The Purchase and Sale Agreement

The Purchase and Sale Contract:

The Purchase and Sale Contract is a standard form which has been produced by the Georgia Association of Realtors for use in the Sale of Residential Real Estate in Georgia, when Licensed Real Estate Agents are involved. The following subsections are the current Sections of the Standard Real Estate contract as of Jan 2006. We are not allowed to make these contracts available for copying by the general public. We can send you a copy if we enter into a Buyer’s or Seller’s Agency Agreement with you, in other words, if you hire us to represent you in the Purchase or Sale of Property in Georgia. What follows is a brief description of what the format of the offer is and what is covered in the Purchase and Sale Contract.

1. Legal Description – The legal description is the first paragraph of the offer. It describes the property  in terms of Land Lot, District etc. and goes on to say that it includes all "fixtures". Fixtures, are by definition, things which require a tool to remove them from the property. So a refrigerator is not a fixture and a dishwasher is a fixture. Light fixtures and mini blinds are fixtures but curtains are not. Some agents include fixtures on the contract to make everything crystal clear, but technically they are included in paragraph one.

2. Purchase Price and Method of Payment -  The following sections must be filled in and the reason for this is to disclose to you , the Purchaser, what the terms and conditions of the loan you are applying for, and to notify the Seller that you are attempting to get a loan that falls within the guidelines of normal finance. This section states that the contract is contingent upon the Purchaser getting financing as described in this paragraph. So if you do not get your loan you can cancel the contract and receive a refund of your earnest money. In other parts of the contract there is a statement that "Time is of the Essence" and that all parties agree to cooperate, so you can not claim that you didn’t get financing because you refused to supply documents requested by the lender, or refused to sign a document, or claimed that you will do it "later".

  • Down Payment – Your down payment will be listed in this section. If you put down 20% or more there is generally not a requirement that you purchase mortgage insurance. It let’s the Seller know a little more about your financial picture to help convince the Seller of your ability to close.

  • Interest Rates -  You list the interest rate here to let the Seller know that you are realistic about rates. If you put a rate in this section that is below the market, you may have a bit of a job to convince the Seller that you can actually get that rate, and you won’t have a way out of the deal later.

  • Loan Type and Term -  Again, this is to let the Seller know what type of loan you are willing to take. You are not limited to this loan, and you can actually get any type of loan you want as long as it closes on time and it doesn’t cost the Seller any extra money. This does require that if no other loan is found that is acceptable, you will take the loan described in the contract. The choices are fixed rate, adjustable rate mortgage etc.

  • Closing Costs and Financing Incentives – This section specifies who pays the closing costs. There is no requirement about who pays, in the Offer/Counteroffer process this is a negotiable item. When you make an offer you fill this in the way you would like to see it. If the Seller agrees you have a deal. This part of the contract has a blank where the closing Attorney can be named.

  • Seller Financing – There is a blank to fill in regarding Seller financing. If the Seller is willing to carry a note you can finance the property with the Seller instead of the bank. The Seller must either own the property free and clear, or have the approval of his current mortgage holder to sell the property. Generally a current mortgage holder will not give permission for a new buyer to assume the Seller’s note except in a few situations. The first is if the Purchaser qualifies and the lender runs normal credit and qualifying procedures and allows the Purchaser to assume the loan. The second scenario is when the property is going into foreclosure and the lender allows someone to assume the Seller’s note to prevent a foreclosure. This is the only time I have seen the banks become negotiable.

  • Cash Offers – If the Purchaser is paying cash and the contract is not contingent on the Purchaser getting financing, this paragraph is filled in and made a part of the contract. This is the strongest offer and will definitely peak the interest of the Seller.

  • Other financing Details in Your Offer -  The contract has a blank for "other" types of financing and references special addendum’s which are to be attached. Really, virtually any arrangement that is willingly entered into by a Seller and Buyer can be written in, house swap, trade a house for a car, etc.

