Understanding Purchase and Sale Agreements in Washington State

What Is a Purchase and Sale Agreement?

A purchase and sale agreement is a contract between a buyer and seller to buy and sell property in Washington. The legal definition of a purchase and sale agreement covers the basic idea: "a sale of real estate accomplished by an agreement between the vendor and vendees." Johnson v. Twin County Grocers, 76 Wash.2d 626, 628 (1969) (quoting 89 C.J.S., Vendor & Purchaser § 1 (1955)). Because a purchase and sale agreement is nothing more than a contract, its default rules are the same rules that would apply to personal property contracts. However, because the stakes are often so high, as people buy and sell their personal residence or make an investment in commercial real estate, purchase and sale agreements typically include detailed provisions which are unique to the property being sold.
While purchase and sale agreements can be oral, most are written documents. They typically contain common sections dealing with things such as identification of the parties, a description of the property sold, the purchase price, and basic terms such as closing information and conditions to escrow. However, they can also contain many uncommon sections including ones addressing contingencies , extensive disclosures, environmental issues, lender approvals, marketing conditions, mediation, arbitration, alteration rights, and a variety of issue specific clauses.
The finality of the closing, title transfer at closing, and enforcement of remedies for breach (which is often not defined in a purchase and sale agreement, but rather in a different, related document known as a deed of trust) make the relationship between buyer and seller easy to understand. Until closing, they are engaged in an exclusive business transaction. When a buyer or seller breaches the purchase and sale agreement, the other can enforce its remedies under Washington law.
A buyers breach is defined in the purchase and sale agreement itself (and may be exclusive on its face). A breach by a buyer could allow the seller to terminate the purchase and sale agreement, keep the earnest money deposit, or sue for specific performance, i.e. the buyer performs its end of the deal. A sellers breach could let the buyer back out of the deal, require the seller to return the deposit, or can also give the buyer the right to sue for specific performance.

Elements of the Agreement in Washington

A well-drafted purchase and sale agreement should contain a number of critical terms and conditions. In Washington, the purchase and sale agreement should contain an accurate and sufficient legal description of the property. The legal description is like a fingerprint. It is the precise language that describes the property in question. It must be sufficient to identify the property being sold from all other properties. There are several ways to legally describe a property. A legal description could include one or more elements. For example, it could identify a property using a township, section, range, and quarter/quarter section. It could also reference a plat or a condominium declaration. There are many other options for legally describing property in Washington.
An effective purchase and sale agreement should also include the legal entity names of the buyer and seller. These items may be different than the people signing the contract. The legal entity names are the legal business entities involved in the exchange of the property. A buyer or seller could be a natural person, a corporation, a limited liability company, or a partnership. When the legal entity names are not listed, there are risks associated with whether the correct parties are being held accountable under the contract. Also, the legal entity names are important because they are the parties to the contract. The contract creates a legal status between the parties where they are bound to perform certain actions under the contract. If the party names are inaccurate, the wrong parties may be held bound to perform under the contract.
A knowledgeable attorney can provide you with a detailed and sophisticated purchase and sale agreement that addresses all of the relevant terms and conditions concerning your transaction.

Statutory Requirements in Washington State

The purchase and sale agreement must be drafted in accordance with applicable Washington State laws and regulations. For real property, this means ensuring that the purchase and sale agreement is clear and definitive as to the rights and obligations of buyer and seller under the contract. For example, if the property is subject to an easement, the contract must properly define the easement and disclose in detail its effect on the property. Similarly, Washington State has certain laws addressing unmarketable title issues and protections for consumers. The purchase and sale agreement should also contain language regarding disclosures specific to Washington, such as the law requiring the disclosure of a septic system or driftwood. Other regulations, such as environmental issues, may apply. The Washington State Realtors Association publishes forms specific to Washington, which are often used for this purpose.

Frequently Used Contingencies in Washington Contracts

As in other states around the country, Washington purchase and sale agreements for real estate typically use contingency clauses, or conditions precedent, to allow a party to void its obligations under the agreement if a specified event fails to occur. These contingency clauses play an important role in every transaction and protect both sellers and buyers. Examples of common contingency clauses are financing, inspection and appraisal contingencies.
A seller who includes a financing contingency in the contract obligates the buyer to diligently attempt to obtain a loan to buy the property. If the buyer is unsuccessful in doing so within a specified period of time, the buyer can back out of the deal without penalty by waiving the financing contingency. For many buyers, especially first-time buyers, it is difficult, if not impossible, to get a loan without a contingency in place. A seller who waives a financing contingency puts themselves at risk should the buyer not be approved for a loan.
Like a financing contingency, there is an inspection contingency clause, but rather than being installed to protect buyers, it protects sellers. An inspection contingency clause provides a window of time during the transaction period for the buyer to inspect the property. Such clauses often use the phrase "buyer’s sole and absolute discretion" to allow the buyer to back out for any reason if unsatisfied with the results of the inspection. For most residential purchases, the inspection period is typically set to last up to about two weeks. If the buyer can back out for any reason during the inspection period, there is little incentive for a buyer to conduct an inspection of the property. If the buyer discovers problems with the house during an inspection, however, they may ask the seller to make repairs, or at least disclose the condition of the issue. That allows both parties to address a possible problem. If a buyer has plan to perform a home inspection, they may want to keep the inspection contingency period at a reasonable time length for a thorough inspection. If a seller believes there are certain items that could raise concern, they may want to negotiate a short inspection period to eliminate the possibility of the inspection killing the deal.
The appraisal contingency helps the seller, too. This contingency clause will often state something like, "this offer is contingent on the property appraising at no less than the purchase price." It is important for a buyer to have this clause in the offer because if the property appraises for less than the amount provided for in the purchase and sale agreement, the lender may not approve the loan for the agreed purchase price. For instance, if the appraisal comes in $25,000 low, the buyer will either be required to bring $25,000 to the closing table, or negotiate a lower purchase price with the seller. The lender will not loan money above what the appraised value is in most cases, except on VA loans, where the Veterans Administration has a built-in mechanism to allow the buyer to work things out with a seller based on the appraisal. Either way, if the appraisal comes in low, the deal is subject to terminate unless the parties agree otherwise.

