In most of the U.S., the Purchase and Sale Agreement (P&S) is the document that conveys equitable title from seller to buyer. Equitable title means that the sale is a done deal unless something happens that's been spelled out in the P&S. In Mass, it's usually signed after the home inspection is done and the buyer is sure they want the house. Normally written by attorneys, it can look like a lot of gobbledygook to the rest of us. That's why it's so helpful to have an attorney to represent you in any real estate transaction. The P&S has a lot of legal power so it's important that you know what you're signing. In most Purchase and Sale Agreements, you'll find:
- What's this contract all about? - The purpose of the contract is usually a one-paragraph description saying something like: Ms. Seller of 123 Main St, Anytown USA agrees to sell and Mr. Buyer or 321 Prospect St, Anycity, USA agrees to buy. Make sure your name and address are correct and correctly spelled.
- What's being bought/sold? - Legal description of the property - this should include the book and page where the deed is recorded at the Registry of Deeds. If there is a separate parking space, like for a condo, that should also be listed. For condos they will also sometimes talk about the percentage of the common areas, etc.
- What's included? - Things like appliances, fixtures, if the seller has promised to leave the curtains, etc. Even if you've talked about this in detail with the other party or with your agent, if you don't see it in the P&S, it's not legally enforceable so don't be afraid to insist. If you're the seller and there's something you want to keep that would normally be included - like a chandelier, your favorite flowering plant or the expensive curtain rods that your mother-in-law bought for you, these must be listed as exclusions. Otherwise, anything that requires a tool to remove is normally included in the sale.
- Consideration - for a contract to be legal, there has to be some exchange of value. This is usually money, specifically the money that the buyer agreed to pay the seller. It should also list what deposits have already been paid and when the balance is due.
- Time and place - where and when will the closing take place? This is normally either at an attorney's office or at the Registry of Deeds but it can be anywhere in the U.S. The contract is not enforceable without a time and place.
- Type of possession - sometimes the complete property is not going to be available for the new buyer. For example, there could be tenants, there may be some rights - like mineral rights - that have been leased to a third party or there could be easements for neighbors or utilities. All of these restrictions must be spelled out in the P&S. If there are none it should say that the buyer receives full possession or some thing like that.
- Buyer should receive a "clean" title - this means that any liens on the property - like a mortgage, a mechanics lien, a court settlement - have to be paid off before the buyer takes ownership. The P&S should also say what happens if the seller can't provide a clean title before the scheduled closing date.
- What could go wrong? - What happens if the house burns down before the closing? What if we can't get a clean title? What if the buyers don't get their financing? What if the seller agreed to give $5,000 back at closing? What if the seller agreed to fix the dishwasher? These and lots of other terms, conditions and contingencies along with anything else that has been talked about should be in the P&S. If you don't see it, it doesn't exist - legally at least - so if someone told you something, make sure it's in there.
- Other stuff - you'll normally see things like:
- A paragraph saying that the seller is using the buyer's money to pay off the mortgage
- That the seller has to keep the house insured until the closing
- What condition the property will be in at the closing - "broom-clean condition" or "as last seen"
- What fee is due to the selling broker
- Husband and wife as parties - this means that both are considered to be selling the house. The spouse can't come back later and say he didn't know his wife sold the house and he wants it back.
- Adjustments - there are usually things that have been prepaid or not yet paid - like taxes, oil in the tank, municipal water, etc - that may need to be adjusted at the closing so all parties are agreeing to that.
- Appraisal - if the buyer is getting a bank loan, there will have to be an appraisal to see how much the house is worth. What happens if the appraisal is not as high as the price in the contract? If the buyer offered a lot more than the asking price, this is a real possibility. If you're okay with negotiating this if it happens, then no worries. If you're the seller and don't want to get into a situation where you have to drop the price to match the appraisal, say that in the P&S.
- Addendum - if there are attorneys involved in the negotiation, they may have addenda that they want included in the P&S. This will absolutely favor their client so if that's not you, read carefully. Most real estate attorneys have seen or experienced horror stories during transactions. Each time something bad happens, it becomes another line item on the addendum. This is another good reason to have an attorney on your side.
If you've taken my advice and hired an attorney to represent you in the transaction, that person is the best qualified to explain to you anything that is confusing. In general, the more that is spelled out clearly in advance, the less chance for problems later on. I like to make a list of things that I expect to see in the P&S before I read it. It's easy to get overwhelmed once you start reviewing it. Check the items off as you find them in the document and ask about anything that's missing. Below are some links to other sites that talk about the P&S in more detail and remember, I'm here to help.
