This article assumes that you are working with a Realtor. Realtors use contract forms that have been developed by the Board of Realtors to which they belong. In all counties but Fairfield, the custom and practice is for the buyer to present an offer to purchase by having his Realtor prepare a board-form contract completed with the essential transaction terms. This form, signed only by the buyer, is presented to the seller by the seller’s Realtor. The buyer also makes the required deposit with his agent. (I am using the words “agent” and Realtor interchangeably, which is not strictly true. A Realtor is a licensed agent who belongs to a Board of Realtors.)
[In Fairfield County, the custom is for the buyer to present an abbreviated “Offer to Purchase” form that contains the price and other essential terms, but is not the actual contract. The Offer to Purchase is contingent on the parties reaching agreement on an attorney-prepared contract.]
If the contract form is acceptable to the buyer as presented, it becomes the contract between the buyer and seller upon the buyer’s signed acceptance. More often, there is some negotiation over price and terms, and the contents of the form must be revised to reflect the final agreement.
By law, the seller must provide the buyer with a “Residential Property Condition Disclosure Report”, which is a check-the-box form in which the seller indicates “yes”, “no” or “unknown” to a list of property condition questions. The seller may elect not to provide this form, in which case the seller must, by law, give the buyer a $300 credit at closing. Institutional sellers, such as banks selling foreclosed property, almost always opt for the credit, because they’ve never occupied and have no direct knowledge of the property’s condition.
The board-form contracts serve their purpose. They are even handed, not favoring one party over the other, and they follow standard real estate practice where they are used. Courts have held that agents are not practicing law without a license by completing these forms, including limited drafting of the “Other Conditions” clause, which is a blank space on the form. This is often used to address things like closing cost credits, repairs the seller has agreed to make, delivery of the property free of tenants, etc.
Even though these forms are “boilerplate”, you should understand what you are agreeing to, which is best achieved by a discussion with your attorney. Following are a few essential things to know.
Many forms contain an attorney review contingency, either as part of the body of the contract or as a rider. Typically three or five days is allowed (I’ve never seen anyone use four) for both attorneys to review and accept or reject the contract. Just like in marriage, silence is acquiescence: if the attorney does not object to anything within the specified time, the contract is deemed accepted. Cases have held the attorney does not have to justify his reason for rejecting. As a result, this clause is sometimes used to remedy buyer’s remorse, or seller’s.
Contrary to popular belief, attorneys have no desire to stand in the way of a transaction. For the most part, we get paid at closing. We usually use the opportunity to clarify unclear language or address issues thought of after the contract was signed.
The contract may contain numerous other contingencies for the buyer’s protection, most commonly inspection contingencies (which can be few or many), a mortgage contingency and an appraisal contingency. While these contingencies are for the buyer’s protection, the buyer can easily lose that protection by not keeping track of dates. You must exercise your right to terminate the contract or request an extension of the contingency deadline, or your right to get your money back for a bad inspection, not getting a mortgage, etc. will be lost. Realtors are usually very good at keeping track of these dates, but it’s the buyer’s money at stake, and ultimately the buyer’s responsibility.
Finally, the standard Realtor contract contains a “liquidated damages” clause. This means that the parties agree in advance that damages for breach of contract would be difficult to calculate, and they therefore agree that the exclusive remedy if the buyer breaches the contract is the loss of the deposit. In a transaction with a small deposit, this can work to the advantage of the buyer, who has little to lose by refusing to close without reason, and vice versa when the buyer has put up significant money.