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Purchase Contracts: How different are they from state to state.......

Contracts This is a grey area because each state can be very different in regards to the agreement of sale. Even though I can do mortgages in any state, I only focus on a few myself. This is where the realtor and lender need to be on the same page. This is where the client needs a good realtor that understands the ins and outs of a purchase contract. There is nothing worse then when I have to advise the client of what they can and can’t do, because the realtor didn’t advise them correctly. And don’t get me wrong, I just give them feedback based on my experience, but tell them that they need to seek a good realtor and sometimes a good real estate lawyer. And I am not implying that anyone in here doesn’t know what he or she is talking about.

A good example is that once contracts have been sign in the state of New Jersey, you have 3 days for an attorney review period. You could go all the way to the West coast in California and this would be totally different. In California, the client has 17 days of which they could decide if they want to cancel the contract. In Maryland, you have a recordation tax and the state stamp tax. Both of which are up to the seller to decide who pays for this. Many of these examples take place because these clients are buying and or selling between friends, family, or even their current landlord. And there could be legal issues at hand.

The two main things that I wanted to get out of this blog is not only to educate the client, but also to educate both the loan officer and the realtor. I have done a few purchase transactions lately in both states that didn’t have a realtor involved. And in both cases, I told them that they should seek a realtor or an attorney, just to be on the safe side. So many people want to cut corners and expenses, not realizing that this could be a bigger expense than they expected. You ask what expense could you possibly incur? How about risking your deposit?

I would also like to get an idea from each one of you, as a realtor in your respected states, what the state requirements are when the contract / agreement of sale becomes a legal binding contract. At which point there is no way out of this agreement unless your financial institution denies you.

law symbol realtor symbol

Best advice, if doing this on your own; seek a realtor or a lawyer. There are several realtors that will do this for a small fee, just to make sure that everything is in order.

Posted by Jeff Belonger -- The FHA Expert.com -- FHA Loans -- FHA mortgages - USDA loans on 10/30/2006 08:24 PM

Comments (24)

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24 Comments on Purchase Contracts: How different are they from state to state.......

OCT

2006

I can speak for New Haven and Middlesex County in CT. The contract is binding once it is signed by both parties. There is no waiting period of any kind. I do also know that in Fairfield County they use binders first before they go to P&S and there is a period of time for attorney review in that case. I believe it is 3 days as well but maybe someone from that area can say for sure.

Jeff,

Not only do contracts vary from state to state but so does the real estate agent’s authority to modify them to fit the clients need.

I think they are getting more standardized what with the big franchises standardizing their own forms.

The thing that amazes me is how the contract has grown from 2 pages to the 16-20 we see in Nevada. Despite the growth of the contract form I can still get more protection for the buyer and seller into 1 or 2 pages than comes in the franchises forms. Of course that leaves out 14-18 pages of broker protection. I guess that if I had several hundred agents in an office I’d want all that protection too.

Bill

William J Archambault Jr

The Real Estate Investment Institute

http://www.reii.org

Jaime....thanks for sharing. I have only done 2 purchases in CT and it's been a while. We could always ask Nima, even though he is a loan officer. He is in Fairfield, CT.

Bill.....yes, you are correct on the issue of correcting the contract also. Thanks for pointing this out.

Bill is right. In Colorado, Conway Bogue Law allows us to "write" the contract. We have state approved forms where we fill in the blanks. Buyers/sellers sign we are "under contract". Within the contract we have various dates to meet like inspections, title commitment, loan commitment, etc.

The loan commitment date is the Biggie. Lenders from out of state frequently miss this. When they do, they put the buyer's earnest money at risk. Worse yet is failing to get the funds to closing by the closing date. We are a "good funds - table closing" state. Meaning no funds at closing, no closing.

I really hate sitting around the closing table waiting for lenders to get the closing funds there. This happens way too often. Grrrr!

OCT

2006

I am a MinnesotaREALTOR and was asked by my clients who had just sold thier home in South Dakota to review the contract. I was shocked! it is only 4 pages long, ours at the time were 13 pages for a barebones offer. The SD contract had wording on the front page of the PA that covered about 4 MN addendums. Minnesota is the land of 10,000 laws, just about everything is illegal here so it takes heaps of paper to buy a home.

