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Looking Over A Purchase and Sale Agreement 101--Concepts which Apply Almost Anywhere!!!

By
Services for Real Estate Pros with Topkins & Bevans-etopkins@topbev.com

Many times, in the course of my practice as a residential real estate attorney, I am asked to "look over" a proposed Purchase and Sale Agreement, normally in conjunction with representing a Lender in a mortgage loan transaction. The level of "looking over" in most instances varies. Some Buyers wish me to do a "once over lightly" kind of review, just to make sure that there are no "traps for the unwary" in the document; other Buyers wish me to do a careful and comprehensive review of the document, to make revisions where necessary and often to develop a Buyer's Rider, which has important protections for the Buyer outside of the ones I am going to discuss below. In many situations, I do my review without ANY additional charge for my services. When I do charge extra, I try to keep the additional fee minimal and ALWAYS get clearance, before hand, on the amount of my fee.

There follows some items in the standard Purchase and Sale Agreement which need to be addressed by a Buyer:

•1.       A description of what is included in the sale. It amazes me how some people can review a Purchase and Sale Agreement without a copy of the signed Offer to Purchase in front of them. That document is a roadmap, which must be followed, and it should detail exactly what the Buyer can expect to find when doing a pre-closing walkthrough.

•2.       An accurate description of the Financial Situation. How much was put down at signing the Offers, how much is due when the Purchase and Sale Agreement is signed; what is left over to complete the purchase (Buyer's funds plus Mortgage proceeds). All this material is set forth in the Offer to Purchase, but sometimes not accurately described in the Purchase and Sale Agreement.

•3.       The Mortgage Contingency. Most transactions these days have a mortgage financing contingency. This is an area I spend some time redrafting, because it can be controversial in the event that the Lender does not deliver a timely financing commitment. I always make sure that the commitment is (a) in writing; (b) consistent in amount with what is set forth in the Offer to Purchase; and (c) contains no terms which the Buyer cannot reasonably be expected to satisfy. Once in a while, the Offer to Purchase says that the Lender's Appraisal must have a value, equal to, or in excess of the Purchase Price. If that language exists in the Offer to Purchase, I make sure it is included in the Purchase and Sale Agreement, as well.

•4.       What happens if the Buyer Walks Away.  People lose jobs between the time they receive a mortgage commitment and the closing. No Lender will close if that is the case. People get "cold feet" about their purchase, and do not want to go forward. The standard Massachusetts Purchase and Sale Agreement presents a "trap for the unwary" here. The standard document provides that the Seller may sue the Buyer for specific performance. That means that the Buyer may be liable for more than leaving his or her Deposit on the table. My revised Purchase and Sale Agreement provides that the retention of the Deposit constitutes the Seller's "sole remedy at law or in equity".

Dan Edward Phillips
Dan Edward Phillips, Humboldt and Del Norte Counties, CA - Eureka, CA
Humboldt and Del Norte Counties, CA

Good Morning Elliott, it is always monies well spent to have the contract reviewed by an attorney.

Feb 27, 2011 09:55 PM
Barbara Hensley
RE/MAX Properties - Rockwall, TX
Homes for Sale in Rockwall County, Texas

Hello Elliott, thanks for the well stated legal advise this morning.  It is good to slow down and pay attention to the details.

Feb 27, 2011 10:12 PM
Andrea Swiedler
Berkshire Hathaway HomeServices New England Properties - New Milford, CT
Realtor, Southern Litchfield County CT

Elliott, funny, I use a few different offer forms, mostly I use one that is called a "Purchase Agreement", however it is not a contract. It is sent to the attorneys to draft the contract. I have, at times, gotten advice from an attorney when I have unusual terms to the sale, before writing up an offer. Just north of me in CT, the form often used is a "Standard Form Real Estate Contract". I do not like to use it, and always write in an attorney review period, because I did not stay at a Holiday Inn, and I do not play an attorney on TV!

Things are not always as they seem, and protecting our clients is paramount. I cannot answer the question, "can I get my deposit back?". Only the attorneys, or a court of law can definitively answer that one. We are cautioned against answering that very question by the CT Assocation of Realtors.

FYI, our Purchase Agreement is a short 2 pages, the second being taken up mostly by signatures. But it can be a contract, as it states clearly "This agreement to remain in force and effect and constitute a valid contract between parties hereto unless, or until, superseded by further contract between parties, incorporating detailed description of the property for adjustment of taxes, rent, interest, insurance, premiums, etc.". It would be very foolish to rely on this form as a contract, I have never seen it used in that way.

Feb 27, 2011 11:23 PM
Larry Lawfer
YourStories Realty Group - Newton, MA
"I listen for a living." It's all about you.

I learn at your feet as you show the way. Thanks Elliott.

Feb 28, 2011 01:17 AM
Conrad Allen
Re/Max Professional Associates - Webster, MA
Webster, Ma, Realtor

Hi Elliot - There are other "weasel clauses" such as home inspections, well tests, radon, etc. that should be in the P&S.

Feb 28, 2011 09:10 AM