The Agreement of Purchase and Sale is a detailed contract outlining the conditions (typically found in the Appendix “A”) and terms of the financial purchase.
A complex series of carefully planned events unfolds with acute attention to detail before a brokerage lists a property. The listing price is set, the marketing strategy is crafted, repairs and improvements are made, the interior of the house is staged, and the seller prepares psychologically to transfer ownership to someone else.
In sharp contrast, however, the seller is often surprised when the Agreement of Purchase and Sale is handed to them. After all, this agreement of purchase and sale can appear suddenly and unexpectedly. The seller is often introduced to the agreement of purchase and sale when a completed and signed version (delivered by the buyer’s real estate agent – is in front of them. Unfortunately, the seller can be completely unfamiliar with this crucial document even though their property is on the market.
The agreement of purchase and sale establishes an irrevocable period – if the buyer’s offer is not accepted by the seller within the stated time frame, the offer is null and void and no longer binding on any of the parties. In other words, the clock is ticking – and sometimes the seller doesn’t have a lot of time to decide whether to accept, reject, or send back the offer.
Nonetheless, a great deal is at stake as the property is typically the seller’s most significant investment. By accepting the offer, the seller creates a binding contract between the two parties. As a result, it is imperative that the seller fully understands the fine print before they sign the agreement of purchase and sale.
Confirmation of Co-operation and Representation
Confirmation of Co-operation and Representation or the form Agency Disclosure Acknowledgement is presented to the parties in a real estate transaction before the offer or the agreement of purchase and sale is tabled. The Agency Disclosure Acknowledgement is presented, discussed, and signed by all parties before the offer is addressed.
The Dual Agency Acknowledgement Form is signed in a multiple representation situation, it is crucial that all parties involved in the transaction both understand and accept that multiple representation exists. They must also be fully aware of the brokerage’s responsibility to each client.
An inspection contingency (Home Inspection Report Addendum) gives the buyer the right to have the home inspected within a specified time period, such as 5-7 days. It protects the buyer, who can cancel the contract or negotiate repairs based on the findings of a professional home inspector. An inspector examines the property’s interior and exterior, including the condition of electrical, finish, plumbing, structural and ventilation elements. The inspector furnishes a report to the buyer detailing any issues discovered during the inspection. Depending on the exact terms of the inspection contingency, the buyer can:
- Approve the report and the deal moves forward
- Disapprove the report and back out of the deal (and have earnest money returned)
- Request time for further inspections if something needs a second look
- Request repairs or concession (if the seller agrees, the deal moves forward; if the seller refuses, the buyer can back out of the deal and have his or her earnest money returned)
A cost of repair contingency is sometimes included in addition to the inspection contingency. This specifies a maximum dollar amount for necessary repairs. If the inspection indicates that repairs will cost more than this dollar amount, the buyer can elect to terminate the contract. In many cases, the cost of repair contingency is based on a certain percentage of the sales price, such as 1-2%.
Sale of Buyer’s Home Condition
Although it is generally better to sell first before buying another property, sometimes the market conditions are right to buy before you sell. Home buyers who decide to buy before selling often write a “Sale of Buyer’s Home” condition into the purchase contract, meaning the buyer’s property must sell before the buyer is obligated to complete the transaction.
Because a purchase contract with a “Sale of Buyer’s Home” condition is most often a good deal for a buyer and a riskier solution for a seller, many sellers want a “Sale of Buyer’s Home Schedule” attached to the purchase contract. This schedule (Schedule “A”, “B”, “C”) is a legal document that sellers and buyers can use to address a “Sale of Buyer’s Home” condition and protect the rights of both parties.
Sellers want to know the status of the buyer’s selling process as it could make a difference as to whether the offer is accepted. Obviously, if the buyer’s home is not on the market, the seller might not consider the offer at all because it will give the impression that the buyer is not serious about selling or buying. If there is “Sale of Buyer’s Home Schedule” attached to the purchase contract it stipulate that the buyer’s property be listed or will be listed within 24 hours of acceptance of the purchase contract.
The seller’s property will continue to be marketed and the seller may accept a second conditional purchase contract. If the seller signs a second purchase contract, the seller will give the first buyer notice that a second offer has been accepted. The first buyer will be given a short period of time, to give the seller notice that ALL conditions in the purchase contract are satisfied or waived making it an unconditional purchase contract – the offer is enforceable and will be completed according to its terms. If the first buyer fails to give this notice to the seller within the time limit the purchase contract is ended and the deposits will be returned to the buyer. The first buyer and the seller will have no further obligations or liabilities to each other under the terms of first purchase contract.
If the first buyer fails to give this notice to the seller within the time limit the second offer becomes the only offer on the seller’s property and will proceed according to the terms and conditions of the second offer.