The Seller and the Purchase Agreement
Contracts and You
The first in a series of articles based on the popular Contracts and You program created by real estate industry visionary Saul Klein and real estate educator and attorney John Reilly. The program provides you with audio, glossary, text, clauses and forms designed to help you become more skilled and comfortable in your real estate investment decisions.
Checklist for Purchase Agreement
The standard form used in most residential real estate transactions varies from state to state and serves as a basic checklist of items to cover. The form is just a starting point – you can modify the terms when it is in your best interest, preferably after discussion with your professional adviser. The following outline offers an overview of key questions for the Seller to ask in reviewing the proposed Purchase Agreement (aka Purchase Contract; Contract of Sale; Offer & Acceptance). In the next article, we will address the issues from the buyer’s perspective. If you would like more detail, you are welcome to download the podcast of Saul Klein and John Reilly as they engage in a conversation about the checklist in their “Contracts and You” program.
|To listen to the accompanying audio, you have two options. You can click the link on the left to open it in a new window and play the audio using your browsers' default audio player (if installed). It may take a few moments to begin, please be patient. Alternatively you may download the 30 minute, 28MB MP3 file by right clicking on the link and choosing to save the file. Once downloaded you can play the file using any audio software on your computer or even put it on your iPod ;)|
Seller and the Purchase Agreement
1. Who is the buyer?
- if there are multiple buyers, be sure each signs; same with husband and wife.
- if a corporation, has the authorized party signed (corporate resolution); same with partnership, trust
2. Any capacity problems?
- age (minors cannot sign); mental competency
- valid power of attorney?
3. Is earnest money deposit sufficient?
- in what form? Check, cash, promissory note (attorney fees if default)
4. Who is earnest money check made out to?
5. Does seller want buyer to pay for a survey?
- costly but might be required if boundary (encroachment) issues; lender may require it
6. Does seller intend to pay all the “customary closing costs”?
- if so, be sure to define what is included
7. Does seller want buyer to pay for termite inspection and/or treatment?
- usually a negotiable issue; who selects the inspector?
8. Is termite report required for infestation in the buildings and grounds?
9. Is there provision for repair of termite damage?
- if so, put a cap on the amount seller is to pay
10. Does seller intend to warrant that appliances and fixtures will be in “working order consistent with their age,” at time of closing?
- if so, consider a cap
11. Is there provision for the consequences of a breach of contract?
- is there a liquidated damage clause?
12. Is there provision regarding “time is of the essence”?
- what if one day late?
13. Does the purchase agreement embody the complete agreement of the parties?
- don’t rely on oral discussions; put essential terms in writing
14. Is the commission to be a stated amount or a percentage of the sales price?
15. If escrow company is to be used, who designates, buyer or seller?
- negotiable; local custom
16. Is provision made for remedying objections to title?
- does the seller have the right to cure any objections?
17. Does the contract specifically represent and covenant that there are no undisclosed defects?
- does state law require seller to submit a property disclosure statement?
18. If the date for possession is earlier than closing, is provision made for adjustments, insurance, maintenance expenses and taxes from the earlier date and will a fair rental be paid?
19. How are prorations to be handled? (taxes, insurance, homeowner association fees)
20. Is there provision for possible condemnation prior to closing?
21. If a party has signed as attorney-in-fact, is the power of attorney specific and in recordable form?
- does it have a termination date?
22. Is contract binding on all parties, their heirs, executors, administrators, personal representatives, successors and assigns?
- death of either buyer or sell does not terminate the contract
23. Is the sales contract assignable?
- if the seller’s consent is required, can it be unreasonably withheld?
24. Does the contract provide for extension of time for closing?
- be sure to use a writing
25. Are dates specified for opening and closing of escrow?
26. If seller intends to retain what might be considered a fixture, is it expressly excluded from the sale?
- don’t leave for oral understanding; get it in writing
27. Are any exceptions to title included in the listing contract also included in the purchase agreement?
28. Will property be conveyed free and clear of all liens and encumbrances, except those of record?
29. Is the discharge of liens provided for?
30. Is property classified and zoned for its present use?
- disclose any exceptions; and building permit issues?
31. Is property to be sold “as is” and has buyer inspected property and accepted it on an “as is” basis?
- “as is” covers obvious disclosed defects, not known hidden defects
32. If it is to be a tax exchange of property, is there provision for “boot,” if any?
- obtain independent tax professional advice
33. Will lender forego exercise of the due-on-sale clause and revise interest rate and or term instead?
34. Are there special conditions (contingency)?
- subject to financing (get specific terms)
- subject to sale of buyer’s other property
- subject to favorable termite report
- subject to completion of accurate survey
35. Are the special conditions complete, clear and unambiguous and not against public policy?
36. Is there any personal property included in the sale and is it expressly included in the purchase agreement?
37. Will there be a separate bill of sale for the personal property included in the sale?
38. Has there been a chattel lien search?
39. Is there provision made for assessments that are assessed after signing the purchase agreement and before closing?
40. If seller is an attorney or licensed real estate salesperson or broker, disclose it.
- a professional disclaimer
41. Does property abut on a street or road, if not, is suitable ingress and egress provided for and where is the setback line, if any?
- provide this information up front
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