What Is a Purchase Contract?

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  • Written By: Renee Booker
  • Edited By: E. E. Hubbard
  • Last Modified Date: 17 January 2020
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When a prospective purchaser of real estate makes an offer to purchase the property, the legal document used to make the offer is referred to as a purchase contract. Other common names for a purchase contract include a real estate contract, an offer to purchase contract, and a residential or commercial purchase agreement. A type of bilateral contract, a purchase contract, once signed, is binding on both the buyer and the seller, meaning each party is legally obligated to abide by the terms agreed upon in the contract. The contents of a purchase contract usually include the required contract terms, or language, pursuant to the laws in the jurisdiction where the contract is written, the purchase price of the property, and the terms of financing for the purchase.

The sale of real property is usually governed by contract law, as most offers to purchase property are made pursuant to a written contract. Once both parties to the contract have accepted the terms by signing the contract, the contract becomes binding on both parties. If either party subsequently breaches the contract or a dispute arises, the laws of contract will be used to settle the dispute in most jurisdictions. Although courts rarely require specific performance or completion of the contract, when a party to a purchase agreement wants to back out, a court may order monetary damages paid to the other injured party.


In most real estate transactions, a prospective buyer will tender an offer to purchase the property to the seller. The offer to purchase usually includes the amount the buyer is willing to pay and the terms of financing, and also allows the seller a specific amount of time within which to respond to the offer. Earnest money is often included with the offer to purchase. Earnest money can be thought of as a deposit, or a show of good faith, to let the seller know that the buyer is both willing and able to carry through with the offer to purchase.

The seller then has three options — reject the offer, accept the offer, or make a counteroffer. If the seller fails to respond within the time allotted in the offer to purchase, then the offer is generally assumed to have been rejected. If the offer is rejected, then the buyer has no further obligation under the contract. If the seller makes a counteroffer, then the buyer must decide whether or not to accept the counteroffer. If the seller accepts the original offer, or the buyer subsequently accepts a counteroffer, then a valid purchase contract has been created.


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