Purchase and Sale Agreements
Purchase and Sale Agreements in Massachusetts
Seller’s FAQ
A seller of residential real estate must be careful to understand the most critical portions of the Purchase and Sale Agreement (“P&S”) and the rights and duties it creates. A seller needs to ensure that the Purchase and Sale Agreement creates the most definite terms and deadlines possible, and has the fewest contingencies possible that might postpone, delay or cancel the closing. For the seller, the longer their house remains off the market without a certain deal, the more risk they face.
What do I have to tell the buyer about the condition of the house?
1. I signed an offer with a Buyer, but now I’m not sure the purchase price is enough. Can I renegotiate the price in the Purchase and Sale Agreement? If not, can I get out of the offer and return the property to the market?
A seller must know that even before the P&S is reviewed by a real estate attorney, many of the important terms have already been established in the Offer to Purchase. The purchase price, date of closing, mortgage amount and the buyer’s right to inspect the property are usually all defined in the Offer to Purchase. These terms generally will not be renegotiated once a seller has accepted a buyer’s offer in writing. For a more comprehensive discussion of the obligations of a seller once the offer is signed, please go to the link on this site to “The Offer To Purchase – Know How It Should Read Before You Shop For A New Home”.
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2. My realtor tells me that the buyer is unable to put down a large deposit with the Purchase and Sale Agreement – does the amount of the deposit really matter as long as I get the full purchase price at the closing?
The deposit amount is a critical issue for the seller. The deposit usually represents the amount of damages that the seller is entitled to if the buyer cannot perform at the time of closing. The purpose for a substantial deposit is to compensate the seller for taking their house off the market from the time of signing the P&S until the date of closing. Accepting a small or minimal deposit could leave a seller with insufficient damages if the buyer breaches the agreement. The standard deposit in a seller-favorable P&S is at least 5% of the purchase price.
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3. I’ve refinanced several times since I bought my property and I just went online and saw that there are three mortgages still on record at the Registry. They have all been paid off, but will this hold up the closing? Will I be in default if they are not discharged on the closing date?
The consequences resulting from unforeseen circumstances at the time of closing must be addressed in the Purchase and Sale Agreement. Perhaps more often than one might imagine, there are problems that still exist at the time of closing, such as prior mortgages or repair items, that a buyer will demand resolution of before the closing occurs. There are two common ways to address this. The “standard form” Purchase and Sale Agreementdetermines that it is the seller’s right to either remedy the problem or cancel the deal; in common practice many buyers will not agree to this. If the buyer insists that the seller fix the problems, typically the closing is extended for up to thirty (30) days. If this is the situation, it is recommended that the seller limit their financial responsibility to no more than one percent (1%) of the purchase price.
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4. I received an offer on my property from a young couple who make good money but don’t have a large downpayment. They are requesting a 95% mortgage contingency – is this common?
The buyer’s mortgage contingency is a crucial aspect of the Purchase and Sale Agreement. The contingency is designed for the buyer’s protection. The seller should try to negotiate the lowest possible contingency amount, and should insist on seeing proof that the buyer is at least pre-approved for the amount they are seeking. While a pre-approval does not guarantee final approval, sellers can usually deal with such buyers with confidence. On the other hand, if the buyer is seeking a mortgage contingency without proof of pre-approval, the seller runs the risk that the property will come off the market without a strong likelihood that the buyer will get their approval. A mortgage contingency of 80% or less should always be acceptable to a seller; a contingency for a greater amount should always be accompanied by a pre-approval letter.
In the event that the buyer doesn’t get a mortgage loan up to the amount of the contingency, the buyer is entitled to return of the deposit.
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5. What do I have to tell the buyer about the condition of the house?
Typically, residential real estate deals are arms-length transactions, where each party is expected to protect their own interests. While a seller must be careful to disclose any negative information that they know about problems with the property (leaking roofs, easements over the property, etc.), the buyer also has an obligation to do their own investigation. The disclosures are usually included in the seller’s disclosure form, commonly provided by the realtor for the seller to complete and give to the buyer. Once the seller has disclosed all necessary items, there should be no other representations that the seller will be held to.
Parker|Scheer recommends that sellers consult an attorney even before listing their house. There are issues that arise at the offer to purchase stage (preceding the Purchase and Sale Agreement) that have very important ramifications for sellers, and should be considered from the outset.
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Contact a Real Estate Lawyer
For more information on Purchase and Sale Agreements in Massachusetts, or if you need a real estate lawyer, please contact Rob D. Stewart. If you prefer, you can also telephone our offices in Boston seven days a week at toll free 866-414-0400.
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Ryan P.B. Kelly is an associate and a member of Parker Scheer's Corporate and Real Estate Practice Groups. Mr. Kelly's corporate practice involves the formation and organization process, governance, business finance, strategic planning, the structure, terms and negotiation of various contracts, management and ownership succession, and a wide variety of other legal issues that arise in the course of conducting a business and planning for its future.