The Negotiation and Signing of a Contract of Sale
A Contract of Sale is a crucial document, the terms of which memorialize the agreement between the Seller and Purchaser. You may not use the excuse that you did not know what you signed. If you do not understand something you must ask for clarification. Many years ago, Attorneys had essentially agreed among themselves that there would be one form of a Contract of Sale and all Attorneys would essentially use that form. Nowadays there are many permutations of form Contracts of Sale, produced by a litany of distributors of form documents. As such, the Contract of Sale has become a highly negotiated document containing many terms, provisions, agreements, representations, contingencies, etc. On top of the many forms that are used by Attorneys, Attorneys add what is known as “rider” to the Contract. Contract riders also have many terms and may be very confusing to a Purchaser. After all, it seems like such an easy concept – someone wants to sell and someone wants to purchase. The bottom line is that an experienced Attorney, like Kishner & Miller, will be able to inform you what customarily is and is not included in a fair and equitable Contract. As a Purchaser, if the transaction is not made in “all cash,” then the terms of a Contract are crucial to protect you from the loss of your Down-Payment/Contract Deposit. There are, of course, many other representations and protections that you are seeking.
Kishner & Miller will make certain that each and every term of the deal made between the parties is clearly contained in the Contract of Sale. There are a wide variety of common terms and conditions in a Contract that need to be addressed in a real estate transaction. For instance, normally you purchase the property in its “as is” condition. However as a Purchaser, you may want repairs done or to ensure that you are delivered a Property in a certain physical condition. Kishner & Miller will try to ensure that the Contract of Sale explicitly enumerates each party’s respective responsibilities, if any, for making repairs that were mutually agreed upon. Furthermore, in some Contracts an Attorney must confirm that the Seller is delivering specified major systems of the Property (such as the heating or cooling systems) in working order. In other words, an Attorney may make sure which systems or appliances of the unit are guaranteed and which are sold “as-is.” Given the reality that most buildings are old, having an experienced Attorney like Kishner & Miller confirm these contractual matters is ever so important for a Purchaser. Therefore, costly repairs are likely to arise and should be addressed during this initial phase of Contract negotiation.
While all of the terms and conditions explained thus far appear to be very straightforward, a typical real estate purchase Contract is complex, densely written, and jammed with legal jargon. It is very possible to simply overlook or misinterpret a single clause that may result in a loss of thousands of dollars. There are in fact many Purchasers who for certain reasons may not have the linguistic competency or even just leisure to fully decipher the meaning of the terms and conditions in a Contract of Sale. Fortunately, Kishner & Miller have the patience, developed critical analysis skills, and legal knowledge to thoroughly evaluate if the terms and conditions in a Contract of Sale are well tailored to protect the Purchaser’s interests.
Kishner & Miller may further ensure the Purchaser’s protection by adding a Purchaser’s rider to the Contract of Sale. With this rider, Purchasers may obtain many protections, including the possible ability to void the Contract of Sale without penalty, in cases where the Purchaser is unable to obtain financing on the terms specified in the Contract after making a reasonable or good faith effort to do so within the time provided. Normally, this provision grants a Purchaser 30 to 60 days to obtain a loan commitment. In a very competitive Seller’s market, a Seller is more likely to not allow for a mortgage-contingency or a rider that deals with financing protections. If this is the case, Purchasers should be reluctant when signing such a purchase Contract, as the absence of this clause might force Purchasers to finance a home purchase at a bad interest rate or may lead to the loss of your down-payment. However, Kishner & Miller will take the time to explain and analyze all risks.
Ultimately when the Purchaser signs a Contract of Sale they give a 10% down-payment to the Seller. The down-payment is supposed to be maintained in escrow by the Seller’s Attorney. The following items are some of the things that you should think about or look out for in the Contract of Sale.
Essential Provisions in a Contract of Sale
There are certain provisions in a Home Contract of Sale that must be focused in on in order for the Contract of Sale to be proper. These provisions of the Contract of Sale must be fully understood by a potential prospective Purchaser. Of course, these provisions are very carefully analyzed and reviewed by Kishner & Miller to ensure that everything is in the proper format so that a prospective Home Purchaser is fully protected.
- Identification of the Property. Although this seems like a rather obvious issue and easy to determine, the identification of the property in its full and entire description needs to be articulated in the Contract of Sale. Frequently the property is not properly described because a previous description was incorrect. We identify properties via a certain Section, Block, and Lot Numbers to which each particular property is provided. The identification and description of the property is usually described via an attaching of a schedule to the Contract of Sale.
- Personal Property. The Personal Property must be specifically identified as to what is and is not included in the transaction. Typically, the items that are deemed to be included, but are sometimes not included, are plumbing, heating, lighting, cooking fixtures, bathroom and kitchen cabinets, mantels, doors, door mirrors, switch plates and door hardware, Venetian blinds, window treatments, shades, screens, storm windows, storm doors, window boxes, mailbox, television aerials, weathervane, flagpole, pumps, shrubbery, fencing, outdoor statuary, tool, shed, dishwasher, washing machine, clothes dryer, garbage disposal unit, range, oven, refrigerator, freezer, air-conditioning equipment and installations, wall-to-wall carpeting and built-ins. It is very important that all of these matters are specifically included in the Contract of Sale to the extent that that there is an agreement that they will be included. A careful analysis of what should and should not be included and/or excluded needs to be conducted by the Purchaser. It is only the prospective Purchaser who can articulate exactly what should and should not be included in the Contract of Sale. Once again, the Contract of Sale is a binding document so if something is not included in the listing in the Contract of Sale then it will not be included. It is the responsibility of the Purchaser to alert the Attorney as to ask precisely what should and should not be included.
