Buyers

 

 

         The purchase of a home represents one of the most important investments you will make.  The amount of money that you may be called upon to place at risk for real estate in today’s market can represent a significant portion of your financial resources.  With this in mind, care must be taken to address all of the legal as well as financial aspects of the transaction, with the goal of reducing the possible risks attendant with your purchase. The purpose of this overview is to acquaint you with some of the more important legal issues involved in the process of purchasing real estate in Massachusetts.

 

The Offer

 

            The Offer to Purchase is typically the first document a buyer is called upon to execute in the real estate transaction. The purpose of the document is to communicate the prospective buyer’s willingness to purchase the property at a particular price. The Offer to Purchase contemplates the future execution of a full Purchase and Sale Agreement which will specify all of the details of the transaction.  It is important to understand that the Offer to Purchase may be a valid and binding contract which may bind the parties to the matters stated in the document.  Accordingly, care must be taken in the Offer to address the salient aspects of the transaction to avoid unintended results. It is appropriate to place certain contingencies in the Offer to Purchase such as inspection, appraisal, mortgage, and environmental contingencies. It may also be appropriate to make the Offer contingent upon review of the final Purchase and Sale Agreement by the buyer’s attorney. In most cases the buyer will be asked to place $500.00 or $1,000.00 into escrow as a deposit at time of signing the Offer.

                                                                                                           

Inspections

 

            Perhaps the most important pre-closing event in the real estate transaction is the inspection process. The cornerstone of most Purchase and Sale Agreements requires that the buyer's decision to purchase be based, not on the statements or representations of the seller or the broker, but on his or her own inspection of the property. There are many reputable inspection firms who can be retained to perform the inspections. The range of items for inspection vary widely from property to property but the following list represents some of the matters that you may want to consider for inspection:

 

Structural and Mechanical Integrity         

Well water Quality         

Internal Air Quality/UFFI

Pest Infestation                         

Septic System              

Lead Paint

Underground Oil Tank                

Radon Gas

Environmental Hazards

 

            In the event that any of these matters arise in the inspection process or are determined to be unsatisfactory in any way, care should be taken in the Purchase and Sale Agreement to address how the matter is to be resolved and the timing of same. In some instances an unsatisfactory inspection will signal the end of the transaction, assuming that appropriate contingencies were negotiated in the offer. The important thing to remember is that the buyer must be satisfied as to the condition of the property BEFORE the closing, since it will be extremely difficult to have defects remedied by the seller afterward.

 

The Purchase and Sale Agreement

 

            The Purchase and Sale Agreement represents the final negotiated understanding of the parties with respect to the real estate transaction. It is crucial that the buyer address all of the issues relevant to the purchase in the negotiation of the final document. An improperly drawn P&S Agreement can result in loss of the deposit and/or costly litigation. The P&S Agreement is typically drawn by either the seller’s attorney or the broker. The buyer’s attorney will then have the opportunity to review and amend the document, and negotiate a final version of same.  Once the final P&S Agreement is agreed upon, the document is circulated for signature and the buyer is called upon to place the balance of the required deposit into an escrow account (usually maintained by the broker) pending the closing.  Among the many important issues which need to be addressed in the P&S phase of the transaction are the following:

 

Purchase Price, Deposit, Form and Timing of Payment

Fixtures and Personal Property to be Included or Excluded from the Purchase

Title Matters and Exceptions

Closing Date, Time and Place

Condition of the Premises

Closing Adjustments

Contingencies such as Mortgage, Appraisal, etc.

Treatment of Deposits

 

            There are innumerable issues that can and should be addressed in the P&S Agreement depending on the property itself, the parties involved, and the details of the particular transaction. The preprinted form provided by the brokers without modification is often insufficient for the buyer’s needs. It is highly recommended that the buyer secure the assistance of an experienced real estate attorney to review and negotiate the P&S Agreement.

 

Financing

 

            The typical P&S Agreement will contain a contingency for financing, i.e. a statement that if after diligent efforts, the buyer is unable to obtain a mortgage for the property the transaction will be terminated and the deposits will be returned. In most situations the buyer is obligated to submit a completed mortgage application to an institutional lender on or before a certain date.  It will be helpful to accumulate all of your financial information such as tax returns, bank deposits, and employment information, beforehand so that such information will be readily available without delay. It may also be prudent to get a mortgage “pre-qualification” letter prior to signing an Offer to Purchase since not only will it help the Buyer to know the amount of the mortgage which he or she can obtain (and thus the purchase price which can be afforded), but it may also assist the buyer in the actual negotiation for the property since a seller will be more likely to accept an offer from a buyer who is already qualified for a mortgage.

 

The Closing

                                                                                                           

            In the typical mortgage financed real estate transaction it is the lender’s attorney, often also acting as the buyer's attorney, who conducts and governs the closing. The lender’s attorney will typically obtain and interpret the title examination, the municipal lien certificate, and the plot plan.  At least three business days prior to closing the lender must deliver to the Buyer a Closing Disclosure - or CD - which itemizes all of the closing figures including tax and other adjustments between the Buyer and Seller. It is very important that the Buyer fully cooperate with the lender in all phases of the loan application since any delay in delivery of the CD will result in a delay of the closing. At the closing the buyer will be called upon to execute the CD, the promissory note, the mortgage, and various other statements, agreements, and disclosures.  It is always helpful to the buyer to have an attorney at the passing to explain the closing figures and documents and to review the title certification. The buyer may obtain a policy of owner’s title insurance for a one time premium paid at the passing. Owner’s title insurance will provide the buyer with insurance protection against title defects which may not be readily ascertainable by a review of the public records. Unlike lender’s title insurance (which the buyer is required to purchase for the benefit of the lender), owner’s title insurance is not required to be purchased - though it is highly recommended. The buyer should discuss the matter of title insurance with his or her attorney.  The buyer should anticipate various closing costs at the passing and should make sure that the cost package promised by the lender is what is being delivered. Among the items often payable at closing are escrows for the payment of taxes, insurance, and mortgage insurance, as well as prepaid interest, recording fees, points, document preparation fees, lender’s attorney’s fees, title insurance, etc.

 

 

 

Note:  This document is intended to be an overview of the typical real estate transaction from the Buyer’s perspective.  It is not to be relied upon as a replacement for specific legal advice.  You should always consult with an attorney before signing any legal document.