Massachusetts Offer to Purchase

ar123517806003655.jpgIs One Better Than The Other?

The first step in the purchase and sale of real estate in Massachusetts is the execution of an Offer to Purchase. Historically, agents and attorneys have used the Offer to Purchase Real Estate form generated by the Greater Boston Real Estate Board which has been around since the 1960’s. Recently, however, I’ve been seeing an increase in the use of the newer and more modern Massachusetts Association of Realtors Contract to Purchase Real Estate Form #501. I don’t think most Realtors, attorneys and consumers realize that these two forms have some critical differences, depending whether you are representing the buyer or seller. I’m going to outline the differences and similarities in this post.

  MAR GBREB
General Buyer Friendly Seller Friendly
Inspections Built-in, No $ Cap Addendum. Only Serious Issues, $ Cap
Mortgage Contingency Yes Yes
Representations Yes with waiver language No.

 

Buyer or Seller Friendly?

Both the MAR and GBREB offer forms are legally binding contracts to purchase and sale residential property in Massachusetts as I’ve written about here. They both have the basic and critical components for a deal:  identification of the property, price, deposits, good-through date, closing date, “good and clear record and marketable title” language, and P&S deadline, among other provisions.

The GBREB is clearly a more seller-friendly form, while the MAR form is definitely more friendly to buyers with some caveats that I’ll discuss below. Does this mean that if you are a buyer agent, you absolutely have to use the MAR form? No, but it may be a good practice to get into. Some agents are more comfortable with the older GBREB form, and that’s fine. They just should be cognizant of the differences in the two forms and how it may help or hurt their clients.

Inspection Contingencies

The first critical difference in the two forms is the inspection contingency. The MAR form has all inspection related contingencies (home inspection, pest, radon, lead paint, septic, water quality and drainage) built into the form, while the GBREB form uses a separate addendum for each type of inspection. The major difference, however, is what will trigger the buyer’s right to terminate the deal based on an inspection issue. The MAR form is extremely buyer-friendly, providing that the buyer may opt out of the deal merely if any of the inspection results are “not satisfactory.” You can drive a Mack truck through that open-ended language. The MAR form also has some often overlooked waiver language — (1) protecting Realtors from getting sued if the buyer does not conduct inspections, and (2) making it more difficult for a buyer to get out of the deal if she doesn’t provide timely notice of termination based on an inspection issue.

The GBREB form is far less buyer favorable, providing for an opt-out only for “serious structural, mechanical or other defects” the cost to repair of which is a dollar amount to be filled in (usually ranging from $500-$2500).

Mortgage Contingency

Both the MAR and GBREB forms give buyers a standard financing contingency, enabling buyers to obtain a firm loan commitment at “prevailing rates, terms and conditions” by an agreed upon date. The contingency language is almost identical in both forms, so there’s no issue here.

Representations/Acknowledgements

The MAR form has a modern provision confirming that the buyer has received all the various disclosures required by law, including the agency disclosure, laid paint, and Home Inspectors Facts for Consumers brochure. The GBREB does not have this provision. The MAR form also has some very agent-friendly waiver of representation/warranty language in this clause, providing that the buyer is not relying upon any of the Realtor’s representations, MLS or advertisting concerning the legal use, zoning, number of units/rooms, building/sanitary code status of the premises. However, I’m not sure this provision would pass legal muster in light of the recent SJC ruling in DeWolfe v. Hingham Centre holding an agent liable for misrepresentations concerning the zoning classification of property. Nevertheless, Realtors can use all the legal protection they can get in this litigious environment!

 Which Form Is Better?

There is no easy answer to this question. All things being equal, if I’m a buyer agent, I would go with the MAR form. (And buyer agents are typically the ones who are writing up the offers). The MAR form is more buyer-friendly while at the same time gives Realtors way more legal protection than the GBREB form. If I’m representing the seller and have the opportunity to select the offer form, I’ll go with the old-standby GBREB form for the simple reason that it will give the seller some more leverage in case of a home inspection battle. But I would still seriously consider trading up to the MAR form. I’ve embedded both forms below.

