Navigating the Massachusetts Offer to Purchase: What You Need to Know

This portion of the blog is designed to help you understand the Massachusetts Association of Realtors' Offer to Purchase, a legally binding contract that you may receive quickly, sometimes at night or over the weekend. A key concern is that there is often pressure to sign this document immediately, perhaps due to competing offers where time is a critical issue, leaving little opportunity to review it with an attorney.

The purpose of this is to review the offer contract, which is not very long but sometimes needs to contain more information than what is initially provided. We will also discuss what is often not included in the offer that you might want to add to ensure you are accurately presenting your intentions regarding a purchase or sale.

Section 1: Properly Identifying the Parties

The very first section of the offer concerns the parties involved.

You have tools available, such as checking the local GIS site for your city, where you can plug in the real estate address to see who the city has named as the owner of the property. This helps ensure you are making your offer to the right person.

It is crucial to properly list your own name, as spelling really matters here. The seller's attorney will rely on this document to draft subsequent documents, including the deed that transfers the property into your name. You should avoid using any nicknames and ensure your names are spelled correctly.

Including Your Spouse/Partner

If you are married, you must include your spouse in the offer. Often, one of the two people involved in purchasing a property takes the lead role, sometimes signing the offer based on having very good credit. However, if it is a married couple, you really want both names on the deed, so both parties should be on the offer. You must ensure names are spelled correctly, and include "junior" or "senior" designations if applicable.

Additionally, you need to properly identify the seller. Other parties named in this section are the real estate brokers and the escrow agent. Typically, the listing agent, or seller's agent, is the escrow agent.

Section 2: Property, Price, and Deposit

This section addresses identifying the property being purchased and listing the purchase price and deposit.

Identifying the Property

It is important to identify the property correctly. Take the time to look at the current deed to see if there are any additional parcels. Sometimes, property is identified by street address, but adjacent parcels may be intended to go with the property and may not be represented just by that address, or they may even have a different street address. You must make sure you are including all the property you intend to buy and properly identify it.

Purchase Price and Deposit (Liquidated Damages)

You must ensure that the purchase price is listed correctly and that you have decided on the deposit amount. The deposit shows how strong your offer is in one sense. This amount is considered the liquidated damages that the seller would be entitled to if you were to walk away for no good reason. This compensates the seller for having gone under contract with you and taken their property off the market while the transaction was pending.

You would only lose your deposit if you failed to go through with the transaction, subject to other provisions of this contract. For example, other contingencies might allow you to demand the return of that deposit if the house fails to be inspected properly or if you are unable to obtain your mortgage.

Section 3: Broker Relations and Compensation

Paragraph two of the offer covers broker relations and compensation. This area has seen a big change recently due to litigation involving the National Association of Realtors, which changed how broker compensation is handled across the country.

It used to be common for the seller to pay for both sides of the transaction (their agent and your agent), but this is no longer necessarily the case. The listing agent can agree to pay no buyer agent compensation.

Buyer Agent Compensation

It is really important for a buyer to have spoken with their agent upfront so they understand their obligation if they put in an offer where the seller is refusing to pay any buyer's agent compensation. This might mean that the buyer is agreeing to pay their own compensation.

This section of the contract allows you to state what your offer is in regards to the buyer broker compensation. You can make your offer contingent on the seller paying 2% to your buyer's agent, or any combination of percentages, as this is all negotiable.

One recommended strategy, especially if the seller is unwilling to provide buyer's agent compensation, is to adjust the sale price. For example, if the agreed-upon sale price is $300,000 and the buyer's agent compensation is 2% ($6,000), you could make the sale price $306,000, but stipulate that the seller agrees to pay the buyer's agent $6,000. This helps you avoid a larger out-of-pocket fee and ensures you do not accidentally put yourself in a position where you are paying more closing costs than expected.

Section 4: Deadlines and the Purchase and Sale Agreement

Duration of Offer

When you make an offer, you want to give the seller a very limited amount of time to think about it, typically one day. If you do not hear back from them, you are free to move on to make another offer.

A key phrase in this part of the offer is "time is of the essence as to each provision". When you see this phrase, it means there are no extensions; if a response is a minute or a day late, you are not bound to perform.

The Purchase and Sale Agreement (P&S)

The offer to purchase includes a section stating that the parties will enter into a much more involved purchase and sale agreement (P&S) within a specified timeframe, and again, time is of the essence for this deadline.

The P&S is generally a 10-page document that needs to be circulated and reviewed by you and your attorney before the time period shown here. This is not a bad thing; the P&S gets into much more detail, including seller certifications and additional safeguards and provisions that help the buyer. The P&S gives a story of exactly what is going to happen, when it is going to happen, and where it is going to happen, including where your closing will take place. By the time you reach this stage, you should certainly be speaking with a licensed Massachusetts real estate attorney.

The Closing Date

Paragraph five sets the closing date, and once again, this date is often defined by the phrase "time is of the essence" unless that section is removed. If "time is of the essence" remains, closing a minute late means the transaction will be over, and you will be in default.

