Unlike many other states, Massachusetts traditionally has a two-step process for potential buyers to submit a bid to purchase a home.
Customarily, the first step is for the buyer to submit a written Offer to Purchase, usually just called the “offer.” The Offer to Purchase usually outlines key details of the buyer’s proposed purchase, including the purchase price and the proposed closing date. The Offer to Purchase also usually reserves certain contingencies for the buyer, including a ten-day right of inspection and the ability to cancel the deal if the buyer is unable to obtain financing in good faith. It is usually accompanied by a small deposit, typically $500 or $1000, which is held is escrow by the seller’s real estate broker.
Generally speaking, the purpose of the Offer to Purchase is to serve as an agreement for the buyer and seller to negotiate and enter into a more detailed agreement, called the Purchase and Sale Agreement (“P&S”), within a specified time.
The Purchase and Sale Agreement is usually signed about two weeks after the Offer to Purchase is accepted. At this point, hopefully any loose ends regarding the transaction have been cleared up (such as the need to renegotiate items identified in a home inspection), and the final terms of the deal are clear to both parties. The Purchase and Sale Agreement is usually a much longer and more detailed document than the Offer to Purchase. It is also usually accompanied by a second deposit sufficient to bring the total amount in escrow up to four or five percent of the proposed purchase price.
The purpose of the Purchase and Sale Agreement is to clearly spell out the terms on which the closing will occur, the parties’ rights and responsibilities in the interim time, and what happens if something goes wrong. Common provisions are for the seller to continue to insure the property until closing, and for the buyer to be entitled to conduct a final walk-through before the closing happens.
While the purposes of each paper are slightly different, both documents are geared toward achieving agreement as to the terms of the intended purchase of property early in the sales process. Thus, it is important to keep in mind that an accepted Offer to Purchase may itself be enforced as a binding contract under Massachusetts law, even though the Purchase and Sale Agreement is more commonly regarded as the governing sales document. It is important for a buyer and seller not to dismiss the importance of an Offer to Purchase or to treat it informally.
Just like any other contractual process, the terms and conditions of all of these documents are open to negotiation by a buyer and seller. And, the facts of each individual transaction can differ a lot. Thus, it is important for both parties to have qualified advice regarding their legal rights and responsibilities, and the different options available to them, prior to signing any documents.