As a real estate attorney frequently representing buyers, I rarely receive an offer for review before it has already been accepted by the seller. Unfortunately, in this scenario it can be very difficult to fix a poorly crafted offer after the fact. The seller may be adamant about sticking to the terms originally proposed by the buyer and reticent to let an attorney include more or different terms.
But, if a buyer comes to me before submitting their offer to the seller, there’s a lot I can do to beef up boilerplate terms. Buyers too often put misplaced reliance on their real estate agent when it comes to putting together their offer. After all, some might argue that memorializing the offer is a form of providing legal services – something best left to the attorneys. That said, I thought I would offer up my wish list of extras I would love to see become standard in all real estate offers. Here goes:
1) Appraisal contingency – if you are applying for a mortgage to finance your purchase, always include a provision in your offer requiring the property to appraise at or above the purchase price. This puts the seller on notice that you are not going to overpay for the property and gives you an out if value becomes an issue. In today’s volatile real estate market, value can become problematic during the appraisal if there are limited comparable sales or the property has unique attributes that can’t easily be valued.
2) Mutually satisfactory P&S – never settle on the parties executing a standard form or boilerplate purchase and sale agreement. By specifying that you’re only interested in the execution of a mutually satisfactory agreement, you’re acknowledging up front that you anticipate the parties, through their counsel, will be negotiating additional terms. Relying on standard form documents for the most important purchase of your life is a fool’s game.
3) Appliances and systems in good working order – if you’re paying top dollar for the property, it makes sense that you would expect all appliances and systems, such as the furnace, central air conditioning, and so on, will be delivered in good working order at closing. If you don’t specify this, you can expect them to be delivered in the same condition they were in at the time of your home inspection with reasonable wear and tear. If it’s a short sale, or post-foreclosure sale, that’s another story altogether. Most sellers in those cases will make no guarantees about appliance or system performance at closing and will typically require a buyer to accept their condition as-is. No matter what the case, be sure to also specify which appliances are to be included in the sale so there is no confusion about what is staying and what is going.
4) Mortgage Contingency – of course your offer is going to include a mortgage contingency. But, did you bother to check with your lender to confirm the loan amount and how much time they will need before a mortgage commitment will be issued? Make sure to doubleback with your lender before agreeing on dates. And, if your mortgage is going to be other than the garden variety conventional -type, be sure to specify that (i.e. FHA, VA, USDA, etc.). FHA and other federally insured loans have additional requirements and additional paperwork and certain buyer-protections that a seller may want to know about when assessing an offer.
5) Inspection Contingency – now while almost every boilerplate offer form I’ve ever seen includes an inspection contingency provision, they often don’t get into the specifics of inspections or provide for instances where test results may be delayed and will require time for assessment. If you are planning to have a property tested for radon, for example, you’ll want to be certain that you are going to be able to collect the sample, send them off to the lab and have time to analyze the results all before the contingency expires. If you won’t have enough time, then be sure to modify your offer to account for these sorts of items. Another big one involves private well testing. Not only will you need time to have the well tested, but you’ll want to ensure that the results meet established minimum water quality standards like those established by the EPA or the local Board of Health. If they don’t, you’ll want the opportunity to either terminate the deal or require the seller to rectify the water quality issue.
6) Property to be delivered vacant – this is particularly important if you are buying a property occupied by tenants and the expectation is that it will be delivered vacant at closing. Alternatively, if some or all of the tenants are to remain, it is incumbent on the buyer to inspect rental agreements and obtain information about security deposits and last month’s rent from the seller. These demands for information should be set forth in the offer. It will also be vital to find out which appliances belong to the tenant or to the seller as the former won’t be included in the sale of the property.
7) Review of condominium documents – if the property is a condominium unit, the buyer should specify that the transaction is subject to the seller providing the buyer with all of the current condominium documents including, but not limited to, the master deed, declaration of trust, bylaws, rules and regulations, recent meeting minutes and budget. Issues commonly come up with respect to the terms and conditions under which a condominium unit may be rented should the buyer want to do so now or in the future, parking and pet ownership. These can be deal breakers for some buyers. The condo documents will shed light on these items. It’s important not only to specify what documents the buyer wants to review, but also set deadlines by when the documents will be provided and buyer’s review will be completed. An offer for a condominium that has a mortgage contingency should always specify that the transaction is conditioned on the unit being Fannie Mae warrantable. And, buyers should always ask for seller’s to disclose the monthly condominium fees and any pending or planned increases or special assessments as these will impact the buyer’s financing and bear on their financial situation directly.
While the above list is not exhaustive, it should help you get started when thinking about all that has to be done in order to purchase real estate. Every Massachusetts property is unique and should be reviewed with care in light of crafting an offer. I always encourage prospective and returning clients to contact me early so we can proactively approach the offer stage in order to remove barriers further down into the process. Fine-tuning an offer to address the buyer’s expectations also helps to manage the seller’s expectations and promotes a smooth transaction and property turnover.