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Aarushi | 09 Feb 2022

Everything You Need To Know About A Real Estate Purchase Contract

Everything You Need To Know About A Real Estate Purchase Contract

When buying a property in India, the Purchase Contract is one of the most important pieces of documentation that you will require. While you can get a purchase contract written by a lawyer, it is important for you to understand its value and the components that make up this document.

A purchase contract is to protect all the stakeholders involved in the sale of a property. It sets the foundation for how the sale needs to be executed and divides the responsibilities and liabilities across all the parties involved.

Important Parts Of A Real Estate Purchase Contract

1. Details Of The Parties Involved

Every purchase contract lists a buyer and a seller within itself. Now, there could be multiple sellers or multiple buyers for a given property. In the case of commercial real estate, or some residential real estate, the seller or the buyer could also be a separate entity than an individual like a company. 

A purchase contract should list the details like address, names, and phone numbers of all the parties involved. It must also contain the form of ownership in case of multiple buyers. This means the contract must state whether the buyers will have joint tenancy or tenancy in common. In the case of tenancy in common, the shares of each buyer must also be mentioned.

2. Identifying The Property

A purchase contract must also clearly identify the goods or services that are being sold. In this case, the property being sold must be clearly described in the purchase contract.

To find out how to classify your property and identify it in your purchase contract, you can refer to the other documents related to the property. The government or the responsible authority will have set a description for the property in question. Simply use that description to help you identify the property in the purchase contract.

3. The Purchase Price Of The Property

The purchase price is an obvious and important element of a purchase contract. This is the price agreed upon by the seller and the buyer of the property. While adding the purchase price of a property to the purchase contract, you must also add a few other necessary pieces of information:

1. Mode of payment used.

2. Breakdown of when payment needs to be made if made in instalments.

3. Dates and deadlines for the necessary payments.

4. Token Deposit

The token amount is the security deposit that a buyer pays before the finalization of the purchase. This money is paid to block the seller from entertaining any other offers or buyers. It shows that the buyer is willing and eager to buy the property.

The token deposit may or may not be included in the final purchase price of the property. This needs to be mentioned in the purchase contract. The purchase contract must also contain a clause that details what happens to the token amount in case the purchase of the property doesn’t go through.

5. Inclusions And Exclusions In The Purchase Contract

All the items and appliances in a house, that will be given over to the buyer as a part of the sale, need to be included in the purchase contract. 

Many times, the buyer negotiates to keep furniture or decor items, appliances, or fixtures along with the property. This could be done for several reasons including saving on buying new items or just getting more value for the purchase price for the property. Any items that the buyer would own once they own the property need to be added to the purchase contract.

6. Contingencies In The Purchase Contract

The sale of a property might be dependent on various factors like passing a home inspection or passing certain verifications. In such a case, a purchase contract needs to mention the same. This protects the seller and the buyer in case the sale doesn't go through.

For example, if the buyer backs out of the sale, they would only receive their token deposit in case the sale was foregone due to the contingencies mentioned in the purchase contract.

7. Closing Date Of The Purchase Contract

The closing date is the date that the purchase will be executed to completion. This is the date that the ownership of the property will be completely transferred over to the buyer from the seller. The closing date mentioned in the purchase contract is binding.

The contract also needs to disclose the closing costs for both the buyer and the seller. It also contains information about who the liability of these costs will lie on. 

Closing costs refer to any costs incurred by either the seller or the buyer outside the agreed-upon rate of the property. It can include stamp duty, other registration costs, loan processing fees, credit report charges, title searches, etc. which are also commonly known as settlement costs.

8. Taxation And Other Clauses

The liability to pay tax on property or any other related taxes is also transferred to the buyer of the property. In the purchase contract, the buyer and the seller agree upon how this transfer will take place. 

There might be outstanding taxes on the property. The purchase document will clarify whether the seller needs to clear all those taxes before the sale, or will they be transferred to the buyer once the sale is completed.

9. Disclosures 

Disclosures refer to sharing any information that might have a negative impact on the property. Some of the important disclosures in a purchase agreement are:

1. Any death that might have occurred in the home

2. Neighborhood nuisances if any

3. Hazardous materials used in construction like lead and asbestos

4. HOA information for the property

5. Any major or minor repairs that the property might need

6. Any water damage to the property

7. Any items that might be missing 

10. Duration Of The Purchase Contract

This is the time that all closing costs and documents need to be submitted. The duration of the contract normally defines the time after which the contract would be null in case wither the buyer or the seller fails to fulfil their duties.

This includes duties such as paying all the closing costs and furnishing all necessary documentation.

11. Termination Of The Purchase Contract

The termination clause is the detailed procedure that both parties need to go through in case they wish to terminate the contract.

This termination can be brought about by either the parties deciding to terminate the agreement due to personal reasons or a condition not being met.

12. Signature Of All Parties Involved

As the name suggests, the purchase agreement requires all parties involved to sign it. This makes the purchase contract legally binding and means that all parties have acknowledged and agreed to all the terms and conditions of the purchase contract.


Now that you understand what makes up a purchase contract and why it’s so crucial to your real estate purchase, make sure you keep yours safe. There are more elements and clauses that can be added to your purchase contract as per your requirements and the property’s conditions. 

If you hire a lawyer to write up your purchase contract, make sure you read the fine print carefully and add clauses that you wish to, before signing the contract.

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