In Florida the contract is binding when signed by both parties and delivered. There are usually contingencies, such as for inspections, finance and condo/homeowner document review. We fund at closing (take note, out of state lenders) and the buyers receive keys to an empty house at closing.

On behalf of North Carolina, our contracts are binding once executed with all parties' signatures and dates. No right of recission unless you're doing a timeshare sale. And this is very confusing for folks coming from markets where they have that 'waiting' period, so we talk about it up front with relo clients. We can't disburse funds until the deed is recorded (we're a race state) so we get a lot of holdups from out-of-state lenders who don't have the funds there on time. HINT HINT!

Kristal.....what's funny is that it shouldn't matter if I was your lender in state or out of state, the commitment date should never be a problem. Besides, if that loan officer is good and there was a problem, they usually know about it way before hand and should notify everyone. But you are right....I know many loan officers that say.... "aahhh, commitment date....no worry, so I missed it, I'll still get it to close." LOL Realtors, sorry for laughing, but this is what ticks me off and gives many of us lenders a bad name.

Kristal, I don't have a problem with funds not being there. I send a suitcase of my own money just to make sure..... ;o)

Angela.....thanks for the comment. The one thing that I have learned when doing "out of state" mortgages, is to pay attention to the contract.... ask the realtor involved, and I call the title comapny to find out who pays for what if I am not sure. Yes, so many states are different from each other. Like I said... Maryland is different when it comes to the state stamps & taxes.... and in order to do a very accurate good faith, you need to know who pays for what.

Teresa.....hence the reason why they cut down so many trees. ;o)

Sharon......thanks for the input. About 25% of my business is done in Florida. What gets me is that the owner on a refinance even has to pay both stamp tax and state tax again...when refinancing. Talk about double dipping the client. I had one FLORIDA lender that didn't have this on their good faith estimate and I lost the deal because the client thought I was charging more. And I am "out of state"

Leigh.......I have only done one NC refinance before. I am doing a SC purchase right now. But I have a loan officer of mine that actually works and lives in NC and he handles that state.

WOW> so many hints on out of state lenders. Again, not every lender out of state, will create these problems. HENCE..the 14 yrs that I have been doing this. If a closing issue comes up, I make everyone aware of it and the problem is either because of the actual client or title. Just an FYI.... Experience does count for something.

Thanks for all the good feedback in each state. Where are the California realtors? The Texas realtors? Virginia?

As you stated in your blog, CA has 17 days during which the disclosure period is active for the buyer(s) to walk; that is unless the seller has countered that time period to a lesser amount. At which point the Lender, the Appraiser,Inspection Reports and all Disclosures must be delt with and agreed upon in order to proceed.

And we keep the lawyers out of our transactions!

In Arizona (the only state in the nation where the right of the agent to write the contract is part of the Constitution), there are several requirements of contract relating to dates and to loan docs.

This seems like a great topic for a blog, so I will go write one then come back and update this comment with a link! For now, here is a link to the Buyer Advisory - the Buyer inspection period is 10 days by default.

Here is the link to my blog on this topic.

Great post, Jeff. The contingency period in California CAN vary. While the default is 17 days, it is negotiable and is part of the intial offer discussions. In the busy seller's market it was sometimes 10 and 12 days, and I heard of even shorter times (seller's could demand it or savvy buyers would use this as a strategy to get THEIR offer, out of many, accepted). Now that we are in more of a buyer-friendly market it is often more than 17 days. What can the sellers do? Not much since they aren't being barraged with offers. The loan contingency is part of this review time.

LOL Jeff, "suitcases full of money" would be interesting explaining that to the airport security.

Gena.....I don't want to offend lawyers out there, but I would have to agree for the most part. Depending on the situation, they can be good or bad.

Tony.....looking forward to your blog on this. I have a loan officer that is moving to Arizona.

Jeff......thanks for the polite commpliment. The contigency and commitment is always a key to any transaction. That is one reason why lenders give a few of us a bad name, because they over-look this. But thanks for explaining the fact that it's not always 17 days.

