Webinar Recap: Agreement of Sale Refresher

PAR’s Legal Team hosted a webinar, “Agreement of Sale Refresher,” which focused on hot topics in our most-used form, the Standard Agreement for the Sale of Real Estate (Form ASR). From deposits to possession, mortgage contingency to inspection contingency, it was a great refresher for all attendees. 

Deposits 

It’s important to pay attention to the default language of the deposits paragraph, especially paragraph 2(C), which has a lot of default language about how deposits will be paid and who will hold them. The parties can absolutely agree to handle things differently from the default language, but the brokers need to amend the language of this paragraph to make sure that the contract reflects how the money will actually be handled. For example, the default language says that deposits will be held by the Broker for Seller. If the parties agree, those funds will be held by the buyer broker or an attorney, that needs to be filled in so there’s no discrepancy. And remember that if escrow monies are to be held by a third-party (an attorney or title company, for example), it’s important to have a signed escrow agreement with that third-party that explains how the money will be held and released. 

Possession 

Questions about the sale of tenant-occupied properties have been a hot topic recently. For starters, it’s extremely important to make sure the seller notifies the buyer (in writing) of existing leases, since paragraph 4(G) states that the property will be vacant at closing unless the seller has identified that it is subject to a lease. A great way to do this is with the Tenant Occupied Property Addendum (Form TOP). This form also gives the buyer a time period to review the leases and terminate if there are terms and conditions they find unacceptable (for example, if they want a vacant property but realize the leases just renewed, they may no longer want the property).  

When a property has tenants, the parties should have a thorough discussion about their expectations for the tenancy. For example, does the buyer expect that the tenants would still be in place at closing, or do they expect the property to be vacant? If they expect the property to be vacant, is it a deal-breaker if the tenant holds over and is still there? Questions about removing a tenant during the course of a sale get into some thorny questions of contract and landlord-tenant law, so one or both parties should probably consult a local attorney early in the transaction to understand their options if the tenant doesn’t behave as expected. 

Personal Property and Fixtures 

The importance of paying attention to paragraph 7 and personal property and fixtures was impressed upon attendees. Though it may look like a lot of standard boilerplate language, agents should be reading every word of this paragraph with every client for every offer they write or receive. If there is some item on the property that falls into any sort of gray area, just write in the contract whether a party wants it to stay or go. Given the number of disputes over possessions, it’s always better to be safe than sorry. 

As a reminder, the Agreement of Sale asks sellers to identify leased items (such as propane tanks, solar panels or security systems), but does not have a contingency that allows for buyers to review the leases and potentially terminate or ask for concessions if they find lease terms to be unacceptable. When representing a buyer, it may be a good idea to ask for those leases prior to making an offer. When representing a seller, it could be helpful to have the leases available as early as possible in the transaction to avoid contract problems later down the line.  

Finally, remember that the agreement of sale is a self-contained document that doesn’t rely on anything that may have been said or done elsewhere. Specifically, nothing from the MLS can be relied on here. If the MLS says that the seller is offering to sell “with appliances” but the appliances are not written into the agreement of sale, then the contract between the parties doesn’t include appliances. That’s why it’s important to review every contract with every client and write in (or cross out) every item that the parties need to negotiate. 

Mortgage Contingency 

The importance of completely filling out the loan information within the box in the contingency was stressed. Including a full set of the mortgage terms being sought can be key for a seller to understand the needs and intent of a buyer, and can also protect buyers who may find that they could get some loan, but not the one they included in the contract.  

Also, make sure the mortgage contingency date is filled out, since there is no default provision here. Failing to include a date in that line could technically mean that neither party has the right to unilaterally terminate the contract if the buyer is unable to get approved for financing. 

Which leads to one of the biggest misunderstandings in the Agreement of Sale – buyer termination. To be clear, a buyer has no contractual right to terminate the contract if financing is refused or the mortgage terms are not met. Many agents seem to think that it feels like buyers should have that right, but they do not. Only the seller can unilaterally terminate, though the buyer could certainly open discussions/negotiations about a mutual ending of the contract if it seems like approval is unlikely. 

 Inspection Contingency 

Given the state of the market over the past few years, it seems like many newer agents have never practiced in a market where inspections are regularly negotiated – and some more experienced agents may have forgotten some of what they knew. Here are a few highlights to remember – though it would be a good idea for brokers to have some more in-depth trainings to get agents (back) up-to-speed on inspections. 

First, be sure that the buyer actually selects Elected or Waived for each inspection option in paragraph 12. Leaving any of them blank is not a clever way to argue over whether inspections should be permitted — it’s more likely to lead to lawsuits or ethics complaints because the contract is not clear about the parties’ intention. 

Next, remember that even when the specific inspections are waived by a buyer, the seller still agrees to allow access by an insurer’s representatives, and, as required by the mortgage lender or the terms of the Agreement, any surveyors, municipal officials, appraisers and inspectors. For example, even if a buyer is willing to buy the property without inspecting the fireplace or the roof, it may be that the insurance company and/or lender require an inspection and certification to issue insurance and/or approve the loan. If those inspections are required, then the seller will allow the inspectors into the property. Similarly, if they waive the mortgage contingency but still obtain financing, a lender-required appraisal must be allowed by the seller. 

Buyers also have the explicit right to two pre-settlement walk throughs prior to settlement. They are limited in scope to just confirm the property appears to be in the condition stated in the agreement, but they are not waived even if the buyer waives the other inspections. More importantly, these are not inspections to discover the condition of the property (like a home inspection), but merely to confirm the state of the property during the time between signing the agreement and closing. It is not acceptable for buyers to bring a typical inspector for these walkthroughs unless that’s negotiated with the seller. 

And finally, the timeline for inspection is incredibly important. To find an in-depth discussion of the timeline, see our JustListed article, Inspection Contingency Review.  

Termination and Return of Deposits 

There was also a review of termination and return of deposits. This is another section that has a very specific timeline. You can find detailed information about that specific timeline in our JustListed article, Returning Disputed Deposits. 

When there is a dispute over the deposit money, mediation is a very common next step. To find out more information, our JustListed article, The Mediation Process, has a great breakdown of how the mediation process works that can be helpful to provide to clients. 

Changes Coming 

There are going to be some changes coming to some forms. The Standard Forms Committee did vote to have the mortgage contingency amended along with the Appraisal Contingency Addendum. These drafts will be coming soon, along with additional education on how best to use them. 

While this is just a high-level overview of all the topics discussed, you can find resources and watch the webinar recording.