To Purchase And Contract” (Standard Form 2-T, aka OTP, dated 7/2018) is 13
pages long and updates tend to happen on an annual basis. Old timers in the
real estate industry remember when the contract was 1 page! So let’s take a
look at some of the “finer” points of the contract. I say “finer” points
because I am not going to discuss the obvious.
Also, in this particular blog, I’ll be examining the OTP from the
perspective of a seller.
with page one so feel free to follow along by downloading your own sample copy
by clicking here. Italicized words are defined within the actual OTP.
as a seller, this will be the form a buyer’s realtor will review, complete, and
submit to us on behalf of their buying client.
on the bottom of page 1:
“Should Buyer fail to deliver either the Due Diligence Fee or any Initial Earnest Money Deposit by their due dates, or should any check or other funds paid by Buyer be dishonored, for any reason, by the institution upon which the payment is drawn, Buyer shall have one (1) banking day after written notice to deliver cash, official bank check, wire transfer or electronic transfer to the payee. In the event Buyer does not timely deliver the required funds, Seller shall have the right to terminate this Contract upon written notice to Buyer.”
this paragraph so intriquing is the fact that agreed upon due diligence (DD) money is due upon the effective date of the contract.
So, in essence, as soon as we are under contract, the money is due. Going under contract may happen so quickly
that the delivery of the DD money may not take place until hours to days later.
If the due diligence fee has not been paid by the effective date, the seller
can send written notice to the buyer to deliver the funds. Then, the buyer has
one banking day to deliver the due diligence; otherwise, the seller may
terminate the contract by delivering notice to the buyer’s agent.
If I am representing a seller in an attempt to secure the best terms possible
for my selling client AND we happen to receive a much superior offer over night
for example, I may recommend my seller client send the written notice to
deliver the funds if due diligence money has not been paid.
mentioned I would not be covering the obvious, I feel obligated to suggest to
all of my sellers to pay particular attention to section 2: Fixtures and
Exclusions. I have seen so many problems and arguments develop because the
seller was legally obligated under this paragraph to leave an item for the
buyer and either forgot or neglected to read and follow the instructions in
this paragraph. For example, bathroom mirrors were always a hot button between
sellers and buyers. In past years, only bathroom mirrors that were attached to
the wall automatically conveyed with the property. During the final walkthrough before taking
possession of the property, a buyer would exclaim, “where are the bathroom
mirrors?”. Well, it would turn out the
bathroom mirrors were taken by the sellers because they weren’t attached to the
walls but perhaps they were just hanging on a picture hook. Today, ALL bathroom mirrors convey so if a
seller has a keepsake bathroom mirror they’d like to take with them, my
suggestion would be to swap it out with a replacement mirror BEFORE putting the
house on the market. Alternatively, the
seller has the option of identifying and items that do not convey by listing
them in subparagraph (d).
Let’s jump to subsection 4(c). The buyer has agreed to purchase the property as
is, in its current condition. So, the
buyer signs the OTP knowing the home is being sold as is UNLESS the seller and
buyer agree to negotiate for repairs or improvements to the home. The seller is NOT required to negotiate for
repairs. However, at least in our MLS, it is common practice for the listing
agent to indicate in the listing that the home is being sold “as is”. Knowing that the seller will not do any
repairs allows the buyer to take that information into consideration while
deciding on the terms to offer the seller.
Right to Terminate: Buyer shall have the right to terminate this Contract
for any reason or no reason, by delivering to Seller written notice of
termination (the “Termination Notice”) during the Due Diligence Period (or any
agreed-upon written extension of the Due Diligence Period), TIME BEING OF
THE ESSENCE. If Buyer timely delivers the Termination Notice,
this Contract shall be terminated and the Earnest Money Deposit shall be
refunded to Buyer.”
The due diligence period begins on the effective date of the contract and ends
on an agreed upon date. During that time
frame, the buyer may back out of this contract. In doing so, the buyer forfeits
the due diligence fee they paid, if
any. From both a seller’s and buyer’s
perspective, the negotiated due diligence fee is a vitally important and
strategic contract term and therefore, should be negotiated appropriately.
5(a)(b) This answers the question, “How does the buyer intend to pay for the
property?”. Depending on current market conditions, these two sections alone
may determine whether a seller decides to accept an offer or not. For example, in a highly competitive seller’s
market where multiple offers are common, an offer contingent upon the buyer
selling their own home would most likely not be accepted by the seller.
5(d)(e) It’s a best practice to complete and provide copies of both disclosures
prior to the buyer making an offer. Otherwise, the door is left open for a
buyer to terminate the contract AND recoup their due diligence money.
8(c). Seller needs to understand they’ll need to keep ALL utilities on through
closing or buyer possession. There have
been times where a seller had already moved out of the property and thinking
they’d save some money on utility costs, they inadvertently turn off one or
more utility services. Additionally, the seller will need to provide
“reasonable” access to the property to allow the buyer to conduct their due
8(d). There have been instances when a seller wasn’t aware of debris that had
been discarded onto their property or debris that had been stored under the
house inside the crawlspace. Similarly,
the seller may decide to leave patio furniture since they’re downsizing and the
furniture just won’t fit in the new place. Well, the seller is obligated to
remove ALL debris and personal items from their property prior to the date the
property will be made available to the buyer.
8(i). Any amount in this field will be paid by the seller at closing.
8(m). In the event the seller and buyer agree that certain repairs will be done
to the property prior to closing, these repairs must be made in a “good and
workmanlike manner” and the buyer has the right to verify the repairs prior to
settlement. Many times, the seller has a
relative or close friend they reach out to in order to complete those repairs.
Just keep in mind, they need to be completed in a “good and workmanlike
manner”. Under most circumstances, the
selected repair person will need to possess an applicable license for the
repair they’ll be completing.
8(n). If the seller fails to comply with any of their obligations under Section
8, or the seller materially breaches the OTP, the buyer can elect to terminate
the contract and have both their earnest
money and due diligence money refunded. Additionally, the seller will
need to reimburse the buyer for expenses incurred during their due diligence
period and may be liable to pay court costs if legal proceedings are brought
forth by the buyer
has to do with a home warranty.
Sometimes a seller will offer one to incentivize a buyer and other
times, the buyer will check the second box stating the buyer will purchase the
home warranty AND the seller will pay for it at settlement.
states the home must be in similar or better condition at closing as it was when this offer was made, reasonable wear and
tear excepted. Sometimes a seller will
ask me what to do about small holes in the walls after the pictures were
removed. That would be considered
reasonable wear and tear and can be left alone.
13. Most sellers are unaware there is a
built-in 14-day “grace period” extending 14 days beyond the agreed upon closing
date as long as the delaying party is acting in good faith and with reasonable
diligence to proceed to settlement and
gives as much notice as possible to the non-delaying party. If the transaction fails to close with those
14 days AND there is no agreed upon extension of the closing date, then the
delaying party shall be in breach and the non-delaying party may terminate the
touched upon many of the finer points of the offer to purchase and contract
from the seller’s perspective, and as always, if you have any questions or
concerns, please don’t hesitate to reach out to me.
This is the first post on my new blog. I’m just getting this new blog going, so stay tuned for more. Subscribe below to get notified when I post new updates.