3. Earnest Money – The earnest money paragraph is probably the most hotly contested parts of the agreement for it spells out who holds the earnest money, and how it can be disbursed. What is earnest money? It is a deposit to show the Seller that you are making the offer "in earnest". Generally it is held by the Buyer’s Broker in a non interest bearing account, although some Seller’s (notably foreclosures and new construction) will ask to hold the earnest money. The earnest money is likened to a Security Deposit, and can be a penalty if the Buyer charges his mind. There is no fixed amount and different Brokers advise their clients to require different amounts.

The earnest money is protected in various parts of the contract and should be returned to the Buyer if the parties cannot reach agreement on the inspection, or if the Purchaser does not get financing, or if the title to the Property cannot be cleared, or if the property is substantially destroyed or damaged prior to closing. But even if these things happen, the parties to the contract still have to sign a amendment which terminates the contract and specifies who gets the earnest money. If one of the parties refuses to sigh the Broker holding the earnest money has to notify all parties of the intent to make a reasonable interpretation of the contact, and disburse the monies. The notice has to be in writing (certified mail) and the parties have 15 days to object. If an objection is raised  the Broker can decide to disburse anyway and take his chances in court but 99 times out of 100 the Broker will then interplead the dispute to the courts.     

4. Closing and Possession - This part of the contract is where the date of closing and possession are established. In the offer the Buyer spells out when he would like to close and this too is negotiated. It is important to understand that in the Georgia Association of  Realtors contracts there is a preprinted 7 day extension that either the buyer or seller can invoke and notify the other party of their intent to extend. The buyer can only extend if the loan is unable to close on time and the Seller can only extend of the title needs to be cleared. If either of these conditions are present the party can extend by notice. In other words the Buyer can extend whether or not the Seller agrees!

5. Condition of Property -  The condition of the property shall be the same on the day of the closing as it was on the day of contract, normal wear and tear excepted. If the Property is damaged the Purchaser may elect to wait until the Seller collects the insurance proceeds and repairs the property and close on the home under the terms of the contract. The Purchaser may elect to accept the insurance proceeds and close (if the lender agrees) or the Purchaser may cancel and receive a full refund of his earnest money.

6. Tax Prorations - The property taxes will be prorated through the day of closing. If the taxes are unpaid, the Seller will reimburse the Buyer for the portion of the year that he owned the house, and the Buyer will be responsible when the taxes become due. If the Seller has already paid the taxes for the current year, the Buyer will have to pay for his portion of the year.

7. Seller’s Property Disclosure – The disclosure is a form whereby the Seller tells the buyer everything that he knows that is wrong with the house. The form is detailed and asks for information about the structure, the systems, the property, the association if there is one, any insurance claims or lawsuits, really everything about the property. The Seller can sell the property as-is and in the case of a bank or asset management company that has gotten the property back in a foreclosure, there frequently will be no disclosure provided. The disclosure was initially developed to protect the agent as well as the Seller.  It is a written document that establishes that the information represented about the age of the roof etc. was provided by the Seller and the agent and the agent only knows what the Seller has told him. Sellers should fill these out honestly and completely to prevent the Buyer from suing for "hidden defects".

8. Title of Property - The title to the property paragraph gives the buyer’s representative permission to check the title, and states that the title must be insurable by a title insurance company at normal rates. The reason it is written this way is because there are frequently liens somewhere in the chain of title that cannot be removed. Perhaps Billy Bob’s roofing company attached a lien in 1957 that was never satisfied. The title insurance company will research it and if it decides to "insure over it" and assumes that liability, even though technically there is a cloud on the title, it is considered clear title for the purposes of getting the loan. The lender will require that the Buyer gets title insurance for the amount of the loan as part of the closing costs. There will be another title insurance policy for the owner’s equity that is optional. It is very important to get this. It is a one time fee that will protect you as long as you own the house and even after you sell it!