While this is common in the eastern part of Massachusetts, it is not a common provision in western Massachusetts purchase and sale agreements and is often crossed out. If you do not want to be held to that strict a standard, you will want that provision crossed out.

Section 5: The Closing Process

The closing date itself takes place over hours, even though you agree to meet at a certain time and place.

What Happens on Closing Day:

1. The Walkthrough: As a buyer, you perform a walkthrough at the property to ensure everything is still okay. You should run the water, check the utilities, and make sure the seller has removed all their personal property and left no trash behind. Once you purchase the property, these issues become yours, and there is no going back to the seller.

2. Obtaining Funds: You must pick up your bank check from your bank, as you are generally not able to bring a personal check to the closing unless you have already wired funds.

3. Meeting with the Attorney: You will meet with your attorney, who will take about 45 minutes to go through almost 100 pages of documents that you must sign.

4. Required Identification: At the closing, you need to bring photo identification, such as a driver's license or a passport, and your bank check.

5. Recording the Deed: After the buyer meeting, your attorney must meet with the other attorney to exchange a check for the deed. Your attorney then has to record the documents at the Registry of Deeds. The Registries of Deeds across the Commonwealth close at 4:00 p.m..

Because various items must be coordinated with your agent, lender, and attorney, and things can go wrong (like problems at the walkthrough or last-minute negotiations), you should be as flexible as possible on closing day. It is usually not recommended to contract to have services like cable installation or movers scheduled for an exact specific time.

Section 6: Escrow, Contingencies, and Default Damages

Escrow and Deposits

Paragraph six addresses the escrow. Typically, the deposit is held by the listing agent or the seller's attorney. They hold the deposit until both parties agree to its release or until the closing is completed and the money is used toward the purchase price.

The deposit is tied to default damages, meaning that if you are unable to perform your obligations under the P&S agreement, you will lose your deposit, and the escrow agent is authorized to transfer it to the seller. If there is a controversy, the escrow agent holds the deposit until both sides agree or a court issues an order.

Buyer Default Damages vs. Seller Default Damages

The buyer's default damages are limited to the deposit. This is called liquidated damages, and everything is capped there, even if the seller suffered more damages than the deposit amount. Deposits often range between $1,000 and 5% of the purchase price, which is generally considered a strong deposit. It is important not to confuse the deposit with the down payment; you do not want to give such a large deposit that it includes your entire 20% down payment, as that would be too large a loss if the transaction fails due to unexpected, uncontrollable issues (like losing a job).

If the seller fails to close, their default damages can be far greater than the buyer’s capped damages. Because land is unique, if the seller fails to close, you may sue for specific performance of the contract, meaning they have to perform, and you get that particular piece of land. This is a very powerful remedy and can be extremely expensive to the seller, who may also be responsible for your attorney's fees.

Alternatively, if you do not seek specific performance, you may be entitled to incidental and consequential damages and the benefit of your bargain damages.

• Benefit of your bargain: The difference between the value of the property and the agreed-upon price (e.g., if the house appraised for $30,000 over the sale price, you'd be entitled to that $30,000 profit).

• Incidental and consequential damages: These include expenses like inspection fees, appraisal fees, attorney fees, travel costs, and potentially compensation for other losses, such as a lost job if the move was required by a certain date.

  
  

Contingencies (Paragraph 7)

Contingencies are things that must happen for you to agree to proceed with the transaction.

1. Inspection Contingency: You are allowed to bring in any inspector you want, sometimes multiple inspectors (e.g., a general inspector plus professionals for the septic system or well). You only have a certain amount of time to complete your inspections; once that time is over, you cannot come back and request additional inspections or demand the return of your deposit based on an inspection issue.

2. Financing Contingency (7A): This requires you to list the amount of the mortgage you are applying for.

   • Application Deadline: There is a deadline for you to submit your complete application to the bank, which is a really important deadline in hot markets. You must meet all deadlines, or you may lose your deposit.

   • Mortgage Commitment Deadline: This is usually around three weeks. If you have issues meeting this deadline, you must notify the other side in writing (usually through your attorney or realtor) that you do not have your bank commitment and are seeking an extension or demanding the return of your deposit.

Section 7: Additional Provisions

The final provision allows for additional provisions. This is where you list all the appliances you want to go with the property and any other things you want to happen.

Examples of items you might include here:

• The removal of a large bulky item, a system in the house, a jungle gym, or an above-ground pool prior to closing.

• A requirement to ensure a pool is opened and ready for inspection by a certain date.

• A contingency stating that your purchase is contingent upon the sale of your own property.

• Language where you agree to pay an appraisal gap (the difference between the appraised value and the purchase price).

Even though this section is small, you can add additional pages or addenda to list everything you want to go with the property and any other contingencies regarding your performance of the contract. You must list all of those here and take additional pages if needed.

Understanding the Massachusetts Offer to Purchase is like preparing for a high-stakes negotiation where the first document sets the entire stage. Just as a ship’s initial navigation charts determine its ultimate destination and whether it avoids hazards, carefully detailing the parties, prices, and contingencies in this initial offer determines the success and safety of your real estate transaction.