After spending months of searching, you have finally found the place that you’d like to call your new home. You and your real estate agent draft an offer, the Seller readily accepts it, and….now what? While the offer contains the necessary broad brushstrokes—the parties, the dates, and the price—to purchase a home, while minimizing uncertainty and liability, homebuyers require the “fine tip” of a Purchase and Sale Agreement (the “P&S”). The P&S, usually drafted by the Seller’s lawyer, dictates the terms of the sale process and is an incredibly important document to fully understand. It creates binding legal obligations on the parties which often pertains to the transfer hundreds of thousands of dollars. By perusing this article, the novice P&S reader will have a grasp of the essential provisions which are usually included in this most important agreement.
- The Price: Quite frankly, this is usually the most important term to both the Buyer and the Seller. The Seller wants to be sure to get top dollar for her property; the Buyer wants to be sure to get the best value for her dollar. In Massachusetts, a deposit, usually of $1,000, is made with the offer, and an additional deposit is made at the time of signing the P&S. Finally, the Buyer is obligated to bring the difference—the sale price less all deposits—to closing. Understanding this chronology is essential to understanding the Buyer’s obligations.
- Date for Performance: Without a set time and place for closing, either party could plausibly argue that it does not yet have a legal duty to perform its obligations under the P&S. While this specific time is important, it often changes by a matter of hours, or in the rare case by weeks. When negotiating the P&S, it is important to realize that the other party could stubbornly refuse your requests for extensions of this date. With this in mind, you must be confident in your ability to perform at the date and time specified in the P&S before agreeing to it.
- Default Damages: Most P&S Agreements will contain a Default Damages provision which provides that in the event the Buyer defaults—that is, fails to meet his obligations under the P&S—the Seller can retain the Buyer’s deposits as damages. The primary way that a Buyer can default is by being unable to close at the Date for Performance. While this very rarely occurs, Buyers can minimize the risk of forfeiting their deposit by selecting an experienced lawyer to protect their rights during the buying process.
- Financing Contingency: Perhaps the most important protection for Buyers in the P&S, this provision conditions the Buyer’s obligations on obtaining a mortgage loan commitment from her lender for a certain sum by a certain date before closing. The Buyer has until this date to notify the Seller of her inability to obtain a mortgage and her intention to terminate the P&S. Assuming the Buyer effectively notifies the Seller of her intention, all of the Buyer’s deposit will be returned to her.
- Repair Provisions: After conducting your home inspection (which is always recommended), the Seller may have agreed to make repairs to the home. Although the Seller “gave you her word” that these would be completed by closing, a buyer should be certain that the Seller’s obligations are clearly stated in the P&S. If the work requires a licensed service provider, then that should be outlined along with the important language in a “workmanlike manner.” Without these specifics, the Seller could discharge their obligations under the P&S by having their brother, who happens to be “handy,” repair the electrical panel in an unsafe manner. It wouldn’t be a bad idea to require the Seller to provide proof–usually a receipt or invoice–of all work or repairs done pursuant to the P&S. Similarly, if a a repair requires a building permit(s), the repair provision should clearly require that the Seller provide proof that a permit was pulled and signed off by the local building inspector.
The foregoing is a basic outline of some of the more important items in a P&S. Remember: this is not a complete list and a P&S is a legally binding contract. With this in mind, a careful consumer would be wise to engage the services of an experienced real estate attorney to represent the consumer’s interests. That attorney should be reviewing the P&S for your benefit and not simply as a convenience for your lender. Make certain that if you have an attorney review your P&S, that the attorney puts in writing that they are representing you.
Still have questions? Check out our other blog posts dealing with the basic (and-not-so-basic) concepts from the home buying/selling process.
Stiles Law, with offices located in Boston and Marshfield, Massachusetts, is a firm concentrating in real estate conveyancing and mortgage lending services, representing buyers, sellers, borrowers, banks, mortgage companies, investors, builders and developers in all of their real estate and mortgage transactions.
Copyright © 2014 Stiles Law, All rights reserved. The information presented above is meant to be used for general informational purposes and it should not be construed as legal advice or legal opinion on any specific facts.