Since you’re reading this, chances are you’re in one of two camps: either you want to buy a new home or you want to sell one.
Either way, you need to sort out all the necessary legal documents to ensure that everything goes smoothly. Home purchases involve a lot of planning and thought, not to mention replete with many potential problems. And you want to make sure that all your bases are covered, especially when you’re buying or selling a house in Massachusetts.
Whether you’re a buyer or a seller, you may have a million questions concerning the purchase and selling of the property. A home is a big responsibility, and you don’t want to put yourself in a situation where you’re getting the short end of the stick. For all intents and purposes, you want the deal to be mutually beneficial for both parties.
So, let’s get to it. One important document you need to bear in mind when buying or selling a house in Massachusetts is a legal document called the Purchase & Sale Agreement (P&S).
What is a purchase and sale agreement?
The Purchase and Sale Agreement is a legally binding document that lays out the terms of a home purchase.
It’s quite simple. You want to buy a property, so you speak or negotiate with the property owner about the price and terms, and once a mutual agreement on all counts is established, you make the deal. Of course, you don’t just do it verbally. For the agreement to become legally binding, a legal contract is required. This legal contract is called the purchase and sales agreement, sometimes called an agreement of sale.
The purchase and sale agreement has to be detailed enough so that the terms of the contract are clear. The terms must be structured in a way that’s mutually beneficial for both parties, ensuring that both will fulfill their ends of the bargain.
But before a P&S can be brought to the table, the buyer needs to issue an Offer to Purchase or OTP first (see sample form here). Once all terms are agreed upon, both parties can proceed with working out a P&S, which, once approved, will override the OTP.
Before we go any further, here’s a friendly advice: Don’t ever sign that dotted line without consulting a lawyer first. A professional attorney knows everything there is to know about P&S documents, and can explain to you in plain English anything that’s giving you pause.
Okay, let’s face it: Understanding what’s written on a Purchase and Sale Agreement can be confusing for most, but it’s actually quite simple once you gain a bit of familiarity about its overall structure.
As to that, we got you covered.
What’s in the purchase and sale agreement?
For a contract to be legally binding, it needs details from both parties. The same goes with a Purchase and Sale Agreement.
Here are what’s included in a P&S.
- Names of both parties
- Pertinent information about the property (taken from the current deed)
- Price of the property
- Mortgage commitment date (if the buyer is taking out a loan)
- Closing date
- Other properties included in the sale
- Seller credits
It goes without saying, but the purchase and sales agreement must be detailed as much as possible, and must include all information that may have bearing on the home’s overall value.
It is for this reason why the seller must invite the buyer, with the help of a professional inspector, to conduct an inspection of the property. If major defects that haven’t been disclosed by the seller are found by the buyer following the purchase, the buyer may hold the right to renegotiate or cancel the contract.
Title and Deed
Since the purchase and sale agreement lays out the terms concerning the title and the deed, you need to recognize the subtle differences between the two before you proceed. That said, going over these terms is necessary even if you can tell the difference.
One important thing to remember is that any property owner has both a title and a deed in his or her possession.
Here’s the difference between the two:
The title is a legal document stating you are the property owner, and as such have the incumbent legal rights attached to that ownership. As the property’s legal owner, you have legal access to the land and therefore, with the necessary permits, have the right to make changes or modifications to it. Being the legal owner also entitles you to transfer a portion of the property or interest to others.
The deed, meanwhile, is a legal document showing that the title is being transferred from one person to another. In other words, it’s a document proving that a sale has been made. The deed is also otherwise known as the vehicle of the property interest transfer. In many states, the deed has to be recorded and signed in the courthouse or Assessor’s Office (or an equivalent) to be legally binding.
It bears noting that the new owner will inherit any outstanding lease or lien once the deed is finalized and signed. Also, to protect the buyer, the seller is under obligation to convey “good clear and marketable” title before transferring the ownership of the property to him or her.
What are the seller’s responsibilities?
The sales and purchase agreement puts in writing the terms agreed upon by both the seller and the buyer, and by its nature comes with responsibilities. Once the document has been signed, both parties are under obligation to follow through.
The seller, in particular, has a responsibility to obtain a title insurance policy, to secure the maintenance of the insurance and the upkeep until the closing. A title insurance policy essentially protects the buyer from potential loss if something goes wrong with the title transfer. Title insurance policy is a one-time fee typically paid within the closing agreement and costs between a few hundred dollars to a couple of thousand dollars.
