Three Considerations For Raw Land, Residential Property, and Commercial Real Estate Purchase and Sale Agreements

A Purchase and Sale Agreement is a contract used to facilitate the purchase and sale of raw land, commercial property, residential real estate, or other property. A Purchase and Sale Agreement will generally include, among other things, terms and provisions identifying the parties to the transaction, the property to be sold, the price and payment terms, the inspection period, the parties’ closing obligations, and the remedies in case of a breach by either party.

Many states provide form contracts that buyers and sellers of real property can use in real property sales. Although such model contracts can be useful for simple transactions, parties are generally not required to use them and, in many instances, an agreement tailored to a specific purchase may be more appropriate. Accordingly, many parties, such as land investors and real estate developers, choose to use their own Purchase and Sale Agreements when entering into land contracts or commercial or residential purchases and sales. However, parties such as land investors and developers should be careful when drafting their own Purchase and Sale Agreements as many states, including Colorado and Texas, require that such agreement adhere to strict requirements. Failure to meet state-mandated requirements can result in a Purchase and Sale Agreement being deemed void, leaving little recourse to a party wanting to enforce its rights under such a contract.

Although all Purchase and Sale Agreements should be carefully reviewed before being entered into—including where a state-provided form contract is used—parties such as land investors should be especially careful when using custom Purchase and Sale Agreements to ensure the Agreement will stand up to scrutiny should a dispute arise under it prior to, or after, closing.

 I. Legal Property Description

Although it might seem hard to believe, one of the most easily overlooked, and costly, mistakes parties to Purchase and Sale Agreements often make is the failure to include a legally sufficient property description. Failure to include a legal property description in a Purchase and Sale Agreement can result in the contract being voided. What constitutes a legally sufficient property description varies state-by-state. For example, in Colorado, the enumerated standard is that a deed or contract for the sale of property must sufficiently identify the property to be conveyed. See, e.g.,Harrison v. Everett, 135 Colo. 55, 60 (1957) [1]. Conversely, in Texas, although a “metes and bounds” description is not required, a contract for the sale of property must contain a description that identifies the property with “reasonable certainty.” See, e.g., Texas Builders v. Keller, 928 S.W.2d 479, 481-82 (Tex. 1996) [2].

Although what satisfies a “sufficient” or “reasonable certainty” standard may sound straightforward, the standard may not be as clear as many buyers or sellers might think. This is especially true where the Purchase and Sale Agreement is conveying a portion of a larger tract of property. Likewise, issues commonly arise where a Purchase and Sale Agreement includes a reference to a second document in lieu of including a specific property description in the agreement itself. Although some states, such as Texas, have stated that a contract may satisfy the reasonable certainty standard by including a reference to another writing containing a legal description, parties run a risk that a description may not be sufficient. See, e.g., Mayor v. Garcia, 104 S.W.3d274, 276-77 (Tex. App.—Texarkana 2003) [3].

Accordingly, it is essential for parties to a Purchase and Sale Agreement to ensure their agreement includes a legally sufficient description of the property. Although a metes and bounds description may not be available or reasonable at the time the Purchase and Sale Agreement is entered into, parties should nonetheless err on the side of caution and include in the Purchase and Sale Agreement itself, as specific a description as possible.  

 II. Allocations of Costs

As many parties may know, buying and selling real estate can carry with it numerous expenses and fees. Such expenses may include escrow agent fees, inspection fees, taxes, title policy expenses, deed preparation and filing expenses, and others. Although certain costs are typically picked up by one side or the other, such as a buyer paying for its own inspection costs, other costs, such as escrow agent fees, may be shared by both parties. That said, fees and expenses may generally be negotiated and allocated as the parties see fit. Fees and expense obligations can also be buried in numerous provisions throughout a Purchase and Sale Agreement. Accordingly, it is important that parties to a Purchase and Sale Agreement understand what costs may accompany the deal and also ensure that the contract clearly lays out each party’s obligations with respect to covering the Purchase and Sale Agreement’s various expenses and fees.  

 III. Mandatory Disclosures

Depending on the type of transaction and location of the property being sold, certain property disclosures may need to be included in, or along with, the Purchase and Sale Agreement. For example, in Texas, Texas Property Code § 5.008 provides a laundry list of written disclosures that sellers of residential real property must make to a purchaser [4]. The mandatory disclosures include items ranging from the condition of smoke detectors and septic systems to termite and flood history. The Texas Property Code also requires that the disclosures are made using language and form substantially similar to that expressly provided by the Property Code—highlighting the need for careful drafting where a seller chooses to draft their own Purchase and Sale Agreement. Likewise, Colorado requires that sellers of residential property make certain disclosures to purchasers, such as the property’s source of potable water [5]. Although some of the disclosures mandated by Texas and Colorado may be made after the Purchase and Sale Agreement is signed, it is nonetheless important that the parties are aware of their obligations before entering into the agreement.

While Purchase and Sale Agreements for commercial properties and raw land typically aren’t subject to many of the disclosures that residential properties are, such agreements may be subject to other disclosures. Accordingly, regardless of the nature of the Purchase and Sale Agreement, it is important that parties to a sale ensure they are aware of, and make, disclosures required by applicable law.

If you or your company needs assistance with drafting, reviewing, or negotiating a Purchase and Sale Agreement or other real estate contract, contact the Law Office of Nicholas J. Vail, PLLC today.


[1] “If the description in a deed identifies, or furnishes the means of identifying, the property conveyed, it performs its function. Wheeler Perry Co. v. Mortgage Bond Co., 41 Ariz. 247, 17 [***7] P. (2d) 331. A description is sufficient when from it the property can be identified. Derham v. Hill, 57 Colo.345, 142 Pac. 181.)).”

[2] “A writing need not contain a metes and bounds property description to be enforceable; however, it must furnish the data to identify the property with reasonable certainty. See Morrow v. Shotwell, 477 S.W.2d 538, 539 (Tex. 1972). Parol evidence may be used to explain or clarify the written agreement, but not to supply the essential terms. Id. at 541. For example, a contract that provides for sale of "my ranch of 2200 acres" is sufficient, where extrinsic evidence shows that the grantor owned one ranch, which  [*482] indeed contained 2200 acres. See Jones v. Smith, 231 S.W.2d 1003, 1004 (Tex. Civ. App.--Austin 1950, writ ref'dn.r.e.). . .But we have long held that a contract providing for the sale or lease of an unidentified portion of a larger, identifiable tract is not sufficient. See Morrow, 477 S.W.2d at540 ("north acreage . . . out of the 145.8 acre tract of the Jefferson McGrew Survey No. 245").”

[3] “Fora land sales contract to meet the requirements of the statute of frauds, it must furnish within itself or by reference to another existing [*277] writing the means or data to identify the particular land with reasonable certainty [**4]. See Jones v. Kelley, 614 S.W.2d 95, 99, 24 Tex. Sup. Ct. J. 269 (Tex. 1981) (citing Morrow, 477 S.W.2d at 539; Wilson v. Fisher, 144 Tex. 53, 188 S.W.2d 150, 152 (1945)). A description's validity under the statute of frauds is not affected by the knowledge or intent of the parties. See Morrow, 477S.W.2d at 540. Further, a plat made from extrinsic evidence cannot give validity to the description. See id.”

[4] "A seller of residential real property comprising not more than one dwelling unit located in this state shall give to the purchaser of the property a written notice as prescribed by this section or a written notice substantially similar to the notice prescribed by this section which contains, at a minimum, all of the items in the notice prescribed by this section.”

[5] C.R.S. 38-35.7-104.