 9. Survey – The survey is not required by the lender any more, although I always recommend it. The contract states that the Seller shall provide a copy of any survey that he has one. If you want to get a survey you have to make it a part of the contract, that is if you want to have the right to examine the survey and possibly cancel the contract if it reveals a problem. The types of problems that could come up are as follows: Perhaps the original sewer maps were recorded incorrectly and later it was discovered that a major sewer line runs under the house. Or perhaps the house was built so it is actually partially on a neighbor’s property… Or perhaps a neighbor has an easement that would allow them to put a driveway in across the property… These are all actual examples from my experience!

10. Termite Letter -  Most lenders require a termite letter in Georgia before they will make a loan. The letter will have to state that there are no active termites. The contracts call for the termite letter to be provided within 7 days of binding agreement. The reason for this is so the inspector can have the letter when he inspects the property. The letter will show where previous damage is and this will alert the inspector to look for structural damage. Termite letters in Georgia mean that if you  find termites within 90 days of receiving a clear letter, the company that wrote the letter is responsible for treating them at no cost to you. Georgia is a state with a lot of termites, so the letter is important.
      
11. Inspections – This is another important paragraph in the contract. The contract gives the buyer the right to inspect the property at the Buyer’s own expense during normal business hours for any and all types of problems. The Purchaser and the inspector are responsible for themselves as they inspect. The Seller according to the preprinted contract will have the utilities on and make the property available. Any property built before 1978 has the potential for lead based paint and there is a form that states that people  have a 10 day period to test for lead unless they waive their right to it. There are three subsections of the inspection contingency:

  • Property Sold With Right to Request Repairs – The first is the right to request repairs. This used to be the standard and it basically says that if the Purchaser finds defects that they only can ask the Seller to repair them. They can’t cancel the contract,  they have to give the Seller the opportunity to repair any defect found.
  • Property Sold With the Right to Terminate – This is what we are generally seeing on contracts today. This gives the Buyer and Seller the opportunity to negotiate a settlement, but if the buyer is unhappy with the results of the inspection, he can simply cancel the contract and receive a full refund of the earnest money.
  • Property Sold As Is – Investors use this to make their offers more exciting. Generally they do an inspection before they make the offer and this gives them an advantage if there are multiple bids.

12. Disclaimer – This paragraph reminds the Buyer and Seller that the Brokers are not responsible for the condition of the property, the investment value, the future value, the building materials used, the presence of hazardous materials, the availability of financing, the zoning, and lots of other items.

13. Agency and Brokerage – This paragraph outlines who works for whom. The Listing agent normally represents the Seller and the Buyer’s agent represents the Buyer. Frequently a buyer’s agent will sell a listing of an agent from his own company and this becomes Dual Agency. There are two kinds of dual agency. One is called dual agency / designated agency. This is when two agents who are both sub agents of the same broker, represent the two parties to the contract. Each agent is designated by the broker to represent the Buyer or the Seller and they protect the interest of their clients. The other is plain Dual Agency where one agent represents both the Buyer and the Seller. Brokers lose sleep over these kind of transactions but if the agent is truely ethical it is not a problem.

14. Other Provisions – This part of the contract has the "fine print" rules and regulations. Some of these are: That the contract is the enitre agreement and there are no "side deals" or "under the table agreements". That the entire agreement is as written. That the contract may not be changed altered or assigned to another party without written consent of all parties. That any agreements made regarding things to be done after the closing will "survive" the closing and will continue to be enforceable. That the contract is binding upon the heirs and permitted assigns. (So if the Seller dies the estate will have to honor the agreement, if the Purchaser dies they will as well although if it is contingent on financing, the late Buyer will not get the loan). That the references to "He" will apply even if the Purchaser is "Her or They"

15. Notices - This paragraph basically states that the notices specified in the contract must be in writing and delivered either in person, by fax, by overnight delivery, or by certified mail return receipt requested. When a fax is used the time that the fax was sent shall be deemed to be the time it was received.
 

16. Exhibits and Addenda           

Personal Property

  • Appliances
  • Window Treatments
  • Furniture or Statuary
  • Landscaping

17. Special Stipulations 

  • Contingencies