When it comes to buying or selling a property, there are several legal documents involved. Two of the most important documents are the purchase agreement and the settlement statement. Although these documents may sound similar, they serve different purposes. In this article, we will explore the differences between a purchase agreement and a settlement statement.
A purchase agreement, also known as a sales contract, is a legal document that outlines the terms and conditions of a real estate transaction between a buyer and a seller. This agreement is typically drafted by the seller`s real estate agent and includes the purchase price, closing date, and any contingencies that must be met before the sale can be completed. The purchase agreement also includes details about the property being sold, such as its location, size, and any fixtures or appliances that will be included in the sale.
On the other hand, a settlement statement, also known as a closing statement or HUD-1 statement, is a document that lists the final costs associated with a real estate transaction. This document is typically prepared by the title company or closing attorney and includes details about the buyer`s and seller`s closing costs, including fees for the loan, title search, appraisal, and other related expenses. The settlement statement also lists any prorated expenses, such as property taxes and insurance, that must be divided between the buyer and seller.
While a purchase agreement is signed by both the buyer and seller before the sale is completed, a settlement statement is prepared by the closing agent and is presented to the buyer and seller at the closing table. The settlement statement provides a detailed breakdown of the final costs associated with the transaction and ensures that both parties understand the financial implications of the sale.
In conclusion, a purchase agreement and a settlement statement serve different purposes in a real estate transaction. The purchase agreement outlines the terms and conditions of the sale, while the settlement statement lists the final costs associated with the transaction. Both documents are important for ensuring a smooth and successful real estate transaction. If you are buying or selling a property, it is important to work with a qualified real estate agent or attorney who can guide you through the process and ensure that all necessary legal documents are prepared and executed correctly.
FAQs
The purchase agreement outlines the terms and conditions of the sale, while the settlement statement lists the final costs associated with the transaction. Both documents are important for ensuring a smooth and successful real estate transaction.
Is a settlement statement the same as a purchase agreement? ›
For instance, if you want to see what's included in your closing costs, you'd probably need to look at your settlement statement or closing statement, which you typically receive a few days before the closing. You'll likely only see the final figure on the purchase agreement.
What is the difference between a settlement and an agreement? ›
An agreement refers to a mutually beneficial arrangement between two or more parties, while a settlement specifically refers to the resolution of a legal dispute. Understanding the difference between these two terms is crucial for anyone involved in legal negotiations or disputes.
Which document is most important at closing? ›
The most important originals are the purchase agreement, deed, and deed of trust or mortgage. In the event originals are destroyed, you might be able to get certified copies of these documents from the lender or closing company, but you don't want to rely on others' recordkeeping systems unless you have to.
What is the difference between a purchase agreement and an LOI? ›
The Letter of Intent differs plenty from the Definitive Purchase Agreement. First, not all aspects of the LOI are legally binding, but the entire Purchase Agreement is almost always legally binding. The Purchase Agreement is the most important document, while the LOI is the prototype document.
Is a purchase agreement legally binding? ›
A purchase agreement is a legal document that is signed by both the buyer and the seller. Once it is signed by both parties, it is a legally binding contract. The seller can only accept the offer by signing the document, not by just providing the goods.
Is a settlement statement a closing disclosure? ›
The closing statement, also called a closing disclosure or settlement statement, is essentially a comprehensive list of every expense that the buyer and/or seller must pay to complete the purchase of a home.
How binding is a settlement agreement? ›
Yes, once all the necessary written concurrences are obtained, a settlement agreement is binding on both parties.
What is another name for a settlement agreement? ›
A Settlement Agreement (formerly known as a Compromise Agreement) is a legally binding agreement between you and your employer. This usually provides for a severance payment by the employer in return for your agreement not to pursue any claims in a Tribunal or a Court.
Should I agree to a settlement agreement? ›
Settlement agreements are a common way to resolve lawsuits, as they can provide a quicker, more cost-effective resolution than going to trial. However, a settlement agreement must meet certain requirements for it to be legally binding, which we will look at in this blog post.
The Loan Application is the final Security Instrument the Buyer signs at closing (the others being the Mortgage Note and Mortgage Deed).
What are the three most important documents in any sale of property? ›
You'll need a variety of documents in order to sell your home. Some of the most important include your mortgage loan documentation, mandatory disclosures and the deed.
Why does the closing agent review the purchase contract? ›
The closing agent reviews the purchase contract to ensure all signatures are in place, gather closing-related information, protect both parties with contract clauses, and check for errors.
How legally binding is a LOI? ›
Letters of intent are not legally binding, and don't extend full legal protection to contractual parties. However, if not stated clearly, they can become legally binding, might not always be desirable—especially if the agreement is still pending approval by both parties.
What is the difference between an offer letter and a purchase agreement? ›
An offer is a written proposal to buy a property with conditions baked in. The buyer's agent helps to write it up and delivers it to the seller's agent. Purchase agreements are an actual agreement between the buyer and the seller also sometimes called a real estate contract.
What are the disadvantages of LOI? ›
Disadvantages of the LOI
Potential for a Legally Binding LOI. Because the majority of due diligence is yet to be completed at the LOI stage, the parties should want the essential terms of a transaction as set forth in a LOI to be non-binding.
What is another name for a settlement statement? ›
Mortgage loan settlement statements, used in real estate transactions, are often referred to as closing statements.
What is the settlement statement also referred to as? ›
The settlement statement is also referred to as the closing statement. The statement details how all of the costs, including prepaid and unpaid expenses, are allocated (prorated) between the buyers and sellers. The settlement statement has a list of the debits and credits for both the buyer and the seller.
Is a purchase agreement the same as closing? ›
Signing a PSA doesn't complete the sale of a home, but signing a purchase agreement does. Where the PSA lays out the transaction's details leading up to the closing date, the purchase agreement is what you sign to finalize the transaction.