Agents, attorneys, readers what are your thoughts? Post in the comments below.

Also, if you are interested in joining the Massachusetts Association of Realtors or the Greater Boston Association of Realtors, click on the respective links. Both are great organizations and extremely helpful to new and established agents alike!

501 – Contract to Purchase Real Estate (c) 2012 – ID-WATERMARK

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Update (6/10/13): Battle of the Forms! Mass. Ass’n of Realtors vs. Greater Boston Bd. of Realtors Standard Form Offers

Update (10/3/15) New TRID Addendum

The Standard Massachusetts Offer To Purchase

The first step in purchasing or selling Massachusetts residential real estate is the presentation and acceptance of an Offer To Purchase. Most often, the buyers’ real estate broker prepares the offer to purchase on a pre-printed Greater Boston Real Estate Board standard form and presents it to the seller for review, modification, and acceptance. Attorneys are often not involved in the offer stage. However, in light of the legal significance of a signed offer and recent litigation over offers, buyers (and their brokers) and sellers may be wise to consult an attorney to review the offer.

An Accepted & Signed Offer Is A Binding Contract

Many sellers (and their brokers) are under the misconception that the offer to purchase is merely a formality, and that a binding contract is formed only when the parties sign the more extensive purchase and sale agreement. This is not true. Under established Massachusetts case law, a signed standard form offer to purchase is a binding and enforceable contract to sell real estate even if the offer is subject to the signing of a more comprehensive purchase and sale agreement. So if a seller signs and accepts an offer and later gets a better deal, I wouldn’t advise the seller to attempt to walk away from the original deal. Armed with a signed offer, buyers can sue for specific performance, and record a “lis pendens,” or notice of claim, in the registry of deeds against the property which will effectively prevent its sale until the litigation is resolved. I’ve handled many of these types of cases, and buyers definitely have the upper hand given the current state of the law.

There have also been recent court rulings holding that both email and text may constitute an enforceable contract even where no formal offer has been signed by both parties.

In some cases, the seller may not desire to be contractually bound by the acceptance of an offer to purchase while their property is taken off the market. In that case, safe harbor language can be drafted to specify the limited nature of the obligations created by the accepted offer. This is rather unusual, however, in residential transactions.

Home Inspection & Mortgage Contingencies

With the offer to purchase, I always advise buyers and their brokers to use a standard form addendum to address such contingencies as mortgage financing, home inspection, radon, lead paint, and pests. The home inspection and related tests are typically completed before the purchase and sale agreement is signed and any inspection issues are dealt with in the purchase and sale agreement. If they are not, there is an inspection contingency added to the P&S. See my post on purchase and sales agreements for that discussion.

The mortgage contingency is likewise critical. With mortgage loans harder to underwrite and approve, we are seeing loan commitment deadlines extended out for at least 30-45 days from the signing of the purchase and sale agreement. Always consult your mortgage lender before making an offer to see how much time they will need to process and approval your loan. The loan commitment deadline is one, if not the most, important deadlines in the contract documents.

In order to help finance the acquisition of said premises, the BUYER shall apply for a conven­tional bank or other institutional mortgage loan of $[proposed loan amount] at prevailing rates, terms and conditions.  If despite the BUYER’S diligent efforts, a commitment for such a loan cannot be obtained on or before [30-45 days from signing of purchase-sale agreement], the BUYER may terminate this agreement by written notice to the SELLER in accordance with the term of the rider, prior to the expiration of such time, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreements shall be void without recourse to the parties hereto.  In no event will the BUYER be deemed to have used diligent efforts to obtain such commitment unless the BUYER submits a complete mortgage loan application conforming to the foregoing provisions on or before [2-5 business days from signing of purchase and sale agreement].

Any time the parties agree to an extension of any deadline in the offer (and the purchase and sale agreement for that matter) make sure it’s in writing.

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RDV-profile-picture.jpgRichard D. Vetstein, Esq. is an experienced Massachusetts real estate closing and conveyancing attorney and former outside counsel to a national title insurance company. Please contact him if you need legal assistance with your Massachusetts real estate transaction.

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