exact form requirements vary. Attachments and incorporated documents matter as much as the page labeled “contract.” S13 S07
A practical review asks four questions for each obligation: Who must act? What must they do? By when? What happens if they do not? This framework is useful for exam scenarios involving inspections, loan applications, title objections, and closing extensions.
Earnest money and escrow
An earnest-money deposit demonstrates commitment and may be held in Escrow Holding funds or documents subject to authorized conditions. See Chapter 17. Glossary under the agreement and state law. It is not automatically the seller's money upon receipt, and it is not necessarily the full down payment. At closing it may be credited toward funds due. Before closing, entitlement depends on the contract, applicable law, and any dispute.
An agent must not decide a disputed deposit belongs to a favored Client A represented principal in a brokerage relationship. See Chapter 8. Glossary and disburse it without authority. Applicable procedures may require mutual instructions, a contractual process, statutory notice, mediation, interpleader, or a court order. For Colorado, read the contract and trust-fund procedures in Chapters 25 and 26. S12 S01
The major contingencies
A financing Contingency A contractual condition affecting obligations or available remedies. See Chapter 11. Glossary can protect a buyer who cannot obtain the specified financing despite required efforts and timely notice. It does not necessarily excuse a buyer who never applies, rejects a qualifying loan for an unrelated reason, or misses the termination deadline.
An Appraisal An opinion of value developed for a defined assignment. See Chapter 14. Glossary contingency addresses valuation. A lender's decision not to lend a requested amount and the buyer's contractual right to terminate are separate questions. An appraisal gap does not automatically cancel a contract.
An inspection contingency establishes inspection rights, deadlines, and available responses. Those responses may include accepting the property, requesting repairs, negotiating a credit, or terminating if the contract permits. “As is” does not automatically eliminate disclosure duties or every inspection right.
A sale-of-existing-home contingency depends on sale or closing of another property. A kick-out clause may allow the seller to require the buyer to remove that contingency or permit termination under stated procedures after another acceptable offer appears.
A Title The legal ownership interest or rights in property, distinct from the deed documenting transfer. See Chapter 7. Glossary contingency provides a process for reviewing title evidence, raising objections, and allowing cures. A survey, association-document review, insurance-availability review, or feasibility investigation can be separately negotiated. A contingency should state what happens when it is not satisfied. S13 S06
Worked appraisal example
A contract price is $400,000. The lender uses the lower of price or appraised value, and the appraisal is $380,000. At an 80% maximum loan-to-value ratio, the maximum loan under those Assumption Taking responsibility for an existing loan under the governing arrangement. See Chapter 15. Glossary is $304,000. The buyer needs $96,000 toward price before closing costs unless the parties renegotiate or the buyer uses an applicable contingency. A low appraisal alone does not prove the seller must lower the price.
Risk, possession, and final walkthrough
Who bears casualty risk before closing depends on the contract and state law. A serious preclosing fire requires immediate attention; an agent should not declare either party automatically released.
Closing, Consummation Becoming contractually obligated on a credit transaction under applicable law. See Chapter 16. Glossary, Recording Placing an instrument in the authorized public record system. See Chapter 7. Glossary, funding, and possession are distinct events that may occur at different times. A buyer's postclosing possession or a seller's temporary occupancy should be documented with appropriate terms and advice. Early possession can create insurance, liability, and landlord-tenant complications.
A final walkthrough commonly checks agreed property condition and completion of negotiated work. It does not replace the professional inspection or create rights that the contract does not provide. S07 S14 S28
Options and rights of first refusal
An Option A right, not an obligation, to enter the specified transaction under agreed conditions. See Chapter 11. Glossary gives the Optionee The holder of the option right. See Chapter 11. Glossary the right, but not the obligation, to enter the specified transaction within the option's terms. The Optionor The party granting the option. See Chapter 11. Glossary is bound as the enforceable option provides. Option Consideration Bargained-for legal value supporting an agreement. See Chapter 10. Glossary, exercise requirements, deadline, and how option money is treated are important. Once properly exercised, the parties' purchase obligations are governed by the resulting agreement.
A right of first refusal generally gives its holder an opportunity to purchase when the owner decides to sell on triggering terms, often by matching a qualifying offer. It does not necessarily let the holder compel an immediate sale. A right of first offer is different again and depends on its language. S13 S01
Installment land contracts and seller financing
In a typical Installment land contract A financed sale in which the seller commonly retains legal title pending specified performance. See Chapter 11. Glossary, the buyer makes payments over time and the seller retains legal Title The legal ownership interest or rights in property, distinct from the deed documenting transfer. See Chapter 7. Glossary until specified performance, while the buyer has contractual or equitable rights. Names include contract for Deed An instrument used to convey an interest in real estate. See Chapter 7. Glossary and land contract. Remedies, Recording Placing an instrument in the authorized public record system. See Chapter 7. Glossary, disclosures, and buyer protections vary substantially.
Seller financing is not an exemption from every lending law. Whether a seller must comply with licensing, disclosure, ability-to-repay, or other rules depends on the transaction and applicable exemptions. Existing loan terms, including Due-on-sale A loan provision concerning repayment upon specified transfers, subject to legal restrictions and exceptions. See Chapter 15. Glossary provisions, also matter. An agent should not structure a complicated financed sale without competent legal and lending assistance. S07 S01
A buyer's financing deadline expires tomorrow, but the loan is still uncertain. The safest professional response is to review the contract and promptly address notice, extension, or other authorized options—not assume the deadline silently extends itself.