FIVE BUYING TIPS FOR AN OFFER TO PURCHASE

Many individuals initially seek to purchase a home without consulting an attorney in the early stages of the process.  There are many factors which may influence their decision; among the many factors are money and time.  The current recession has left John and Jane Doe with less disposable income to spend on the purchase of their new home and cutting the lawyer out of the picture may be an attractive way to conserve more dollars for closing costs (and that stainless steel refrigerator).  The truth of the matter is that hiring a lawyer for a routine purchase transaction can cost as little as $500.00, including legal representation from the time of the signing of the Offer to Purchase up to and including the closing.

Many times Buyers are unrepresented at the time of the signing of the Offer to Purchase simply because of the immediate and pressing time demands of securing a ‘hot’ property before some other prospective Buyer swoops in.  These circumstances are difficult, but may be navigated by a layman by applying my FIVE BUYING TIPS FOR AN OFFER TO PURCHASE:

1.                  ALWAYS READ THE OFFER TO PURCHASE.  This may sound silly, but actually read the Offer to Purchase.  The Offer to Purchase is normally a one page document written in plain English.  All of the terms and conditions of the contract are set forth: parties; time; place; price; property to be sold; and, other additional terms and conditions.  Take your time and read it twice.  Make sure to include any additional terms and conditions as the parties may agree (closing cost credits, personal property, lawn furniture, pool equipment, repairs, etc…).  Try to memorialize any verbal promises or statements of condition made by the Broker or Seller.  You must understand the contract and your obligations prior to signing the Offer.  An Offer to Purchase is a very dangerous contract because it may be legally construed as a full-blown Purchase and Sale Agreement.

2.                  ALWAYS MAKE THE OFFER CONTINGENT UPON A HOME INSPECTION AND SIGNING OF A PURCHASE AND SALE AGREEMENT.  Most standard form Offers to Purchase include a contingency that the property be inspected by the Buyer to his satisfaction.  Some other inspections may include pest and insect inspections, a mortgage contingency clause and radon.  Be clear which inspections you will be conducting and have them stated in the Offer to Purchase.  I strongly suggest that the Offer state that ‘any and all inspections shall not require the Buyer to expend more than $500.00 in costs for repair or remediation.’  In addition, I suggest that an added contingency should be that all parties execute a Purchase and Sale Agreement prior to the expiration date of the Offer to Purchase.  This provides an added protection to secure the Buyer’s deposit monies in the event that a dispute arises regarding the condition of the property which doesn’t necessarily fit the contingencies mentioned herein.

3.                  REASONABLY ANTICIPATE YOUR TIMELINE AND DEADLINES.  This is probably the biggest issue subject to disputes today.  The dates agreed upon in the Offer to Purchase may be binding dates for the Purchase and Sale Agreement.  The lending process sometimes takes longer than what you may have been initially promised.  Banks and lenders scrutinize loan applications, request supplemental information, conduct verification of employment and obtain IRS wage reporting information. Delays may occur in scheduling necessary inspections. Payoffs, smoke certificates, Municipal Lien Certificates, proof of insurance and 6(D) Certificates may be delayed.  In the event that your file is mishandled or a discrepancy was discovered late in the process, you may be looking at requesting an extension of the closing date.  Extensions are costly and may be a very difficult issue to negotiate, especially if the property is a short sale or a ‘piggy-back’ sale for the Seller.  Always communicate with your broker and lender, confirm and reconfirm their time estimates before you put ink to the page.  I recommend a closing date approximately 45 days from the date of the signing of the Purchase and Sale Agreement or 60 days from the submission of the Offer to Purchase.

4.                  KNOW YOUR DAMAGES.  Sometimes the property may be everything you thought it was however, you may simply change your mind after the home inspection.  Sometimes unforeseen circumstances surface – neighborhood crime, job relocation, or accident.  In which case, you may have to withdraw or terminate the contract.  You must know the consequences of your breach in the event you may choose to exercise this option.  In most cases, a buyer’s breach of the agreement may simply result in the loss of deposit.  However, be very weary of vague language which may enable the Seller to sue you for the value of the breach – which could mean the entire purchase price.  This may be rare however; the cases are in the books to prove that it happens. I recommend inserting language in the Offer to Purchase that states ‘any breach of the agreement by the Buyer shall result in the termination of the Offer and forfeiture of the Buyer’s deposit and that shall be the sole and exclusive remedy of the Seller at law.’

5.                  DON’T FORGET TO GET A PHOTOCOPY OF YOUR DOCUMENTS.  This includes the Offer to Purchase, Disclosures, Contingency Addendum and deposit funds (check).  You will most likely need to supply some or all of these documents to your lender.  In addition, you will often need to have the documents in front of you when discussing the transaction with your agent prior to signing the Purchase and Sale Agreement.  Don’t allow yourself to be placed in a position where you risk making a very important decision without being able to personally reference your contract documents.

- Jonathan J. Moriarty, Esq.

 For more information I suggest reading:  http://money.cnn.com/magazines/moneymag/money101/lesson8/