real estate Purchase and sale Language

Purchase & Sale Common language.

The following offers brief explanations of the intent and main points of the paragraphs within the purchase & sale agreement (NWMLS Form 21). They are for clarity purposes only and may not be totally inclusive of all points within the paragraph. It is simply suggested definitions to explain the contract to buyers and sellers. Obviously a word for word explanation can make things clearer. It is advised that you read any portion word for word if you have any question as to the intent.

PURCHASE PRICE:

“This paragraph is saying that you (the buyer) have the funds in the bank to handle the closing costs and down payment and are not relying on any other source of funds like stocks or gift money from a relative. Is this the case for you?”

If the answer is yes, proceed to next paragraph. If the answer is no, then language needs to be included that the offer is subject to this condition.

EARNEST MONEY:

“The essence of this paragraph is to inform you that I am required by law to deposit your earnest money check within 3 days after receipt or mutual acceptance into a trust account.”

This differs of course if you ask for a deferred EM. If the EM is $10,001 or higher buyer has the option to place it into an interest bearing account or pooled trust account. There is a fee to set up an interest bearing trust account (see your broker), and depending on the amount of money and the time until closing, it is not always beneficial for the buyer to do this because the interest earned can be very small and not enough to cover set up fees.

INCLUDED ITEMS:

“This paragraph lists the items that are included in the sale and the seller is required to leave. Let’s read the list together and see if you can think of anything else you may want to include in your offer

If the answer is yes, add it on a blank addendum

CONDITION OF TITLE:

“This paragraph states that the seller is to provide clear marketable title at closing. Also since we do not have the legal description until we obtain the title report, this paragraph allows the legal description to be inserted later. CC&R ‘s easements and encroachments, mineral rights etc. not affecting the material value or buyers reasonable use of the property does not cause title to be unmarketable.”

TITLE INSURANCE:

“This paragraph authorizes seller to allow your lender to order title insurance at sellers expense. Also a copy of the title report will be sent to you. If title can not be made insurable, your earnest money will be refunded to you. And the contract will terminate.”

If buyer requests an extended coverage policy it is at buyers expense unless negotiated otherwise.

CLOSING:

“Closing is when the deed is recorded and the funds are available to the sellers. Typically you will sign documents a couple of days prior to closing. It also says you are entitled to the keys to the property on the possession date.”

POSSESSION:

“This is the date you are allowed to actually take possession of the property. Seller also agrees to maintain the property in its present condition, except for normal wear & tear.”

Note: Possession is 9:00 PM unless you specify otherwise. Be exact and specific.

CLOSING COSTS AND PRORATIONS:

“The main part of this paragraph states that buyer and seller will each pay ~/2 of escrow costs and any current taxes, interest, or other annual dues or costs as applicable, will be prorated between buyer and seller to the closing dates. Also it provides seller will pay all utility charges up to closing day. It also states you will pay for your loan costs.”

If FHA or VA, closing costs differ. Read carefully. If 22K is requested, include in your offer and have seller complete this addendum.

SALE INFORMATION:

“Simply means that the agents are required to report this sale to the multiple listing service. Also that you and the seller authorize all persons connected with this transaction; like the lender or appraiser, tide company or escrow company, to provide whatever information or documents that are needed and requested by the agent’s regarding this sale.”

FIRPTA- Tax Withholding at Closing:

“This is a seller’s paragraph. It says escrow will require seller to sign a form that they are not a foreign person, and therefore withhold and pay the required amounts to the IRS.”

NOTICES:

“This is a rather lengthy paragraph that simply stated says; everything must be in writing and that buyer and seller need to keep their agents informed of their whereabouts at all times so as to be available to respond to notices. When I receive a notice it’s the same thing as you receiving it. Failing to respond in a timely manner or within the required time frame can have serious consequences for you. So again, I need to know where I can reach you at all times.”

COMPUTATION OF TIME:

“This paragraph spells out the definition of the time notice requirements 1 just eluded too, which of course is my job to keep track of on your behalf But the important thing for you to know is that these time frames must be adhered to because ‘time is of the essence’ in this agreement.”

You can explain that 5 days or less is business days. Otherwise it’s calendar days, however nothing can end on a Saturday, Sunday or legal holiday.

FACSIMILE TRANSMISSION:

“Simply stated it says faxes are legal binding documents and considered the same as an original However, email transmissions are not legal or binding. It also allows for the provision that you and the seller may need to resign originals to confirm fax signatures.”

INTEGRATION:

“A fancy word that says that all prior understandings and representations are superseded by this agreement and no modification can be made to this agreement unless in writing and agreed to by both buyer and seller.”

ASSIGNMENT

“Says you can not assign this contract to another buyer without the sellers OK.”

DEFAULT:

“This contract is set up with two options for you and the seller to choose how earnest money is to be handled Under the first option ‘Forfeiture of Earnest Money’, if you get remorse and wish to end this contract, the seller would be entitled to your earnest money (up to 5% of purchase price). Under the second option ‘Seller’s Election of Remedies’ it does not limit the amount of the liability you would have. The seller could legally force you to complete the sale, or sue for actual damages or other remedies available or retain your earnest money. The caveat with this second option however, is that the seller would have to prove damages in order to collect anything. Which option would you like me to present to the sellers?”

ATTORNEY FEES:

“This paragraph states that if a legal dispute arises between you and the seller, the prevailing party is entitled to attorney fees and expenses.”

OFFER:

“This says that you agree to purchase the property under the terms of this agreement. This legally binds you to the terms of this contract. It also allows you to place a time limit for the seller to respond to your offer.”

COUNTEROFFER:

“This is where the seller will give you a time limit to respond to their counteroffer if there is one. It also says the seller agrees to sell the property under the terms of this agreement.”

AGENCY DISCLOSURE:

“Says in essence, I represent you and the listing agent represents the seller. It also states that you acknowledge receiving a pamphlet “The Law of Real Estate Agency” from me.”

Note: This assumes you are not representing both parties as a dual agent. If you are acting as the agent for both parties, this paragraph confirms both buyer and sellers consent, which is required under agency law. This would also be the perfect time to hand your clients an agency pamphlet if you haven’t already.

COMMISSION:

“Seller agrees to pay my commission in accordance with the listing agreement, even though I represent you.”