- Purchase Price, Down-payment and Balance of Purchase Price. This all seems rather obvious, but it is incredible the amount of mistakes that are made in this particular category. The agreed upon Purchase Price, the Down- payment and Balance of the Purchase Price should be specifically stated and identified. The customary Down-payment in New York when dealing with Home purchase is indeed a 10% of the Purchase Price. The funds are held in escrow by the Seller’s Attorney. Generally, the funds are held in what is commonly known as an IOLA account. This type of account means that the interest earned goes to New York State and does not go to either of the Parties. Because of the extremely low interest rates that accrue into a regular bank account, there is generally no dispute as to the interest and the interest goes to New York State into what is commonly known as a Client Protection Fund. The bottom line is that for a Contract of Sale there needs to be assurance that the funds will be placed and held in escrow.
- Mortgage Contingency. It is imperative that there be a detailed statement as to how all funds will be brought to the Closing. If the transaction is contingent in any way upon financing then it must be specifically stated. As discussed earlier, there is a large difference between a transaction being defined as “all cash” as opposed to being “non contingent.” This needs to be specifically identified in the Contract of Sale for a Purchaser. If a Purchaser informs their Attorney that the transaction is going to be “all cash,” this will be assumed to be a true “all cash” deal in which there will be no bank involved.
- Permitted Exceptions. There are certain exceptions to title to which a Purchaser shall take the property subject thereto. These types of issues deal with such matter as zoning, consents, encroachments, real estate taxes and other matters. However, there are limits to the types of permitted exceptions that a Purchaser is generally willing to accept. This is where the expertise of Kishner & Miller shall come in to assist you as to what is a customary permitted exception and what is not. This area is a highly negotiated area in which a tremendous amount of time may be spent. However, if both Attorneys are sophisticated real estate practitioners this particular area is not as debated over. When dealing with less sophisticated Attorneys or those who do not know the custom of the industry, this can become a difficult area of negotiation.
- Condition of the Property. As discussed earlier, there is a general concept that the property is taken totally “as is.” What this means is exactly what it states; what you see is what you get. There is a concept under the law called caveat emptor, which basically means Purchaser beware. More particularly, caveat emptor holds, in sum and substance, that a Purchaser is placed on notice that you were taking the property exactly as you see it. However, there is generally some pull back to this general notion of “as is.” In a fair and equitable Contract of Sale, there will be some discussion as to what should be delivered in working order. For instance it is not unusual that it would be agreed that the roof would be free of leaks.
- Conditions to Closing. There are certain items that a Purchaser should be entitled to obtain which must be discussed and analyzed. In this category is the Certificate of Occupancy, which is the document which is supplied by the Department of Buildings indicating that the Home is certified for occupancy. Generally speaking, a Seller must produce a valid and subsisting Certificate of Occupancy to a Purchaser. While it seems rather obvious that a Certificate of Occupancy should be turned over by a Seller in every matter, this is a negotiable point. Hence, there should be a discussion with your Attorney as to whether and what type of Certificate of Occupancy you will be obtaining at the time of the Closing. Also under this category as to conditions of closing is the concept of violations. The concept of violations is an important discussion to have with your Attorney. If there is an agreement between the Seller and the Purchaser that the Seller is delivering the property with all violations, this must be discussed with your Attorney. Similarly, if there is an agreement that the Purchaser will be obtaining the property free of all violations this must be discussed with your Attorney.
- Broker provision. It is very important to recognize the Brokers that have been involved with the transaction and you must disclose to your Attorney all Brokers that were involved in the transaction. It is also imperative that you know who is paying the broker’s commission. The Seller is generally the responsible Party unless there is a specific provision in the Contract of Sale that states otherwise.
- Type of Deed. It is important to state the exact type of Deed that the Purchaser shall be receiving. This not only deals with the particular name that will appear on the Deed as to who the exact owner is and how they will be taking title to the property but this also includes whether the Deed is to be a Deed Against Grantors Acts.
- Inspection provision. This provision deals with the right of the Purchaser to inspect the property during the term of the Contract of Sale. This provision usually provides that a Purchaser, upon reasonable notice at reasonable times, may inspect the property. However as this is not always the case, this particular provision needs to be discussed with your Attorney.
- Remedy provision. This provision deals with what remedy the Parties have should one of the Parties breach the Contract of Sale. It is very important to set forth the particular provisions that each Party wants or should have if there is a default by the other Party.
- Other provisions. There are countless and numerous provisions in a Contract of Sale. The items above are the very general items that are included in a typical Contract of Sale when dealing with a Home acquisition.
It should be noted that if there is a tenant or tenants involved that this will drastically change the way in which the Contract of Sale may be drafted. The reason for this is that there must be recognition of the tenant(s) and what type of tenancy the tenant(s) is/are currently in as well as how the owner will take over with the tenant(s) in place. There would also be several representations regarding the status of the tenancy.
More information on purchasing Real Property
- Summary/Ownership Structure
- The Verbal Offer and the Acceptance- Not a Legal Binding Contract!
- Transaction Summary/Deal Sheet
- Closing Day Checklist: Funds, Reports & Other Items
- Closing Costs for a Purchase of a Home