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Explanation of Purchase and Sale Agreements

A standard Massachusetts Purchase and Sale Agreement contract is typically more favorable to a seller than a home buyer. For either type of client, however, a real estate attorney should make  revisions in order to protect the client. The following is a short summary of the common paragraphs found in the the Massachusetts Purchase and Sale Agreement (“P&S” or “PNS”). For a higher-level explanation, please visit this article here

There are several standard forms that are typically used but the most common sales agreement contract is the Greater Boston Real Estate Board (GBREB) form or the Massachusetts Association of Realtors Form (“MAR”). An explanation of the GBREB form is below but these paragraphs are similar in the MAR form and just appear in a different order with slightly different wording.

Paragraph 1—Parties and Mailing Address: Both buyer and seller need to be accurately identified by name and address in order to have a binding sales purchase agreement.

Paragraph 2—Description: Because a real estate contract must accurately describe the property to be bought and sold, the correct information must be entered here. Normally there will also be a reference to the book and page (or document number) where the current owner’s deed is recorded at the Registry of Deeds.

Paragraph 3—Buildings, Structures, Improvements, Fixtures: The first line of this paragraph makes an important distinction: the parties are not buying a house—they are buying the land and all structures thereon (e.g. sheds, detached garages, swimming pools, etc.). Personal property belongs to the seller and is not included in the sale unless specified. Fixtures, which are attached to the property and cannot be removed easily, are included unless they are explicitly excluded (a common problem is where the seller wants to take a chandelier but no provision allowing this has been made).

Paragraph 4—Title Deed: Essentially states that the seller will delivery “good title” to the buyer (without title defects unless the buyer, mortgage lender, and title insurance company are willing to close over them).

Paragraph 5—Plans: States that if the recording of a plan is necessary to complete the conveyance that the seller will do so. This paragraph, generally does not apply in most transactions.

Paragraph 6—Registered Title: For registered land, all filed documents require Land Court approval. If the property is Registered, a document number is used to identify the deed’s location at the Registry of Deeds rather than a book and page.

Paragraph 7—Purchase Price:  The total purchase price, the amount paid with the OTP (usually $1,000), the amount being paid as a deposit with the P&S (usually about 5%), and the amount to be paid at the closing.

Paragraph 8—Time For Performance; Delivery Of Deed: The time and date for performance (i.e., the real estate closing) is usually specified to be at the Registry of Deeds or the office of the Closing Attorney.

Paragraph 9—Possession and Condition of Premises: The seller must deliver the premises at closing in the same condition it was in at the signing of the sales purchase agreement and in compliance with zoning, building laws, title, etc. This will not include reasonable wear and tear such as minor damage, like scuff marks, which are bound to occur when the seller moves out and would be insufficient for the home buyer to cancel the agreement.

Paragraph 10—Extension to Perfect Title or Make Premises Conform: This paragraph allows the seller to extend the closing for a period of thirty days in order to make the property conform with the P&S, but the seller must act in good faith to cure any problems. Extensions most often result from title defects that the seller needs to clear. A buyer always needs to have this extension in the back of the buyer’s mind and plan accordingly if there is a delay in the real estate closing.

Paragraph 11—Failure to Perfect Title or Make Premises Conform: This paragraph states that if the seller cannot remove title defects after a Paragraph 10 thirty day extension, the seller will return all deposits back to the buyer, unless the Buyer is willing to close over the problem under paragraph 12. This allows the buyer to prevent the Seller from terminating the contract by accepting title in its current state.

Paragraph 12—Buyer’s Election to Accept Title: This paragraph states that, instead of the seller returning the buyer’s deposit, the buyer will have the option to close on the property anyway without a reduction in the purchase price. 

Paragraph 13—Acceptance of Deed: This paragraph states that once the buyer accepts the deed from the seller, all of the seller’s obligations under the sales purchase agreement are unenforceable, unless they are also included in the deed (or determined by the courts to be collateral to the right to convey). This adds finality to the deal and prevents the buyer from suing the seller in most situations after the closing unless fraud can be shown.

Paragraph 14—Use Of Money To Clear Title: This paragraph states that, if there is a mortgage on the property, the seller can use the proceeds from the sale to discharge it (in reality, it is the closing attorney in Massachusetts who pays the mortgage off with the proceeds of the sale and obtains a discharge of mortgage).