Steps for Preparing an Agreement in WA

Steps to Drafting an Agreement to Purchase Real Estate in Washington
In Washington, an agreement to purchase real estate is typically drafted by the buyer or the buyer’s agent using a standardized form called a Residential Purchase and Sale Agreement. The seller examines the agreement and may add provisions that are of particular importance to him or her. The buyer can then review the seller’s proposed changes and accept or counter them.
Under Washington law, buyers can use the standard purchase and sale agreements "as-is" without additional legal advice , but it is always advisable for any party to a contract to seek professional assistance when drafting it. A sales agreement contains important provisions establishing your rights should the other party not comply with the agreement. The agreement is essential to performing those rights. The agreement also lists any conditions under which you will be obliged to fulfill your obligations under the contract. Without professional advice, many people fail to fully appreciate the parameters of their obligations under an agreement and often make serious mistakes.

Advice for Buyers and Sellers

Guidelines for Buyers and Sellers: Purchase and Sale Agreements
In terms of purchase and sale agreements involving real estate, there are several pratical tips for buyers and sellers.
Buyers

• Carefully review the contract and its terms. Ensure that you are clear on what is being offered, what the obligations are, and understand the purchase process.
• Be thorough and diligent in your discussions with the seller to identify defects or issues with the property.
• Set a realistic time frame for repairs or resolution of issues found during the inspection or due diligence.
• Determine and account for closing costs and taxes in the offered price to ensure the full cost of the property is covered in the deal.
• The earnest money deposit can be as little as $20 dollars but thought needs to go into how much is put down.
• Consider making the earnest money deposit refundable to the buyer upon reasonable conditions (DO NOT MAKE IT NON-REFUNDABLE). Typically buyers give a good faith, risk, bite, earnest money deposit which might be non-refundable to the seller after a certain date or condition is met. However, if the buyer feels the deal is safe it might be ok to make the earnest money deposit non-refundable, but typically buyers who do this seem to lose out and buyers who make it non-refundable lose out. In general either deposit should not be made non-refundable without serious thought and consideration of the contract language and how it is going to play out by an attorney representing you prior to entering into the offer.
• If the earnest money deposit is not made non-refundable consider requiring security (3rd party promised fund) for payment of the deposit under the contract instead of putting up the earnest money deposit.
• When a buyer puts in a bid, offer, or letter of intent to purchase real estate, that buyer is making a commitment to purchase the property and must honor it.

Sellers

• Consider getting a nearby home inspection or other property inspection of the subject property to decide if the price is adequate or need adjusting.
• Require security for your right to have the home inspected and to validate your ability to repair or address repairs required by the buyer (3rd party promised fund or earnest money deposit).
• Know your costs and taxes and what the bottom line sale price will be.
• Use the term "as-is" and specify to limit the buyers rights to any defects, deficiencies, and problems with the property.

Resolving Disputes and Changes

In Washington State it is common that when a Purchase and Sale Agreement is accepted by both parties and signed, that it may not be the final document. After execution, this document may be amended by the parties and changes made to the purchase and sale agreement. This document is only signed twice, once in front of the Notary and once by the escrow company prior to closing.
There are multiple ways for the Seller and Buyer to resolve disputes, including through mediation or arbitration. It is not uncommon for the purchase and sale agreement to document an escrow closing date based on the satisfaction of contingencies by a certain date. It is also not uncommon for parties to have to agree to an extension of the settlement date or closing date.
Additional terms may also be added to the purchase and sale agreement, by way of addendum, any time prior to closing. There would typically be a need for a closing extension in the event, for example, that the lender needed 45 days to close and the parties needed to extend the settlement date. There might also be the need for a modification of the purchase and sale agreement in the event the earnest money deposit was not delivered to the title company within the time specified in the purchase and sale agreement.
There might also be another reason why amending or modifying the purchase and sale agreement is necessary. For instance , if the financing contingency was based on pricing the Buyer wanted to purchase at the time the purchase and sale agreement was signed and the market increased, the Buyer might want to back out of the transaction or obtain a lower interest rate. If the Buyer did not previously have the financing terms documented in the purchase and sale agreement, the Buyer might want the Seller to agree to reduce the price or credit back previous payment toward the cost of title, HOA dues or other costs associated with the purchase of the home.
It is important to note that an addendum must be signed by both parties in order to be enforceable. Unlike a purchase and sale agreement, which would be subject to the Statute of Frauds in Washington, an addendum would not be subject to the requirement that real property contracts be in writing to be enforceable. However, to be enforceable, there would need to be sufficient information on the addendum so that intent can be established by a court or jury.
Amendments or modifications to a purchase and sale agreement may be made after closing to add terms or conditions to clear up a dispute between the Buyer and Seller after closing.