The seller also has a responsibility to pay escrow service fees. Having an escrow in place is important, especially in deals involving a huge amount of money, because it transfers jurisdiction to a neutral third party. This neutral third party will then oversee the funding and the transfer of documents tied to the transaction, ensuring that both the buyer and the seller are meeting their obligations as stated in the contract.
Overall, sellers are under obligation to:
- Obtain a title insurance policy
- Pay escrow service fees
- Pay notary fees
- Obtain a smoke and carbon monoxide certificate
- Pay county transfer taxes
- Pay for the drafting of the deed
- Pay the broker’s commission
- Pay for the drawing/recording of the reconveyance deed
- Obtain a 6(d) certificate for a condominium
What are the buyer’s responsibilities?
The buyer’s responsibilities include:
- Paying escrow fees
- Paying notary fees
- Paying deed recording fees
- Buy an owner’s title insurance (as required in Massachusetts)
How to Write a Purchase and Sale Agreement
Now that you’re more familiar with what a purchase and sale agreement is, you’re probably wondering: who writes the P&S agreement anyway?
Traditionally, the legal document is drafted by the seller’s attorney or an Escrow agent who oversees the closing process.
That said, if you’re selling your own property, it’s perfectly fine that you draft the P&S yourself. Just make sure to hire an attorney to look over it for you once you’re done.
So without further ado, here are the steps to writing a purchase and sale agreement.
1. Outline and format the document
You want to make sure that the document is leaving no stone unturned, and making an outline is a good way to ensure that doesn’t happen. Refer to the items enumerated in the “What’s in a Purchase and Sale Agreement” section on this article and make sure that you include them all as you draft your outline.
Moreover, the legal document must be in a legible font. Times New Roman 12 is the standard form used for formal documents. It’s way better than Calibri, for starters.
More importantly, make sure that you save the file into your hard drive or cloud storage. There’s always the probability that you’ll need to issue another one in the future.
2. Write the title
Insert the title at the top of the page, right at the center. Write the title as “Purchase and Sale Agreement, or “Agreement to Purchase Real Estate,” or simply “Purchase Agreement.”
3. Insert the buyer and the seller
Identity the buyer and the seller. You can insert the following paragraph:
“<Name of the seller> of <complete address>, does hereby sell, assign and transfer to <name of buyer>, of <buyer’s original home address>, the following property:
4. Include the property’s legal description
Provide a detailed description of the property, as it was written on the deed. It must include the legal boundaries of the property, as well as the county and state, and an accurate description of property lines. To obtain a copy of the deed, visit the Recorder of Deeds office at your county or city.
5. Specify the agreed-upon purchase price
What’s the purchase price? Also, specify that the buyer must pay the remaining balance before closing once the downpayment is credited.
6. Specify any earnest money that has been deposited
Include the exact amount of earnest money deposited by the buyer. Earnest money is the amount paid by the buyer to prove to the seller that he’s committed to fulfilling his end of the bargain on the financial side. To put it simply, paying earnest money kickstart the funding process.
If no money has been deposited yet, you can include a clause specifying the amount of earnest money to be deposited as well as the deadline for its payment.
Sample statement: “Earnest or deposit money amounting to [total amount] shall be paid to [insert name of Seller] of [insert complete address], in the form of a check or money order. Buyer shall pay the amount no later than 5:30 pm, five (5) business days after the seller’s acceptance of the agreement.”
It’s also advisable to mention that the earnest money will be credited against the remaining balance, as well as their exact amounts.
7. Lay out the source of financing
Specifying the buyer’s source of financing is critical because it shows proof that he or she is capable of meeting his or her financial obligations. You also need to describe the payment plan (Cash, Bank Draft, Paypal, Electronic Transfer, etc.), or identify the type of loan (if the purchaser is paying by loan). The buyer can also provide a verification letter confirming the availability of funds.
8. Describe the items included in the sale
If a buyer wants to purchase some items inside the home and the seller agreed to sell them, each must be included in the legal document. The seller can provide each item with a physical description, as well as specify the amount being sold.
On the other side of the spectrum, if the seller expressly wants to take some items with him or her, he or she can include them in the document.
9. Specify who will be paying the taxes
The question on who pays the taxes is always a contentious issue when the property is being transferred from seller to buyer. To avoid any potential disputes, identify and explain who will be paying the taxes, as well as how this affects the payment plan.
10. Draft a record of transactions that need to get paid
You must list any closing costs that need to be paid by both parties. Typically, the buyer has to settle the association transfer fees, loan expenses, insurance fees, deed of trust recording fees, to name a few. The seller, on the other hand, is obligated to settle outstanding loans and liens on the property before the closing date.
