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Offer to Purchase Real Estate

THE IMPORTANCE OF THE OFFER AND WHY IT IS NOT SIMPLY A FORMALITY. The Massachusetts Offer to Purchase real estate is normally only about a one to two page document. While it may appear relatively straight forward, this is simply not the case. Because significant liability can result in a real estate transaction simply by signing the Offer to Purchase the Buyer and the Seller must retain a competent real estate lawyer to protect him or her as early as possible.

 

THE OFFER TO PURCHASE IS A BINDING CONTRACT
One of the most important things to know about an Offer to Purchase is that it can be a BINDING contract even if a Purchase and Sale Agreement is never signed. In McCarthy v. Tobin, 429 Mass. 84, (1999), the Massachusetts Supreme Judicial Court held that if an Offer to Purchase real estate is in writing, it contains all of the material terms, and it appears that the parties intended to be bound, they are required to close the deal even if a Purchase and Sale Agreement has never been signed. Failure to do so can result in long-term litigation.

 

PURCHASE PRICE AND DEPOSIT TERMS
The second crucial aspect of the Offer to Purchase is the purchase price and deposit. A Buyer of a house or condominium will want the deposit terms to be as low as possible while the Seller will want them to be as high as possible to make it less attractive for the Buyer to walk away. A typical deposit with the Offer to Purchase is normally between $500.00 to $1000.00. A typical deposit upon signing the Purchase and Sale Agreement is about 5% of the purchase price. For the home Buyer, any amount higher than this may be cause for alarm but the deposit amount does fluctuate with market conditions (lower in a buyer's market, higher in a seller's market).

 

PURCHASE AND SALE AGREEMENT ISSUES
The third important item is the date on which the Purchase and Sale Agreement will be signed. For the home Buyer, it is important to allow enough time to take care of important tasks such as performing a home inspection and arranging for mortgage financing. This period of time, however, should not be so long that it harms the home Seller if the deal does not ultimately close since the Seller will need to put the property back on the market. The recommended time period, in most instances, is about 7 to 10 days.

 

HOME INSPECTION ISSUES
The fourth important item involves arranging a home inspection. In some instances, Buyers waive the right of inspection to make their bid more attractive to the Seller; in others, the Seller might not allow an inspection. Home inspections for residential real estate are common and, absent compelling circumstances, should never be waived. If the Buyer waives an inspection, and a problem presents itself, it is unlikely that the Buyer will have any recourse. If the inspection cannot take place until after the signing of the Purchase and Sale Agreement, then there must be an appropriate contingency to protect the Buyer in the Purchase and Sale Agreement itself.

 

MORTGAGE FINANCING ISSUES
The last critical factor of the offer to purchase is the Buyer’s mortgage financing. The mortgage financing contingency is designed to protect the Buyer’s deposit if he or she can’t obtain the mortgage financing by a particular date. The standard provision in a residential Purchase and Sale Agreement is for eighty percent of the purchase price. It is always in the Buyer’s interest to negotiate the latest possible date to notify the Seller. Home Sellers will want to keep this notice date to as short a period as possible in case the deal falls through and they need to put the home back on the market.

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