Kristal.....3 suitecases. Two for the settlement and one for airport security. LOL "and I am teasing about this..don't hold this to be a true and accurate statement."

I've learned so much about how real estate is local from AR and other on line forums. The consumer carries a large risk by not having professional representation. Attorney review is rare in Michigan. Our board provides purchase agreements that are fair. I've had issues with builder PA's and other non-board PA's that we've caught before there was a problem. A consumer would be less likely to catch those things.

New York State

I'm sure you have come across our Sales Agreement. It states

" This is a Legally Enforceable contract. You should consider whether you wish to consult your attorney prior to signing the same."

The bottom paragraph has a contingency clause entitled ATTORNEY'S APPROVAL CLAUSE. It allows either party to back out within 3 days if notified in writing.

Before relocating to North Carolina, I practiced RE in NY.

NY is an Attorney driven state. The Purchase Offer is considered not worth the paper it is written on by the Legal Eagles. The buyer and seller each have an Attorney and after the Purchase Offer is signed it is faxed to the buyer’s Attorney who will draw up the Contracts and send to the seller’s Attorney who usually makes additions, corrections, or deletions. This document can go back and forth for revisions ad nauseam for weeks and until the parties to the sale have signed it, there is no binding contract.

During the appraisal and inspection process, attorneys are involved in the negotiations of any and all issues (and often cause deals to fall with their legal eagle posture). You know "Lawyers are spoilers" is ever so true in NY.

Some counties practice a little differently than others and bypass the purchase offer and go right to the attorney to draw up contracts. It takes 3 attorneys in NY to close the deal... buyer’s, seller’s and bank's. Bank attorney sets the closing date and place, and generally from contract to closing takes at 10-12 weeks or longer.

In NC, the REALTORS are the main players in contract negotiations and as Leigh said; our P.O.’s are binding upon execution. Contract to closing time is 3-4 weeks on average, unless the buyer is from NY!!!

Maureen & Dmitry.....thanks for the input. I agree....professional representation is KEY..... it might cost some upfront, but could save thousands later on.

Peter.......Yes, I have done a few purchases in NY..... but I leave that up to the lawyers. In both transactions, each client had an attorney. I just do mortgages.... ;o)

Ginger & Roger......lol. So true about your examples in regards to purchase transactions in NY. But we will leave it at that. I just supply the money. ;o) And yes, I am familiar with NC, because I have done some business down there. Good luck with the move.

NOV

2006

I see them all the time as I do loans in other states and you really need to read them through... Great blog

Leo.... you do assignment contracts all the time? Is it through Wells? If so, what is your max LTV? Credit score? Would love to hear more about it.

thanks

NOV

2006

Hi Jeff,

Yes, I'm alive up in Rhode Island.

As for Rhode Island, the purchase and sale agreement is binding when it is signed by both parties. The only time you can get out of them here, is the bank to deny you a loan or if the buyer and seller cannot get together to correct or pay for a deficient condition found in the home inspection.

I always make sure to ask if either party would like to have the purchase and sales reviewed by an attorney before they sign. Most of the time, I have found, they don't bother. But I always make sure they have an opportunity to consult an attorney.

Tammy J. Pelletier, Residential Properties Ltd., Cranston, RI

do I know you? Hey stranger... ;o) Tammy.... I noticed that you haven't been on here for a while. Good to see you.

In regards to what you mentioned. In R.I., is that from the time that both the seller and buyer sign the contract and date it? They don't get a few days to think about it and review it?

Thanks for the input and don't be a stranger.

Hey there Jeff

I've just been sooo busy, which is good.

Yes, from the time the buyer and seller sign the contract that is it. It is legally binding. The only time there is a right of recision is when it is a refinance. But a purchase is binding as soon as it is signed.

Some will even argue that it is legally binding the moment the offer is accepted by both parties. But my experience has always been the point of signature of both parties on the purchase and sales.

AUG

2007

What about the state of UT?

In response to Tammy Pellitier, You stated that a buyer and seller contract is legal and binding, except in the case of a refinance. Are you saying that if the home was refinanced first and then put up for sale, the seller has the "right of recision?

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