The Offer To Purchase

The “Offer 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.

I’ll start 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.

Remember, 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.

Let’s begin 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.”

What makes 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.

Although I 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.

Section 4(f) reads:

“(f) Buyer’s 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.

Sections 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.

Sections 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.

Section 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 diligence.

Section 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.

Section 8(i). Any amount in this field will be paid by the seller at closing.

Section 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.

Section 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

Section 10 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.

Section 11 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.

Section 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 contract.

Well, we’ve 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.

Chuck The Realtor

I wasn’t always a realtor. In fact, if we’re talking percentages here, I’ve been a realtor for 12.5% of my working life, assuming I started working at age 16.

Most of my working life was spent in Corporate America; more specifically, the Information Technology sector. First as a Cobol / JCL / Assembler Programmer, then as an Oracle PL/SQL Developer, and finally, as a report writer for a large data warehouse implementation, all in Hartford, Connecticut. I know, sounds boring, doesn’t it? It’s ok, it will get better, promise! But it will be a little bit.

It wasn’t until I moved to North Carolina did I start programming in Java, working with java application servers and software infrastructure and eventually, started teaching software application development across North America.

Having read, “Decline And Fall Of The American Programmer”, and seeing many programming jobs being outsourced globally, I figured it’d be a good time to get out of the programming profession.

Enter software sales. But not software sales from a sales rep point of view per se, but the technical side of software sales in roles commonly referred to as Systems Engineer or Sales Consultant.

And then I turned 50 years old. And do you know what happens when you turn 50? Yes, my hairline receded and a hairless circular crater appeared at the top of the back of my head. But that’s not all. If you are not aware by now, when one turns 50 years old, there’s a high probability that individual will soon be unemployed.

So, there I was, out of a job. Wow! Big eye-opener. Well, that’s ok, I’ll just get another. After searching for a couple of months, it kind of hit me like a bag of bricks. If I get another job, how long would it last? At some point, I’d have to again look for another job. This could get ugly. Especially since I had a sophomore in an out-of-state University and a senior in high school getting ready to enroll in a University.

That’s when I started thinking about real estate full-time. I had dabbled in real estate having owned a couple of investment properties and managing them as a part-time landlord so perhaps that was the way to go. After struggling as an agent for my first one to two years, I found Mike Ferry and signed up for coaching. I’ve never looked back!

Today, I am an independent contractor (aka real estate agent) that buys and sells residential real estate, mostly on behalf of my clients through Laura Peterson Partners Inc Of West & Woodall Real Estate. I also operate a small property management company, Peterson Property Management, LLC that manages residential properties on behalf of absentee owners / investors.

This blog is about my transition from being paid for my time, to being paid for my results. It’s about me trying to be the best real estate agent I can be and yes, I was in the Army and they had a similar mantra, “Be All That You Can Be”. It’s about what I have learned along the way and how to best serve my clients.

What was another alternative to becoming a real estate agent or going back into Corporate America? Well, I could have stood in the middle of a busy highway positioned atop a concrete median strip below a traffic light with a hand-written cardboard sign that reads, “Will Work For Food”.

Whether you’re looking for Realtor representation in the purchase or sale of a property, or looking for a professional property manager to look after your investment(s), I’m the right individual for you. Call me and let’s discuss how I can help with your real estate needs.

WordPress Resources at SiteGround

WordPress is an award-winning web software, used by millions of webmasters worldwide for building their website or blog. SiteGround is proud to host this particular WordPress installation and provide users with multiple resources to facilitate the management of their WP websites:

Expert WordPress Hosting

SiteGround provides superior WordPress hosting focused on speed, security and customer service. We take care of WordPress sites security with unique server-level customizations, WP auto-updates, and daily backups. We make them faster by regularly upgrading our hardware, offering free CDN with Railgun and developing our SuperCacher that speeds sites up to 100 times! And last but not least, we provide real WordPress help 24/7! Learn more about SiteGround WordPress hosting

WordPress tutorial and knowledgebase articles

WordPress is considered an easy to work with software. Yet, if you are a beginner you might need some help, or you might be looking for tweaks that do not come naturally even to more advanced users. SiteGround WordPress tutorial includes installation and theme change instructions, management of WordPress plugins, manual upgrade and backup creation, and more. If you are looking for a more rare setup or modification, you may visit SiteGround Knowledgebase.

Free WordPress themes

SiteGround experts not only develop various solutions for WordPress sites, but also create unique designs that you could download for free. SiteGround WordPress themes are easy to customize for the particular use of the webmaster.