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The Offer Process in Massachusetts

The offer process is complex with many potential areas for liability. Although not required by law the involvement of an experienced real estate agent and an attorney that specializes in real estate law will greatly improve the likelihood of a successful outcome.<br><br>

If you have bought or sold real estate in another state it is important to know that the Massachusetts offer process is very different than in other states.

Note: The information in this newsletter is not legal advice. Consult an attorney for legal advice regarding the purchase or sale of real estate.

A TWO STEP PROCESS

In Massachusetts it is a custom that there are two steps in the offer process. The first step is the Offer to Purchase. Once the buyer and seller have come to terms the Offer to Purchase is typically replaced by a Purchase and Sale Agreement. It is important to know that this two step process is a custom and not a law.

Many buyers and sellers consider the Offer to Purchase as a rough draft for the Purchase and Sale Agreement. Massachusetts Law however, considers a signed offer a binding contract.
Since a signed offer is a binding contract a Purchase and Sale Agreement is not required to purchase a home. Given the complexity and legal ramifications of a home purchase a Purchase and Sale Agreement is usually preferable for the buyer and seller. A purchase and sale agreement is also required by most lenders.


TYPES OF AGENCY REPRESENTATION


The use of a real estate broker or agent is not required to make an offer. However, given the complexity and financial stakes of a real estate purchase most buyers see the value of agency representation. The types of agency representation in Massachusetts are:
however, considers a signed offer a binding contract. Since a signed offer is a binding contract a Purchase and Sale Agreement is not required to purchase a home. Given the complexity and legal ramifications of a home purchase a Purchase and Sale Agreement is usually preferable for the buyer and seller. A purchase and sale agreement is also required by most lenders.
  • Seller' Agent
  • Buyer's Agent
  • (Non-Agent) Facilitator
  • Designated Seller's and Buyer's Agent
  • Dual Agent
For a detailed description of the types of agency representation visit the Real Estate Brokers and Salespeople Consumer Fact Sheet page of the Division of Professional Licensure website.

The Components of an Offer

Massachusetts Mandatory Licensee Consumer Relationship Disclosure

Massachusetts agency law requires that this disclosure be presented to the buyer or seller at the first personal meeting to discuss a specific property. The purpose of the form is to disclose to the consumer the type of relationship the consumer has to the real estate agent.

Offer to Purchase Real Estate

Most Massachusetts real estate brokers use a standard form developed by the Greater Boston Real Estate Board. The Offer to Purchase outlines the following:
  • Description of the property along with MLS number (if applicable)
  • Fixtures, appliances, and personal property to be sold with the property. It is important to precisely define what is to be included in the sale. Do not assume that refrigerators, washers and dryers, lighting fixtures, window treatments, etc. are included in the sale.
  • Deposits
  • Dates for expiration of the offer, Purchase and Sale date, and closing date (contingency dates are typically described on the Addendum to Offer)
Addendum to Offer

The Addendum to Offer details the financing and inspection contingencies that protect the buyer.

Property Transfer Notification Certification (Lead Paint Disclosure)

Federal and Massachusetts law requires the seller to disclose known lead paint hazards in a property built before 1978. The buyer and their agent need to review and sign this disclosure.

Deposit

Most sellers will not consider an offer without a deposit to bind it. If the buyer does not proceed with the transaction (unless they exercise a contingency) the buyer forfeits the deposit. In most offers $1,000 is the typical deposit. A buyer may increase the deposit to indicate commitment to buying the property or to stand out in a multiple offer situation.

Buyer Representation Agreement

Representation is created by mutual agreement by the parties and the signing of a buyer representation agreement. The person represented is referred to as "a client." A buyer's agent works for the buyer and has the buyer's best interest's in mind and must keep the buyer's confidentiality at all times. The agent owes certain fiduciary obligations to the client.

Pre-approval letter or proof of funds

The seller needs to establish that the buyer is financially qualified to purchase their home. A pre-approval letter will demonstrate to the seller that the buyer meets the lender's credit, income and asset criteria. A pre-qualification letter is usually not sufficient to be accepted by a seller, since the buyer's credit, income, and debt has not been verified. If the buyer intends to purchase the property with cash, the seller will want to see proof of funds, such as a bank statement or letter from a financial institution.

Optional Letter to Sellers

In a seller's market or multiple offer situation the buyer can improve the chances of having their offer accepted by writing a personal letter to the sellers. This adds a human dimension to the offer. Components of the letter can include personal information about the buyer and why the property fits their needs. However, the letter will only help if the price and terms of the offer are competitive.

THE PROCESS


Prior to Making the Offer

If the buyer is not purchasing the property with cash, a pre-approval letter will need to be obtained prior to making an offer. The pre-approval letter will allow the buyer to know how much they can afford to pay. After the buyer has obtained a pre-approval letter and has identified a property to purchase, the buyer's agent typically will prepare a comparative market analysis. This will determine the approximate fair market value of the property.

Writing the Offer
The buyer's agent, seller's agent or facilitator will fill out the forms outlined in the previous section. The buyer will write a check for the Good Faith deposit.

Presentation of the Offer
Under regulations adopted pursuant to the Massachusetts license law: All offers submitted to brokers or salespeople to purchase real property that have a right to sell shall be conveyed forthwith to the owner of such real property.

Multiple Offers

In strong markets there may be multiple offers on a property. Unlike many markets in the U.S., Cambridge and Somerville properties have often receive multiple offers this year. The listing agent will usually inform the buyer's agents that there are multiple offers, either verbally or in writing. In many multiple offer situations the listing agent will ask the buyer's agents for their "best and final offers." However, it is important to not assume that there will be the opportunity to make a better offer. In some cases one offer will be strong enough that the seller accepts it.

Negotiating the Offer

The seller has the option to accept the offer as presented, reject the offer, or to counter the price and/or terms of the offer. Several rounds of counter offers are common before the buyer and seller agree on price and terms (during the counter offer phase another offer could be presented and accepted). Once the price and terms are mutually agreeable the seller signs the finalized offer.

PURCHASE AND SALE AGREEMENT TO CLOSING

Once the offer has been signed by the buyer and seller a purchase and sale agreement is drafted to replace the offer to purchase. The purchase and sale agreement is typically written by the seller's attorney and sent to the buyer's attorney for review. Elements of the purchase and sale agreement include (source: Lawyers.com):
  • Sellers' and purchasers' names and addresses
  • Purchase price and down payment
  • Financing arrangements
  • The property's legal description
  • Requirement for good and marketable title
  • Property condition
  • Closing and possession dates
  • Statement of settlement costs
  • Property liens
Once the purchase and sale agreement has been completed the buyer and seller sign it. If the buyer has applied for a mortgage the purchase and sale agreement is sent to the lender.

There are several activities that take place between the signing of the purchase and sale agreement and the closing:
  • the lender will send an appraiser to property to verify value
  • the lender will underwrite the loan by verifying the buyer's credit, income, debt, etc.
  • the buyer will need to obtain a commitment letter from the lender prior to the mortgage contingency date
  • if the buyer is denied financing (they must have applied prior to the mortgage application deadline) they will need to send a letter of denial to the seller's attorney prior to the mortgage contingency date.
  • a title search will reveal whether there are possible title problems
  • the seller may need to make repairs per the purchase and sale agreement
  • the seller in most case will need to vacate the property
  • a final walk through by the buyers to verify the condition of the property will be scheduled in advance of the closing
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