If you have purchased a home in the past then you are probably familiar with the residential purchase and sale agreement but if you haven’t then the forms are going to be a new experience. In the state of Washington, real estate brokerage firms belong to a multiple listing service (MLS) which either provides state approved forms or a brokerage will elect to have their own company forms approved by the state. At Barnett Associates Real Estate, LLC, we use the Northwest Multiple Listings Service’s state approved forms.
In the State of Washington, real estate agents are allowed to practice limited law; in that they are allowed to negotiated and engage parties in a binding contract to purchase residential property (condos, commercial and vacant land are also included). The implications of entering a contract are important to both parties and understanding the purchase and sale form will help alleviate questions and concerns regarding the home buying process. Below is image of page 1 of the Residential Real Estate Purchase & Sale Agreement. Page 1 is where all the terms are outlined and how the negotiation process begins.
Purchase & Sale Items # 1-5
The first 5 items identify the parties involved, the agreement date is taking place, identification of the property and which items are to be included in the sale of the home. Number 5 is the most important part of these items since it outlines what personal property will conveyed along with the property. Word of caution; try not to include to much personal property in the purchase and sale as it can be very difficult to determine an agreeable value.
Purchase & Sale Items # 6-8
Items # 6-8 are the purchase price, earnest money and the buyer’s remedy if they elect to default on the purchase and sale.
In today’s real estate climate majority of home buyers are electing to offer less than the asking price. This is due to the deflation of real estate values and the buyer’s feeling of “getting a deal” which is a strong driving force today. Seller’s should be aware that buyer’s are offering a minimum of 10% less than the asking price so prepare yourselves.
Item # 7 is the earnest money. First of all what is it? Earnest money is the amount of money a buyer is willing to place on the negotiating table in case the buyer chooses to default on the purchase and sale (# 8 is the default section). It can be either in a personal check, promissory note or “other” (I don’t recommend the “other” category). Another use of the earnest money is to demonstrate the serious of the buyer’s intentions to purchase the proeprty to the seller.
Note: Some sellers and real estate agents use earnest money as negotiating leverage during a counter offer.
Item # 8 is the buyer’s selection in what the remedy would be in case of default. The majority of the time the buyer elects to choose to Forfeiture of Earnest Money. Opting for the Seller’s Election of Remedies opens up to many options for the seller to choose and that scares buyers.
Purchase & Sale Item # 9
Disclosures in Form 17 is a form the seller provides stating their knowledge of the property’s conditions. This form is a Q&A section of the scenarios that the seller is sharing with potential buyers. Some of these questions are: has the roof leaked?, has there been any hazardous material disposed of on the property?, and many other items. But item 9 is not the form but the buyer’s choice to either “will” or “will not” have remedies for the seller’s errors.
Purchase & Sale Item # 10
Item # 10 identifies the title company who will be providing title insurance on the property. Title insurance protects the buy from any encumbrances on the property. John Wahl did a post titled What is Title Insurance? that gives a good overview. This is another item that lenders will want to look at. Lenders do not want to loan funds on a property that may have encumbrances or other liens that may affect interest in the property.
Purchase & Sale Item #11-13
Items # 11-13 stipulate who is the closing agent will be, that’s the escrow company, the closing date and when the new owner takes possessions.
The closing agent is usually a escrow company but it also can be handled by attorneys. The closing agent reviews all the documents, provides a HUD-1 and sees if there are any outstanding payments that need to be paid prior to the property changing possession.
The closing date and possession date are two different items. The closing date is the date in which the county receives the recording numbers and ownership/title is legally transferred.
Possession doesn’t necessarily happen on closing (when the new owner receives the keys). In Snohomish County is typical to see the “other” boxed checked with the verbiage “closing plus 3″. This gives the previous owner 3 days after the closing date to move out of the property. When homes are vacant there is no need for the “other” and “on closing” is checked and the keys to the property are received at the time of closing.
Purchase & Sale Item #14
Offer expiration is the time period in which the offer is no longer valid. This protects the buyer from a future obligations regarding that offer and allows the buyer to move forward with another property. But having the offer expiration doesn’t mean the offer is completely dead. If the seller provides a counter after the expiration date then the buyer has the option to accept the counter offer and the new dates or not.
Purchase & Sale Items # 15 & 16
These next two items deal with disclosure of who are the utilities providers and if any assessments are to be paid at time of closing. Services of of Closing Agent of Payment of Utilities is there to provide a) the buyer a copy of who provides services and b) provides the closing agent with information on whom to contact to see if there are any outstanding invoices. Outstanding payments are the biggest concern for buyers because they do want to assume a seller’s past negligence when purchasing a property. These payments can include unpaid homeowner association dues.
Purchase & Sale Items # 17-18
Item # 17 is the Agency Disclosure. In the past, the way the agency law was written, even though the buyer’s agent was representing the buyer, under the State’s law the buyer’s agent was representing the seller. This confusion led the law to be amended and forms changed to disclosure which party the agent is representing.
Item # 18 is the location where the other addendums are noted which include but are not limited to are: Financing, Home Inspection, Short Sale and Title Contingencies. Since there are some many addendums some with be touched on in the future.
That is breakdown of the residential real estate purchase and sale agreement. There are 4 other pages in which the buyer/seller have to initial but the pages are the definitions for the items mentioned in page 1.
Being familiar with the purchase and sale can provide a lot of opportunities for buyers to build negotiating leverage but no one says a seller cannot provide a counter offer, which is the majority of the times.