A Purchase and Sales contract (P&S) is a legally binding agreement that outlines the final terms of your property purchase. P&S for first time home buyers typically comes after the physical inspection and initial negotiations have taken place.
While many terms from the offer letter may be translated over into the P&S, the two documents are very different in nature. You can think of the offer to purchase as a letter of intention to buy but it is not a sales contract. Terms such as purchase price, date of closing, and other contingencies may change considerably after the inspection. The P&S is a mechanism to clarify these terms again given the due diligence that the buyer has just completed.
While the P&S may vary from state to state, these standard terms are considered and potentially renegotiated when developing a P&S:
Purchase Price
In many cases, the purchase price on the P&S remains unchanged from the Offer letter. If the buyer discovers any defects during the inspection, she may request the seller to lower the original asking price. The P&S will include these updated terms and pricing.
Earnest Monday Details
Much like the good faith deposit that accompanies the offer letter, the Earnest Money Deposit (EMD) is the additional deposit due upon signing for of the P&S. Either the seller’s attorney or agent will hold the EMD in their escrow account. This is to demonstrate the buyer’s willingness to move forward onto the final phase of the purchase.
Closing Date
The P&S will also re-confirm the final closing date. This may from the offer due to conditions and damages uncovered during inspection. In most cases, this date should not change.
Title Condition
The title on a property is a bundle of rights as set forth by the municipal governing body. It essentially defines what you can and cannot do as a property owner. This may include rights such as possession, control, exclusion and even right of quiet enjoyment. Click here to learn more about title rights. In some cases, your property title can also be contested and cloudy. A cloudy title can result from legal claims or easements. For example, if a plumber worked on a property and the owner never paid them, the plumbers can place a lawsuit/lien on the property. To clear the title, the existing owner would have to clear the lien before the property can be sold. Standard P&S are subject to the delivery of a good, clear, and insurable title. This allows the buyer a way to exit the contract with any title issues.
Contingencies
The P&S reiterates the contingencies outlined in the offer letter. Financing contingencies will be stated again in this section. There may also be special provisions that were negotiated after the inspection such as a request for seller to complete a repair or credit back the buyer for closing expenses.
It is generally recommended that the buyer have an attorney review and explain the terms of the P&S. If the buyer is financing the purchase, the lender’s closing attorney may often provide P&S review services as well for a small fee or for free.
As we mentioned in a previous article (click here to read about the steps to purchase a home in Massachusetts), the P&S for first time buyers is the 2nd step towards your home ownership journey. The signing of this purchase contract sets in motion your title search and the financing for your home.