Paragraph 15—Insurance: The home insurance coverage for the property is described here.

Paragraph 16—Adjustments: This paragraph specifies that adjustments for any real estate taxes, fuel, condo fees, and bills will be made at the closing.

Paragraph 17—Adjustments of Unassessed and Abated Taxes: This paragraph states that if the taxes for the current year have not been determined, and will not be known by the closing date, then the parties will adjust based on the previous year’s taxes and readjust later when taxes can be ascertained. These adjustments will appear on the Closing Disclosure and ALTA Settlement Statement. These documents are the spreadsheets listing all of the costs for both the seller and buyer in connection with the closing.

Paragraph 18—Broker’s Fee: This paragraph specifies how much the Broker’s commission will be (paid from the seller’s proceeds unless otherwise agreed), and who is holding the deposits. It entitles the broker to receive one half of the amount of the deposits being held or an amount equal to the Broker’s fee, whichever is lesser, if the buyer defaults.

Paragraph 19—Broker(s) Warranty: This paragraph states that the brokers are properly licensed.

Paragraph 20—Deposit: This paragraph specifies that the deposits are being held in escrow and that in the event of a disagreement the escrow agent may hold onto the deposit pending mutual instructions from the parties. In order to avoid liability, this allows the escrow agent to refuse to give the deposit to either party unless all parties release it in writing.

Paragraph 21—Buyer’s Default; Damages: This paragraph states that, if the Buyer fails to adhere to the sales agreement contract, the seller shall retain all deposits as “liquidated damages” (i.e., damages which the parties agree to at the beginning of a transaction). In addition to retaining the deposits, the seller has “thirty days” to notify the buyer in writing and demand additional damages under the standard language.

Paragraph 22—Release by Husband or Wife: Dower has been abolished in Massachusetts as to all property owned by a decedent during his or her lifetime except to that owned at the time of death. G.L.c. 189, § 1. Dower rights can trump the conveyance if spouse dies prior to closing and disinherits the survivor. This paragraph releases this right. For this reason, even when a spouse is not on the deed he or she should sign the Purchase and Sale Agreement in MA.

Paragraph 23—Broker as Party: This paragraph states that the brokers agree to be bound by the P&S. However, no broker would be bound unless they also sign the agreement since the broker has their own separate contract with the seller.

Paragraph 24—Liability of Trustee, Shareholder, Beneficiary: This paragraph states that if either party signs the agreement in a representative capacity, only the “principal,” and not the party signing, shall be bound (the principal is the person or entity for which the party is acting: the trust, the estate of the deceased, etc.).

Paragraph 25—Warranties and Representations: This paragraph states that home buyer has not been influenced to enter into the deal by anyone. If the buyer is relying on something the seller, or anyone working for the seller, has said then it must be included in the Massachusetts Purchase and Sale Agreement or it will be difficult for the buyer to prove he or she was misled.

Paragraph 26—Mortgage Contingency Clause: Under existing case law, the Buyer must promptly attempt to obtain a mortgage commitment letter. A mortgage commitment letter is the lender’s contractual obligation to grant financing. This is one of the most important paragraphs in the P&S. It states that if the buyer does not receive financing by the specified date, he or she will notify the seller, and receive a refund of his or her deposit. If notice is not given on or before this time, the buyer will be expected to close or forfeit the deposit(s).

Paragraph 27—Construction of this Agreement: This paragraph makes it clear that this is a binding contract subject to the laws of Massachusetts, and that it represents the entire agreement between the parties

Paragraph 28—Lead Paint Law: If children under the age of six will be living at the premises, any lead-based products must be removed or sufficiently contained by the new home owner.

Paragraph 29—Smoke Detectors (and Carbon Monoxide): This paragraph states that at the closing the seller will provide a certificate from the local fire department stating that the property has working smoke detectors and carbon monoxide detectors.nter the home ownership market since a condominium unit is typically much more affordable than a multifamily building. For a mortgage lender, the condo unit represents more stable home buying power. The conversion of a three-family home to condominium status results in three separate home buyers with separate earning power borrowing lower amounts of money (thus reducing lender risk). Financing one buyer to purchase the entire building would be much more expensive and difficult in today’s mortgage climate.

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