Commonly referred to as the P&S, the Massachusetts purchase and sale agreement is the primary document that sets out the terms and conditions of the real estate agreement between the buyer and the seller.
The pre-printed Realtor document in Massachusetts is titled "Standard Form Purchase and Sale Agreement," but home buyers shouldn't be misled by the description. The P&S isn't standard at all. In fact, every real estate transaction is unique.
Most real estate lawyers likely would agree that the Standard Form Purchase and Sale Agreement is written primarily to benefit the seller, and home buyers should retain their own attorney to make modifications to the P&S that will protect the homebuyer's interests. Below are five things home buyers should be aware of concerning the purchase and sale agreement.
1. Under common law, the home buyer bears the risk of loss, if the property is destroyed or damaged by a natural disaster or fire between the signing of the P&S and closing. An attorney can add language that transfers the risk of loss back to the seller, who should have a homeowner's insurance policy in place that covers the property.
2. The standard P&S has a provision that gives the seller 30 days beyond the scheduled closing date to correct a title issue that may arise before closing. Without additional language added to the P&S agreement limiting the seller's ability to extend the closing date, the seller could extend the closing date past the buyer's interest rate lock date, which could result in the buyer paying a higher interest rate or no longer qualifying for the loan and risking the loss of his or her deposit. In addition, the date may be extended beyond the expiration date of a home buyer's loan commitment.
3. Many times, through no fault of the home buyer, lenders fail to provide the necessary financing in time for the scheduled closing date. A number of factors may result in a delay of a day or two. Although the closing may happen only a day or two later, technically the buyer is in default and the homebuyer's earnest money deposit is in jeopardy of being lost. A seller could decide take the homebuyer's deposit (loss of deposit is the typical remedy for breaching the contract) and put the home back on the market or decide not to sell at all. A simple provision providing the home buyer with an additional two or three business days to close, if the buyer's lender is not able to close by the closing deadline, could protect the buyer's deposit.
4. The home buyer should have a provision included that the seller represents that there is not any unresolved litigation or regulatory hearings involving the property, and the seller does not have any knowledge of complaints or notices of violations of federal, state or local by-laws, ordinances or other laws concerning the property. Such a provision is important because a seller could fail to disclose such an issue, which could cloud the title, and then, if the seller could not resolve the issue in time for a closing, he or she could use their right to extend the date of delivery of the deed (closing date), as described above.
5. A provision in the purchase and sale agreement making the contract contingent upon the property being appraised by the homebuyer's lender at purchase price or above is advisable. The provision should state that in the event that the property appraisal is less than purchase price the home buyer shall have the option to terminate the agreement, with all deposits returned to the home buyer.
Of course, the buyer's attorney must negotiate all of the above provisions with the seller's attorney. There isn't any guarantee that all or any of the above provisions will be agreed upon by the attorneys.
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