- Hot Tips for Purchase Agreements
- June 18, 2015 | Author: Dehlia C. Seim
- Law Firm: Fryberger, Buchanan, Smith & Frederick, P.A. - Duluth Office
- With the seasonal shift comes the busy season for real estate sales, so it’s time for a primer on purchase agreements. Whether it’s your first purchase or your tenth sale, purchase agreement review is critical. You may think that if you’ve seen one purchase agreement, you have seen them all, but not so. Every attorney and real estate agent uses different forms of purchase agreement, and the forms are forever changing with new laws and regulations. There are also different aspects to consider if the property is residential, commercial, or vacant land.
Disclosure and promotion: you should always consult with a real estate attorney when you are buying or selling property; each transaction is unique. This article is not a comprehensive list and is not intended to replace professional advice.
How to take title. Usually stated in the opening paragraph of the agreement, this is primarily a buyer’s concern. Common options are joint tenants, tenants in common, or using the phrase “or assigns.” Couples often use joint tenancy as it allows for a seamless transfer of the property upon the death of one. Tenancy in common is best in cases of partners, or other multiple buyers that want to preserve their interest for their own heirs - not have the title automatically vest in the surviving owners. “Or assigns” is often used when individuals anticipate forming an entity to own the property, such as rental property held by a limited liability company. Sellers should pay attention to “or assigns” and be sure the agreement provides for the seller’s consent before an assignment occurs.
Legal description. Don’t rely on the tax statement to determine the description of the property; this is seldom complete or accurate. Along with the street address and tax parcel identification number, use the phrase “record legal description to control.” Or if you’re the seller, pull out a copy of the deed used in your purchase and attach that description to the agreement. You want to be sure you are buying or selling the property you are intending to buy or sell!
Title evidence. This provision can vary significantly from one form to another. Either the seller or buyer will be in charge of ordering title work, and will have to pay for it. If these obligations are part of the negotiations, be sure the form of purchase agreement reflects this. A lender will almost always require title insurance, and it’s a good idea for a buyer to have it too. Be aware of the timing for obtaining a title commitment and notifying the seller of objections to title. Likewise, as a seller, be mindful of the deadline to resolve title objections; failing to act quickly could result in a cancelled purchase agreement.
Disclosures. Property condition, lead paint, wells, septic systems, methamphetamine, radon - so much to read! Be sure you get the disclosures and review them before you sign off on that purchase agreement. And sellers, don’t be afraid to disclose it all, to the best of your knowledge. It’s failing to disclose a known condition that gets sellers into trouble.
Financing. Do you need a loan to complete the purchase? Be sure to provide for a financing contingency in your offer. If you won’t be able to buy the property without certain loan terms, include these terms in the contingency. Buyers prefer leaving this contingency open until the closing date; sellers should try to get a loan commitment sooner so that the property isn’t off the market too long. (If buyer’s financing doesn’t happen, the seller just lost valuable marketing time.)
Inspection. It makes good sense for a buyer to make the purchase agreement contingent upon an inspection. Qualified inspectors are able to identify problems and evaluate disclosed issues for severity. This is also important if it is rural property served by a well and private septic system; both of which should be tested before closing. As a seller, be sure the inspection deadline isn’t too far out; in fact, it’s a good idea to limit the contingency so you can continue to show the property and review other offers until the contingency has been satisfied.
Personal Property. Adore that corner cabinet that fits so perfectly it looks like a built-in? Be sure to state whether it’s included (if you’re the buyer) or excluded (if you’re the seller). Fixtures are generally considered part of the home and included in the sale, but if there’s any special item make the purchase agreement clear. Another tip: appliances are personal property and should be included as items being purchased, including the stove, refrigerator, washer and dryer.
Access, Boundary Lines and Zoning. These are boilerplate provisions in purchase agreement forms, but should be carefully considered for each transaction. Does the property abut a public road? If not, is there legal access by an easement? Is it a shared road requiring common maintenance provisions? Has the property been surveyed? Are there any questions as to the location of the property lines? You want to be sure that new fence is on your property, and not your neighbor’s, and preferably before you go to sell it (and risk losing a potential buyer, or, in the case of a buyer, before you purchase a problem to be fixed). What is the current use of the property and what is the buyer’s intended use? Are these uses compatible with the zoning ordinance or is a variance or special permit required? Never assume that a property is being properly used for its zone district.
Cancellation. You had a deal; it fell apart. Make that ending clear with a fully signed cancellation of purchase agreement. There are numerous ways to cancel a purchase agreement; but even in the case of an amicable termination, get it in writing.
There are so many more items to consider as you review your purchase agreements, but this covers a few of the big issues. The key is to review the agreement before you sign it, so you don’t contractually bind yourself to something you can’t do. Happy house-hunting!