As the Spring market approaches, many of you may be considering purchasing or selling real estate. That process usually begins with the negotiation of an Agreement of Sale. Typically, in residential transactions, it is a standard form produced by the Pennsylvania Association of Realtors that is used. If it is a commercial transaction, often the Agreement of Sale may be more unique and tailored to the specific transaction. Regardless of whether it is a residential or commercial deal, there are certain terms that you should pay close attention to with regard to any Agreement of Sale. Some of those terms are discussed below.
When preparing an Agreement of Sale, one of the most important terms, if not the most important term, is the purchase price. This is the amount that the buyer has agreed to pay to purchase the real estate and the seller has agreed to sell the real estate. It is the basic term and, if the parties cannot agree on this, there can be no Agreement of Sale. So, make sure the Agreement accurately reflects the agreed-upon purchase price.
As part of the purchase price, the buyer will typically pay a deposit which is credited to the buyer at closing. This deposit is the money that buyer places in escrow which can be lost if the buyer breaches the Agreement of Sale in certain circumstances. This is a form of security given to the seller which helps to show that the buyer is motivated to consummate the purchase of the property. If the buyer breaches the agreement and the deposit is paid to seller, it helps the seller to recoup the value of the lost time during which the Agreement of Sale was pending, as well as the costs incurred by the seller.
Another key term of the Agreement of Sale is the settlement date. Often, this is very important to the buyer and seller, as they may be buying and selling other property on or about the same time. It is all too typical to see that a buyer is required to sell their current home in order to have the cash available to purchase their new home. As such, paying close attention to the settlement date is key.
The final key term to be discussed as part of this article is the contingencies. Contingencies are things that must happen before the buyer is required to proceed to purchase the property. It may be something like obtaining the appropriate financing to purchase the property, a mortgage contingency, as it is commonly called, is often found in the residential Agreement of Sale. A contingency may also be for home inspection or due diligence, where a buyer wants to conduct tests and have a contractor inspect the property to determine what, if anything, needs to be repaired. Contingencies may also be related to the zoning for the property, ability to obtain insurance on the property, review of the title to the property to make sure that there are no liens and mortgages affecting the property which cannot be satisfied at closing. Contingencies are extremely important to the buyer because it allows the buyer the opportunity to inspect the property before purchasing it. If the results of the inspections are not satisfactory, the buyer can terminate the Agreement and get their deposit back. Therefore, it is very important to pay attention to the deadlines related to these contingencies.
Given the many issues that come up when negotiating Agreements of Sale, it may be advisable to discuss the negotiation process and the Agreement with your attorney. The attorneys here at OWM are happy to assist our clients with real estate purchases and sales. If you have any questions or would like to discuss the above in detail, please call me at (610) 917-9347 or email me at [email protected]. Also, please watch OWM’s April 2019 Legal Talk program regarding Agreements of Sale on our website here.
— Written by James C. Kovaleski, Esq.
DISCLAIMER: The contents of this blog are not legal advice, and are not to be used for that purpose. If you are faced with a legal matter, you should contact a lawyer immediately in order to ensure that you are protected.