11. Lay out the home inspection process
Most home purchases now require that a home inspection be carried out. This is to ensure that both the buyer and the seller are protected from any loophole that may arise throughout the transaction. As such, the seller can include a clause stating that an inspection of the premises (preferably with the assistance of a professional home inspector) has been recommended. You also need to specify that the buyer has the option to default if the inspection proves to be unsatisfactory.
12. Describe the general warranty deed
A warranty deed is a type of deed confirming that the seller is the rightful owner of the property being sold, thus giving him or her the right to transfer the title to another. This section shall indicate that the buyer has the right to sue if the statement turns out to be false.
13. Include a Risk of Loss clause
What happens if the property is damaged due to unforeseen circumstances (say, a house fire) before the close of the transaction? It must be stated in the legal document that the seller must bear the responsibility if such a thing occurs.
14. Throw in a dispute resolution clause
Any dispute on the home purchase can be disadvantageous to both parties. In such cases, hiring a private mediator can be beneficial for both parties since the mediator is the neutral party that handles any conflict resolution if it’s required. It’s particularly advantageous because it settles disputes outside the court and involves attorneys who will be more invested in the case.
15. Include a statement confirming that the seller agrees to the contract
This is the important part: the document needs to explicitly state that the seller agrees to all terms and conditions specified in the manuscript. It goes without saying but a signature line must be inserted below the statement.
Writing a legal document can be difficult. After all, not everybody can speak or write legalese. Thankfully, there’s a ton of Sale & Purchase Agreement templates out there you can use, including the ones provided by LegalTemplates.com or AaronHall.com.
If you’re the seller, it’s only right that you lay all the cards on the table. After all, it’s unethical to withhold property information that may impact the home’s value and the buyer’s safety. It’s for this reason that most states have ruled it illegal for a seller not to disclose any defects with the property, especially those that can compromise the new homeowner’s safety. In fact, it’s advised that sellers conduct inspections themselves before selling the property to ensure that there are no known defects that haven’t been accounted for.
Massachusetts, in particular, requires the seller to disclose only two types of disclosures. This is why Massachusetts is often referred to as a caveat emptor, or a “buyer beware” state. As such, it’s recommended that the buyer perform a home inspection to check for any issues that may negatively impact his finances or quality of living once he’s settled in.
According to Massachusetts law, the seller is required to disclose only two things: the presence of lead paint and the existence of a septic system.
With that said, a buyer can make a request for the seller to add disclosures on other home fixtures, such as the well, underground storage tanks, asbestos, just to name a few.
For the purposes of this article, let’s go over the two types of disclosures sellers are required to provide buyers as stated by Massachusetts law.
Lead Paint Disclosure
If you’re selling a home built before 1978, chances are it has lead-based paint. Lead is a substance that was often used as a base in paint. The problem with lead is that it’s a corrosive substance that poses health risks to those who are exposed to it. As with most states, Massachusetts has a law stating the home seller’s responsibility to include an addendum confirming the presence of lead-based paint in the home before selling it to a potential buyer.
There are many ways for a seller to confirm the presence of lead inside or outside his home. A popular method is using lead paint test kits, which are typically purchased in bulk to ensure that all areas that potentially contain lead are checked.
Septic System Disclosure
Title 5 of the Massachusetts State Environmental Code requires sellers to disclose the presence of a septic system at his home to buyers. The statute specifically requires that the septic system be inspected not more than two years before the sale. The inspection must be conducted by a licensed inspector, and the results of that inspection must be included in the disclosure.
It bears noting that while sellers are required to disclose the presence of a septic system, Massachusetts law doesn’t require them to fix any issues the system may have. However, there will be buyers who will request home sellers to bring the system into compliance before they agree to purchase.
Other Disclosures Massachusetts Sellers Are Required to Make
Most prospective buyers will want to make sure that the home they’re about to purchase is a good investment. They don’t want unpleasant surprises, and it falls on the seller’s shoulders to give them the assurance that they’re getting their money’s worth.
While Massachusetts law doesn’t require much in the way of disclosures (except for the ones mentioned above), it’s still considered good practice for every seller to provide a disclosure on the following:
Most states (Massachusetts not included), require sellers to provide the buyer with information about the presence and condition of all wells on the property being sold. This applies to all wells, whether the well is in good condition, abandoned, or unused. This law has been passed to ensure that new homeowners are protected from possible contamination.
Here are other disclosures you can include in your P&S Agreement:
- Pest damage
- Paranormal activity
- Personal interest
- Drainage system
- Radon gas
- “Emotional defects” (past occurrence of suicide, murder, or violent crime in the home)