5 Critical Mistakes to Avoid When Buying and Selling a Home in Massachusetts
The purchase or sale of real estate is one of the largest financial transactions that you may make in your life. Understanding the legal process of buying or selling real estate in Massachusetts is essential in order to make sure that the real estate transaction runs smoothly.
Failing to Include Important Terms in the OfferOnce you have found the right property for your needs, you will be asked to sign an 'offer to purchase' form. When presenting the offer you will also provide a "good faith" deposit to the seller to be held in escrow by the seller's agent. The amount of the deposit varies and can run from $500 to 3 - 5 % of the purchase price. The lower amount of the good faith deposit the less risk the buyer has if they end up backing out of the offer stage without cause. In which case, the seller may be entitled to the deposit. If the offer is accepted and the buyer proceeds then the good faith deposit amount will be credited to the purchase price at the time of closing.
When a prospective buyer expresses intention to buy your property, they should provide a signed, written document outlining the terms of the offer. The written offer should be accompanied with a good faith deposit as mentioned earlier. If you accept the offer, the process moves to the next stage, and the good faith deposit should be held in escrow by the seller's agent or attorney. However, if you are not satisfied with the terms of the offer, you can edit the terms, effectively making a counter offer. If you do not accept the offer, or make a counter offer, you are legally bound to return the deposit back to the buyer.
Once again, when signing an offer to purchase, it is important to understand the terms and conditions and get them reviewed by an attorney if not understood. This is especially important if you are not working with a real estate agent.
When signing an 'offer to purchase' form, the following points should be kept in mind:
- Any time after signing the offer, if the buyer decides to back out of the transaction without cause, the buyer may forfeit the deposited amount.
- The 'offer to purchase' form should identify the names of the buyer and seller, and the deposited amount.
- It should also identify the property location by street address, and preferably by reference to the book and page number of the seller's deed.
- It should mention the date on which the offer to purchase will expire and that the deposited amount will be returned to the interested buyer.
- It should also mention the conditions (or contingencies) that must be fulfilled before proceeding to the Purchase and Sale agreement such as property inspection, repairs and renovation, financing, certifications required, etc.
- There should be a provision stating that the Purchase and Sale agreement will be approved on the terms set by the buyer's attorney.
- Any other verbal understanding of terms with the seller should be documented in the 'offer to purchase' form to make it enforceable.
The 'offer to purchase' form used in Massachusetts is shorter and less comprehensive than the 'offer to purchase' form used in other states. Two types of forms are most commonly used in Massachusetts, one created by the Massachusetts Association of REALTORS(R) and the other by the Greater Boston Real Estate Board. However, your real estate agent may have their own form as well. The most important point to remember is that the offer should contain terms that are material to the transaction.
Failing to Include ContingenciesThe next step is signing a 'Purchase and Sale Agreement'. It is a more detailed document than the 'offer to purchase' form. In Massachusetts, for a real estate contract or agreement to be enforceable in the court, it must be in writing and signed by the buyers and by the sellers.
Once signed, it replaces the purchase offer; therefore, it is important to add all the clauses and terms that were a part of the 'offer to purchase' document. More often than not the Purchase and Sale agreement will require the buyer to provide an additional deposit if the entire deposit was not provided with the offer to purchase.
At this point, both the seller and buyer have made a substantial legal and financial commitment to each other. It is very important that they fully understand their obligations before signing the agreement. This is where I always recommend legal counsel, if legal counsel has not yet been retained to assist with the legal aspects of the transaction.
Customarily, it is the responsibility of the seller to provide a Purchase and Sale Agreement to the buyer for signature. Your real estate agent can assist you with completing a standard form agreement. However, if the details of the transaction require special terms you should retain a real estate attorney to assist with drafting a more comprehensive agreement.
Because the Purchase and Sale Agreement may contain several contingency terms that allow the parties to withdraw from the process without any penalty, you should be certain the agreement protects your interest.
The Purchase and Sale agreement also contains contingency clauses regarding mortgage financing and inspection processes. These clauses allow the buyer to withdraw from the transaction without facing any penalty under certain circumstances.
The most common contingency clause is related to mortgage financing. If the buyer fails to obtain financing for purchasing the property, they can get out of the deal without the fear of losing the deposited amount. Other contingency clauses are related to property inspection and repairs. Typically, in Massachusetts, these contingency clauses lapse anywhere from 7-20 days, or even longer if all the parties involved in the process agree.
The seller may also include contingency clauses in the agreement. An example of such a clause would be a home purchase contingency. In which case, the seller's performance under the contract, would be contingent upon the seller locating a new home to purchase. It is important that the contingency is for the actual closing of the new home, and not simply contingent upon having executed a purchase contract with the seller. The most important point to remember is that purchase and sale agreement should contain all of the necessary contingency clauses to protect your interest, as buyer or seller.
Failing to Conduct a Final Walkthrough or Failing to VacateThe closing marks the completion of the transaction. The date of closing is specified on the Purchase and Sale agreement. By that date, all contingency clauses should have been satisfied in order to ensure a successful and timely closing of the transaction. The buyer's attorney, or the attorney for the buyer's mortgage lender ("Closing Attorney") should ensure that title examination has been completed by this date. The Closing Attorney is also responsible for coordinating the logistics of the actual closing between the seller and buyer, and their agents.
