Updated: May 7, 2020
Once buyers find a home they love, they enter into negotiations which will ideally end in the sale of the home. Home buyers start with a million questions, then discover a million more questions along the way. That’s why we’re putting together a series of blogs that aim to demystify some of the essential aspects of real estate. Today, we’re focusing on the Purchase & Sale Agreement. (If you want, read first about the Offer, which is step one in the process.)
The Purchase & Sale Agreement (P&S) is a legally binding contract that dictates how the sale of a home will proceed. It comes after the Offer to Purchase, and supersedes that earlier document once it’s signed. The P&S is more substantial than the offer and can seem pretty complicated, so I’m going to break it down.
But before we begin, I need to say this: It's essential for buyers to hire a real estate attorney once an offer has been signed. The attorney understands the ins and outs of the P&S and is your best possible protection during the buying process.
This is the who/what/when/where of the sale. It lists the names of the parties involved in the sale, a description of the home being bought, the price for the property, a date by which to secure the mortgage (if the buyer is taking out a loan), and the closing date. The buyer can also list any fixtures or appliances that will be included in the sale. No buyer wants to show up on moving day only to discover the seller has taken the dining room chandelier!
Title and Deed
The title is a legal document proving that the seller owns the property under agreement. The deed is a document that allows the seller to transfer their home to the buyer. This part of the P&S says that the home truly belongs to the seller and that he or she will indeed shift ownership to the buyer at the time of the sale.
What the Seller Needs to Do
Okay, so now we know what’s being sold, for how much, and that it’s legal for the seller to go through with the sale. But the seller has further responsibilities. For example, the seller needs to keep the house insured, do regular repairs and maintenance, and continue to pay taxes up until the time of the sale (seems obvious, but it’s in there for a reason). Also outlined here are requirements for smoke and carbon monoxide detectors and for completing a 6(d) certificate if the property is a condo. Finally, the seller’s agent (either their real estate agent or their attorney) is required to hold the buyer’s deposit in a protected bank account (called escrow) until the sale goes through.
Buyers need an experienced real estate attorney to protect their interests (and money). Ellie wrote a great blog on the attorney’s role in buying a home, so read this if you want the in-depth version. If you just need a primer, read on and contact us with any questions that come up. The buyer and the attorney need to spend particular time and attention on Clauses 14-16. These outline:
the broker’s fee, which is paid by the seller, not the buyer;
the penalty if the buyer pulls out before the closing—typically this is limited to the deposit, but it could be more significant if it’s not specifically spelled out here; and
the mortgage contingency, which allows the buyer to get the deposit back if the mortgage falls through. There will be specific dates in Clause 16; look for a deadline for applying for the mortgage, and one for securing the actual money. If there’s a hiccup in the process, you can let the seller know. Typically, you can get an extension on securing the mortgage (but only if you haven’t missed any deadlines).
Yes, there’s more, but that’s what the attorney is for.
Remember when I told you twice already to hire an attorney? I'm serious about this! A competent attorney will add protections as needed, ranging from issues with a condo association being sued or suddenly raising rates, to the presence of lead paint or radon (or both), to major repairs or access to the property before and after the closing. Real estate agents and attorneys work together with buyers to craft a clear, air-tight Purchase & Sale so the ultimate transaction goes as smoothly as possible.
Ready to start your house hunt, or have a question (or maybe a million)? Contact us and let’s get started. We’re here to help.
Want to learn about all of the aspects of the buying process? Read on!