Offers to Purchase Real Estate - Protect Your Deposit and the Deal
July 27, 2018
Are you shopping for a new home or condominium? Are you selling? Have you made or accepted an offer yet? No doubt you were asked to sign a standard offer form that brokers commonly use when you’re ready to get to business. Here in Eastern Massachusetts, very commonly the brokers use the Greater Boston Real Estate Board (GBREB) form, but there are others and some use their own standard forms. Do you really know what you are signing when you put your John or Jane Hancock on that offer? Is it safe?
Most people don’t think they need to have a lawyer at this stage. And for many that’s probably true. But the offer sets the table and the tone for the bigger contract, namely the purchase and sale agreement which is signed a short time later. So here are a few tips and tricks to avoid problems that can come up later if you’re not careful.
As a Buyer, Your Deposit is at Risk. Most people support their offers with a small deposit, called “earnest money” usually $1,000. They think that the money is fully refundable if they don’t proceed with the deal. And that’s typically correct-- very few brokers or sellers would try to keep that money if a deal was not concluded, but could they? Well, if you work from the language that is on the standard offer form, then yes, you could lose that money. Here are three important changes you should make to reduce that possibility:
Mutually Acceptable Purchase and Sale Agreement. The GBREB offer form specifies that the parties will sign the “Standard Form Purchase and Sale Agreement.” However, that agreement is frequently modified heavily by attorneys to provide additional protections for their clients, whether buyers or sellers. Delete “Standard Form” and add in “mutually acceptable.”
Home, Radon and Pest Inspections. The standard forms include these contingencies, but I don’t like them. For instance, to cancel based on the home inspection, there must be “serious structural, mechanical or other defects.” And the repairs must cost more than a specified minimum. In the case of bugs, the property must be found to be “infested.” These quoted terms can create misunderstandings and disagreements. I prefer that my buyer clients be able to cancel if for any reason they are not satisfied with their inspections. Simple fix – ditch the standard form contingency addendum and simply write in “subject to satisfactory home, pest and radon inspections in paragraph 8 where there are some extra lines.
Mortgage Contingency. These can be tricky in today’s market. Seller’s will expect that the buyer is prequalified. Many will not accept a mortgage contingency. Even though that is called a “cash sale,” this does not mean that the buyer cannot get a mortgage; all it means is that there is no mortgage contingency that would let the buyer get out if they did not get their loan. If that happened, they would risk forfeiting their deposit.
Do You Know What You Are Getting? You might assume that the various kitchen appliances, laundry machines and other items in the home are included in the sale. However, if these are not specified in the offer, then they might be excluded. Likewise for sellers, if there is something you plan on taking with you, like the refrigerator or an heirloom light fixture attached to the structure, be sure to note these exclusions both with your broker and on the offer form. On the GBREB form, there is a very small area at the top for “Special Provisions.” That’s the place to list anything that is included or excluded in the purchase. You don’t need to squeeze it all in the small space on the form – simply create an addendum if needed.
What Is On The Outside? Are you expecting that the small storage shed or above-ground swimming pool is included in the sale? Do you want the large sculpture in the garden removed before closing? Either way, these types of things should be spelled out in the offer.
Boundaries Can Be Deceiving. It’s easy to guess that the edge of the grass, the stone wall or other prominent features in the yard might be the boundary between you and your neighbor. Or you might assume that the swing set is entirely on their land. Or that the driveway is exclusively yours and not shared. And most of us wouldn’t think twice of asking the broker. But if those boundaries are important, the only way to be sure is with a proper survey. I have had clients find out after closing that their yard was much smaller than they expected. If you plan to build a tennis court or put up a shed, then you have to know what’s yours and what is not. You will need a survey contingency added to your offer.
This is just the start of the kinds of things to consider when initiating a purchase. The best advice is to consult with a real estate attorney at the start of the process. I offer a package price to help you budget your expenses while having the security of having a lawyer on board from the very beginning.
Do you have a legal question or issue? Are you just not sure how to proceed? I offer a free initial consultation. Please call or email me or fill out my contact form and I will be in touch very shortly.