Richard D. Vetstein, today, he explains why buyers and sellers should treat an Offer to Purchase as a legally binding contract:
The first step in purchasing or selling residential real estate is the acceptance of an Offer To Purchase. Most often, the real estate broker prepares the offer on a pre-printed standard form offer and presents it to the seller for review and acceptance. Attorneys are not typically involved in the offer stage but given the amount of recent litigation over offers to purchase, itís never a bad idea to consult an attorney even at the earliest stages of the home buying process.
Many buyers and sellers (and their brokers) are under the misconception that the offer to purchase is merely a formality, and that a binding contract is formed only when the parties sign the more extensive purchase and sale agreement. This is not true. Under established Massachusetts case law, a signed standard form offer to purchase is a binding and enforceable contract to sell real estate even if the offer is subject to the signing of a more comprehensive purchase and sale agreement. So if a seller signs and accepts an offer and later gets a better deal, I wouldnít advise the seller to attempt to walk away from the original deal. Armed with a signed offer, buyers can sue for specific performance, and record a ďlis pendens,Ē or notice of claim, in the registry of deeds against the property which will effectively prevent its sale until the litigation is resolved.
In some cases, the seller may not desire to be contractually bound by the acceptance of an offer to purchase while their property is taken off the market. In that case, safe harbor language can be drafted to specify the limited nature of the obligations created by the accepted offer. This is rather unusual, however.
With the offer to purchase, I always advise buyers and their brokers to use some type of standard form addendum to address such contingencies as mortgage financing, home inspection, radon, lead paint, and pests. The home inspection and related tests are typically completed before the purchase and sale agreement is signed and any inspection issues are dealt with in the P&S. If they are not, there is an inspection contingency added to the P&S. Another crucial aspect of the offer are the various deadlines: for closing, for inspections, for mortgage financing. Buyers push for more time, while sellers push for less time. Reasonableness should prevail here. It may be unrealistic for a financed transaction to close in less than 30 days in this market. And itís critical to build enough time to complete the home inspection process and get estimates for repairs.
As a real estate broker, I know that some of my attorneys get twitchy at the idea of agents handling an Offer to Purchase. Some make changes that they instruct me to use. In some states, agents canít touch any contracts; do you think that is a better idea?
Also, whatís your experience with broken Offer to Purchase contracts? Have you ended one? Has the other party ended one? Do you think the current contingencies for inspections and mortgage are sufficient?
Do you have more Offer to Purchase questions for our guest attorney?
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