- Real Estate
- 7 mins
You have found the perfect house, submitted your offer, and it was accepted! While it may feel like the end of the difficult homebuying process is finally near, this crucial step marks just the beginning of the closing process. Following the seller’s acceptance of your offer to purchase (OTP), your transaction advances to the Purchase and Sale Agreement (P&S) stage. Learn how to navigate this crucial document and the importance of a trusted real estate attorney to ensure a smooth and timely closing.
Understanding the Purchase and Sale Agreement
The purchase and sale agreement is a crucial document in real estate transactions as it outlines the terms and conditions of the sale and supersedes your initial offer to purchase. It is a legally binding contract between the buyer and the seller, detailing the rights and responsibilities of each party. Once signed by each party, the terms of this document outline the official conveyance of property from the seller to the buyer.
In Massachusetts, once the buyer and seller agree on the initial terms of the sale, the purchase and sale agreement is drafted. The first iteration of this document will include details that have already been agreed upon between the buyer and seller in the initial offer to purchase, such as the purchase price, initial down payment, and contingencies. It is the responsibility of the seller’s attorney to draft the first iteration of the P&S. Once drafted they will send the P&S to the buyer’s attorney for review.
It is important for both buyers and sellers to thoroughly understand the purchase and sale agreement before signing it, as it sets the framework for the entire transaction.
Key Components to Look for in the Agreement
When reviewing the purchase and sale agreement, there are several key components to pay attention to. These include:
- Purchase Price: The agreed-upon price for the property should be clearly stated in the agreement.
- Deposits: The amount being deposited directly from the buyer (the down payment)
- A Description of the Property: Often this is the street address along with the location of the official deed that is recorded at the registry of deeds or with the land court
- Contingencies: Any contingencies, such as a mortgage contingency, should be clearly outlined. These types of contingency clauses grant the buyer a method to terminate their offer if certain events do not occur (such as securing a mortgage or the home passing inspection).
- Special Requests: If the buyer has any specific requests for the property, such as keeping certain fixtures or furniture, these should be included in the agreement.
- Closing Date: The date on which the transaction will be finalized should be clearly stated.
By carefully reviewing these components, buyers can ensure that their interests are protected and that all necessary terms are included in the agreement.
Massachusetts and the Notion of “Buyer Beware”
Massachusetts follows the common law rule of caveat emptor, which in plain English translates to “buyer beware.” This means that a private seller has no legal duty to disclose anything about the property (with the exception of lead paint and the existence of a septic system). The buyer is responsible for conducting their own due diligence to ensure the purchase property is up to their standards. This is why it is imperative for a buyer to partner closely with their real estate agent and closing attorney to ask the right questions before finalizing their purchase.
While the seller has no duty to disclose any issues to the buyer, this does not preclude them from any future liability down the road. A seller is still required to answer any question about the property truthfully. They cannot affirmatively misrepresent any material fact about the property. A material fact would be any information that could substantially impact a buyer’s decision to purchase the property or anything that could affect the property’s value. But mere silence on behalf of the seller without first being prompted by the buyer will not be deemed a misrepresentation.
This scenario played out over 80 years ago in Swinton v. Whitinsville Savings Bank, 311 Mass. 677 (1942) which is still precedent today. The plaintiff purchased a home from the defendant and after living in it for two years, he discovered that the home was infested with termites. The buyer had never asked the seller about termites, nor did he conduct his own inspection. The plaintiff argued that the defendant must have known about the termites, and the defendant’s silence was a fraudulent concealment of this information. The Massachusetts Supreme Judicial Court ruled in favor of the defendant, finding that a seller cannot be liable for bare nondisclosure.
This is why having representation for both sides is vital. On the seller’s side, your attorney will advise you on what you are responsible to disclose, how to disclose it, and can help you negotiate. While the buyer’s attorney will help you ask the right questions, and build in any contingencies into the P&S to ensure you are granted enough time to conduct your own due diligence and finalize any necessary inspections. Most clients will bring on an expert to inspect all mechanical, structural, and utility systems, termites, pests, asbestos, mold, etc.
Negotiating Terms and Conditions
Negotiating the terms and conditions of the purchase and sale agreement is an important step in the real estate transaction process. Both buyers and sellers may have specific requests or concerns that need to be addressed.
Working with a real estate attorney is crucial during this stage, as they can provide guidance and negotiate on behalf of their clients. They can help ensure that the terms are fair and reasonable and that any necessary changes are made to protect their clients' best interests. During the negotiation of the P&S your attorney will be in constant communication with you, the real estate broker, and the seller’s attorney.
It is not uncommon for a P&S to go back and forth between the buyer and seller attorneys several times. Due to the nondisclosure elements outlined above, the buyer’s attorney may work with you to create a buyer’s rider, which is a document used to supplement the original P&S. These documents request more information from the seller, such as if they are aware of any betterments, the presence of radon gas or termites, if they have knowledge of any substantial damage done by fire or other casualty, if the residence is in a flood zone, etc.
It is also during this negotiation stage where the buyer’s attorney will present to the buyer the recommendation to purchase title insurance. Read more about the importance of title insurance to your transaction here. The purchase of title insurance is a one-time charge that provides tremendous protection against any potential title defects down the road. At Lane, Lane & Kelly we always recommend our buyers purchase title insurance, considering any potential defects in title usually arise at a time well after the transaction has taken place, and without it, you as the owner would be liable for any financial burden (which could be quite substantial) as a result of the defect.
While the real estate attorney is there to guide you, they will not go forward with any decision that you do not authorize. That is why trust and communication with your real estate attorney are crucial to protecting your interests in every real estate transaction.
Making Your Transaction Official Through the Closing Process
Once the P&S is finalized, your attorney will send you this document for your final review. Once both parties are in final agreement on the terms of the contract, both parties will sign the P&S one step closer to close! The closing process is the final step in executing a real estate transaction. This step occurs after the execution of the P&S by the buyer and seller.
The closing will be done in person where the buyer will sit down with their real estate attorney to sign and review a number of documents. Even after the P&S has been signed, there are still several accompanying documents to be signed during the closing. The buyer will also sign and be given a copy of their deed, sign any mortgage documents, the promissory note (which binds you to pay your mortgage) and a declaration of homestead (read more about the Massachusetts Homestead Act and a declaration of homestead here) just to name a few.
At the closing, the buyer must bring an unexpired driver’s license or government issued photo ID. If your license is expired or set to expire before your closing date, you must obtain a renewed license beforehand. The buyer must also be prepared to provide authorized funds for their closing costs. This can be either a certified banker’s check or via a wire transfer. Cash, a credit card, or a standard check will not be accepted.
Once you finish signing, the necessary documents will be filed with the proper registry of deeds or the land court and your purchase will become official!
At Lane, Lane & Kelly, we're not just here to handle transactions; we're committed to building lasting relationships with our clients. With a proven track record of representing thousands of buyers in Massachusetts since 1938, we understand the importance of protecting your best interests every step of the way. The homebuying process can be a long and apprehensive journey. Our dedicated team will help you navigate the entire process with unparalleled communication from the moment your offer is accepted, until you leave our office with your new keys. Contact us today to learn more about how we can help you achieve your homeownership goals with confidence.
This blog is made available for educational purposes only as well as to give you general information and a general understanding of the law, not to provide specific legal advice. By reading this blog you understand that there is no attorney client relationship between you and Lane, Lane & Kelly, LLP.