At the closing, the buyer will execute the required financing and mortgage documents and disclosures (e.g. note, mortgage, federal loan disclosures). The seller will also sign many of the same disclosures, as well as the deed and other title documents and affidavits. Both seller and buyer will execute a settlement statement and or a Closing Disclosure. The settlement statement gives a detailed accounting of all funds paid and received as part of the transaction. Any of the parties signing documents should bring their driver's license or other photo ID for identification purpose. The closing is where the seller delivers the deed and receives the proceeds from the sale, and where the buyer receives access (keys and remotes) and legal title to the property.
Conduct a Walkthrough
Depending on the terms and conditions of the Purchase and Sale Agreement, the buyer is given an opportunity to have a walkthrough the property just prior to closing. The purpose of the walkthrough is to make sure that the property is in the same condition in which the buyer agreed to buy it. Essentially, the seller is obligated to deliver the property in the same condition it was in, during the buyer's home inspection, absent from some other written agreement or reasonable wear and tear. The walkthrough is not an opportunity for the buyer to re-inspect the property. However, if there are issues with the condition of the property, the issues should be resolved before attending the closing.
Vacating the Premises
Commonly, when signing the purchase and sale agreement the seller agrees to vacate the property and deliver access to the buyer on a specific date. It is important to understand the timing of this is critical to the buyer. Often, this is not as critical to the seller, unfortunately, and does not entitle the seller to not vacate as agreed. If the seller does not vacate and deliver possession as agreed, it constitutes a breach of contract.
Unless other arrangements or understanding has been made and agreed upon in writing, a seller is contractually obligated to vacate the property by the date of closing. This means that the seller must be completely moved out along with all of their personal property. So it is wise to plan in advance where you will relocate after you close on the sale. The most important point to remember is that failing to vacate the property as agreed will result in much turmoil for both the buyer and seller.
Failing to Hire an AttorneyMassachusetts real estate transactions demand considerable involvement of an attorney. Real estate attorneys are involved in the drafting and negotiation of the Purchase and Sale agreement, deeds, mortgages and other important legal documents. More often than not a formal real estate closing will be conducted by an attorney. In Massachusetts, attorney participation is mandatory for all transactions being financed with a consumer purchase money mortgage of a one to four family residential dwelling. Massachusetts consumer protection law mandates that the lender's attorney provide the consumer with an "Attorney's Certification of Title". The certification states that the buyer holds "good and sufficient record title to the mortgaged premises free from all encumbrances" except only those matters listed in the Certification.
In addition to this, in Massachusetts, attorneys perform several other functions such as conducting a title search, preparing all the closing documents, handling financial aspects of the real estate transaction, and recording all transfer documents in the registry of deeds for the respective county.
Not having the counsel of an attorney in the process can result in a situation where either the buyer or seller, or both, suffer significant financial or legal loss. The most important point to remember is that the cost of legal counsel will always be far less than the potential loss.
Failing to Hire a Real Estate AgentThe Listing (Seller's) Agent
Massachusetts has no legal requirement to use the services of a real estate broker, or to retain legal counsel when selling your property. However, selling a property is a complex process and requires the parties to abide by certain state and federal laws, municipal regulations and local customs. Therefore, it is always best to work with an experienced real estate attorney or real estate broker to understand the requirements of selling real estate in Massachusetts.
Most sellers opt to retain the services of real estate broker to gain enhanced exposure to buyers and make a faster sale. But more important than marketing exposure is setting the correct price. A qualified and skilled real estate broker can make a substantial difference in the bottom line proceeds. I have had many clients forgo the services of a broker, and believe that they could price their property on their own based on hasty and inaccurate internet research. Over pricing can be just as bad as underpricing. A buyer's mortgage lender may refuse to write a mortgage for the buyer if they believe that the property is over-valued. So it is important to have a qualified agent on your side to fairly price the property. Most sellers working without the aid of an agent end up losing precious time and money, and settling for unfavorable terms.
Often sellers working without an agent are led astray by cooperating with unqualified buyers. Not everyone who views your home is actively interested in buying it in the near future. Showing your home may mean taking time off work or away from activities you care about, and if the prospect doesn't end up buying, you've wasted your time. A real estate agent knows what questions to ask in order to weed out the merely curious and find motivated buyers, so you'll sell your home much faster.
For Sale By Owner (FSBO) sales don't always end in disaster, but they're considerably difficult to do well. An experienced real estate agent can help you sell your home faster and for more money than you can on your own.
Working with a broker requires signing a contract. It is important to understand the terms of the contract. Be sure to review your broker's contract for any clause on exclusive listing, which legally binds you to work with only that particular broker for the duration of the contract, and if you succeed in selling your property in some other way, then the broker can claim their commission on the sale. Also, read the terms related to commission and make sure that the broker is entitled to commission only if the sale actually goes through.
It is important to understand the difference between a Real State Salesperson (or real estate agent) and Real Estate Broker. They are not one in the same. A real estate agent is an individual licensed to sell real estate. A real estate agent works under the supervision of a licensed real estate broker. A broker has more responsibility and training, and is usually more experienced than an agent. Some real estate agents are actually licensed brokers as well. The listing agreement will always be a contract between the seller and the broker.
You will have greater piece of mind working wit