Are you buying or selling your first home, second home, or even third? No matter your experience level, chances are the purchase or sale of your home is most likely the single largest investment you have ever made. You would assume, given the mammoth investment, home buyers would spend significant time speaking with not only their lender and real estate broker, but also their attorney. However, we find that most of our clients, particularly first time home buyers or sellers, are not adequately educated and don’t seek legal counsel until they are far along into the home buying experience.
Over the next several weeks we will be releasing a series of bLAWgs discussing some of the typical issues that arise regularly within residential real estate transactions. Our aim is twofold, 1) to provide some basic insight and advice for home buyers and sellers, and 2) to emphasize the importance of buyers and sellers bringing in counsel from the very beginning of the process.
This week we will focus on the Offer to Purchase.
It is shocking how many buyers, sellers, and even real estate sales professionals have the mistaken impression that an accepted Offer to Purchase is a negotiating tool, rather than a legally enforceable contract. This mistaken belief is most likely created because Massachusetts is known as a “two contract” state, in which an Offer to Purchase is generally followed by a more definitive contract known as a Purchase and Sales Agreement (P&S).
In most cases, when a buyer has identified a property they would request that their Massachusetts Real Estate Broker or Salesperson prepare a standard form Offer to Purchase (the majority of real estate professionals’ Offer to Purchase is the Greater Boston Real Estate Board’s). These standard form agreements generally meet the requirements to create a legally enforceable contract because they: First, meet the requirements of the Massachusetts Statute of Frauds (meaning the offer must be in writing, signed by adequately identified parties, and the land must be described with enough detail to locate it with certainty). Second, the Offer to Purchase contains the essential terms of the transaction (parties, price, title condition and closing date). Lastly, the standard form Offer to Purchase states parties’ intent to be bound by the agreement.
The fact that the Offer or Purchase is a legally enforceable contract generally creates different potential consequences for Buyers and Sellers. Buyers can be forced to forfeit their deposits to the Sellers, as liquidated damages if they violate an Offer to Purchase (we will cover liquidated damages in a later bLAWg). Sellers, should be just as cautious when accepting an offer as they can be sued for specific performance, which can lead to a judicially forced sale of the property based on the terms of the accepted Offer to Purchase.
Sellers often ask us, “is it possible to make the Offer to Purchase non-binding?” The answer is maybe, but unlikely. This is a developing area of law and you can add limiting language to increase the likelihood that an accepted offer is interpreted in the eyes of the court as laying out negotiating points and not creating a binding offer. However, be cautious and assume the Offer to Purchase is enforceable as there is no guarantee that if a buyer were to attempt to enforce the agreement that a court would rule in your favor.
Similarly, Buyers often ask about the best ways to protect themselves from being bound to an agreement if the home isn’t what it appears at the surface. The answer is Buyers can and often do protect themselves by adding several contingencies into an offer to purchase. These contingencies include, but not limited to, a mortgage contingency, inspection contingency, radon contingency, pest inspection contingency and lead paint contingency. Generally, in the event the Buyer revokes the Offer to Purchase due to the home failing one of the contingencies, then deposits made by the Buyer are to be refunded and the agreement is rendered null and void. We hope to discuss these contingencies further in a future bLAWg.
Due to the consequences and risk factors discussed above significant thought should be put into either making or accepting an offer to purchase a home. Please remember in order to best protect your investment, an attorney should be consulted at the earliest possible stage of a transaction.
If you are buying or selling a home, please don’t hesitate to contact Lake Shore Legal, LLC so we can educate, assist and represent your interests as you make the American Dream of home ownership come true.