Once the buyer’s Offer to Purchase has been accepted by the seller, a Massachusetts Purchase and Sale Agreement (“P&S” or “PNS”) is negotiated and drafted by the buyer’s attorney and the seller’s lawyer.
Escrow Deposit Terms
On the day the purchase and sales agreement contract is signed, the home buyer will usually be required to place a deposit with the seller’s attorney (or realtor), which is normally equal to 3% to 5% of the purchase price. This deposit helps to ensure that the home buyer does all that is necessary to obtain mortgage financing and close on the property under the terms of the Purchase and Sale Agreement. These requirements are commonly referred to as the buyer’s “due diligence.” If the buyer fails to strictly adhere to these requirements, the seller will likely sue for this deposit as damages (i.e. the losses incurred for taking this house or condo off the market).
Mortgage Commitment and Financing Contingencies
The P&S typically includes several contingencies, including a mortgage contingency clause, which states that the buyer’s ability to purchase the house or condo is contingent upon his or her ability to obtain mortgage financing (through a “commitment letter” from the buyer’s lender) by an agreed upon date. Usually, this will be due three to four weeks after signing the purchase and sales agreement contract. If financing cannot be obtained by the appropriate date, the home buyer must notify the seller in writing to either cancel the transaction or extend this contingency date. If the buyer fails to do so, then the buyer may end up forfeiting his or her deposit to the seller.
Inspection Contingency
There is usually a contingency that allows the buyer to cancel upon receiving an unacceptable home inspection report. It is always a good idea for the home buyer to attend the inspection so that he or she can better understand this report. If the Offer to Purchase or the P&S is contingent upon an acceptable inspection, any defects in the home must be repaired by the seller before the closing or the parties will need to renegotiate the terms of the agreement to keep the deal together. If the buyer has included the appropriate contingencies in the PNS, and he or she is not satisfied with the home inspection, the transaction can be canceled. Otherwise, the buyer might be out of luck and be forced to close on property that will require thousands of dollars to repair.
Septic System Contingencies ("Title 5" or "Title V")
Finally, it is critical that appropriate language be included in the Purchase and Sale Agreement that specifies the responsibilities of each party regarding any septic system issues. The Massachusetts Department of Environmental Protection requires the home seller to disclose septic system inspections to the buyer. Generally, the inspection must be within the two years before the closing date or up to six months after the closing if weather conditions do not permit (e.g. during winter when the ground is frozen). The inspection must demonstrate that the system does not pose a threat to the public health or safety. If no such certification is provided, the buyer may revoke the purchase contract.
