Any contract requires an offer, an acceptance, and some consideration, or something of value given by the offeror. Although the C.R.M.L.S. (Capital Region Multiple Listing Service) form refers to itself as a contract, its important to remember that it’s only an offer or counter-offer until it is signed by all parties. The consideration for the offer is the deposit (usually between $1,000.00 and $5,000.00 depending on the price of the house) given by the purchaser and held by the realtor, or in a “F.S.B.O.”
(For Sale By Owner) transaction, deposited with the seller’s attorney in his or her I.O.L.A. account.
The following analysis is based on the C.R.M.L.S. contract form with the various addenda which are approved by the local Board of Realtors, as this is the form most commonly used in this area. It is of great importance in any transaction that you read the contract carefully because it is from the written document that your rights and obligations flow. A copy of the basic contract is attached at the end of this text for your reference. Please note that the CRMLS contract form may change in the future but these provisions will remain in their basic form.
Much of the standard form is simple, such as the first two paragraphs, which identify the parties and the property. Attention must be given, however, to properly identify the seller as the party actually in ownership and the purchaser(s) as the party(ies) who will be in title and sign the loan documents. If one spouse has bad credit, the other spouse alone may be the purchaser. The property can be identified by its common mailing address; but be careful to indicate the proper town or city, county, and actual property size taken from the deed or tax receipt or available survey map.
Items included or excluded should be carefully listed in Paragraphs 3 and 4 following negotiations between the parties. Remember that items nailed screwed or glued to the walls, floors or ceilings, as well as plants growing in the ground, are “fixtures” and are generally included in the sale unless expressly excluded. Those items will be included “as is” as of the contract date unless a different standard is expressed, i.e., “to be in good working order at time of pre-closing walk-through”.
The purchase price is the subject of most frequent change in the offer/counter-offer process. Changes to this or any other part of the contract should be initialed by all parties as evidence of a final “meeting of the minds”.
Note that the contract calls for the payment of the balance due at closing in “cash, certified check, bank draft or attorney escrow account check” , although custom generally permits payment of small balance due (under $500.00) by personal checks.
The mortgage contingency in paragraph 6A is also an important part of the standard contract. This contingency means that the contract is binding on the purchaser only if he or she obtains a mortgage load in a certain amount on certain terms and the contingency requires that an application be filed usually within a few business days of the time the seller accepts the offer. the makes it even more important to have completed you loan shopping in advance of the contract execution in order to avoid being rushed when making this most important financial decision.
The mortgage contingency as presently worded in the CRMLS contract form, gives either the purchaser or the seller the right to cancel the transaction within five (5) business days of the date stated in the contract, if notice of the purchaser’s receipt of a mortgage commitment or waiver of the contingency is not given by that date. As it takes an average of three to four weeks from the date of the completed loan application, for a purchaser to receive a loan commitment letter, the date stated in that paragraph should be at lest three to four weeks from the execution of the contract. Please remember to notify your attorney at least three business days before the contingency expiration date stated in paragraph 6A, if you need more time to obtain a loan commitment letter, so that your attorney may request an extension of the mortgage contingency. It is always best to review the actual mortgage commitment letter vey carefully with your attorney as well as there will be special conditions required by the lender before a closing date can be scheduled and the loan will actually be given. Please do not rely upon a verbal mortgage commitment to satisfy the mortgage contingency.
Paragraph 6B gives the parties an opportunity to increase the purchase price but then to grant a seller’s contribution in order to reduce the actual purchase price to the agreed price but allowing the purchaser to borrow a larger amount as the maximum loan amount is generally based upon a percentage of the purchase price reflected in the contract. If the purchase price is increased for this purpose, however, it is important that the house must actually appraise at the higher price or the loan will not be approved. It is customary, therefore, to limit the “seller’s contribution” to no more than 2% to 4% of the purchase price.
Mortgage expenses and recording fees will be disclosed to you at the time of loan application in the form of a “Good Faith Estimate of Closing Costs” as required by Federal Law. Typically, the purchasers’ closing costs (not including down payment) range from six to eight percent of the amount borrowed, depending on points, tax escrow amounts, etc.
Title insurance is almost universally required by lenders to protect their interest as mortgagee. Most purchaser’s attorneys arrange for their clients’ title insurance and will explain the availability of optional owners’ title insurance, called “fee” title insurance. This expense and the expense of a new survey, if needed, are borne by purchaser; although in a few counties, the seller must pay for a continued abstract of title, or title search.
Paragraph 21 of the current contract lists a variety of inspections, which the purchaser pays to have completed, as applicable, and which give the purchaser the right to cancel the transaction if certain problems are found during the inspections.
The structural inspection gives the purchaser the right to cancel the transaction in the event the inspector finds substantial structural, mechanical, electrical, plumbing, roof covering, water or sewer defects, i.e. defects costing more than $1,500.00 to correct. It is a good idea to consider expanding that inspection to include toxic or hazardous mold, friable asbestos, underground fuel storage tanks and/or contamination by toxic or hazardous materials of any kind.
The purchaser is also allowed to cancel the contract if the inspector finds evidence of wood destroying organisms; a defective septic system; a defective well; and/or a radon level in excess of 4 picocuries per liter.
The cost of the basic “home inspection” is typically $500.00 but if a separate contractor is hired to inspect the septic system and/or well, the cost of the inspections will, of course, increase.
It is important to forward a copy of the inspection report(s) to the attorney as soon as possible in order that the attorney may discuss the results with the purchaser and then send an appropriate letter, together with a copy of the inspection report, to the seller’s attorney and to the realtors if there are any serious defects.
If written notice of the failure of an inspection is given within the time period stated, the buyer may declare the contract void or be given an additional period of time in order to work something out with the seller. Generally, all but the most serious problems can be resolved by giving the purchaser a credit against the purchase price at closing or having the seller remedy the defect prior to closing.
Additional contingencies may include government approval (for subdivision or zoning use change, etc.); sale of purchaser’s present residence or an appraisal reflecting at least the same value as the purchase price.
Effective March 1, 2002, Article 14 of the Real Property Law requires sellers to deliver to the buyer of residential real property prior to the signing by the buyer of a binding contract of sale, a Property Condition Disclosure Statement (PCDS). A copy of the statutory form is attached to this booklet.
This law defines “residential real property” as property improved by a one to four family dwelling but excludes any new construction as well as condominium units or cooperative apartments. The law does apply both in the case of contracts for the purchase or exchange of “residential real property” as well as any leases which contain an option to purchase and also to residential installment land sale contracts.
It is important to note that the Law requires that the PCDS be signed by the seller and delivered to the buyer PRIOR TO THE SIGNING BY THE BUYER OF A BINDING CONTRACT OF SALE. A copy of the PCDS containing the signatures of the seller and buyer must also be attached to the real estate purchase contract.
The PCDS has 48 questions listed in four groups, i.e. general; environmental; structural; and mechanical which the seller must answer.
Please review the attached form so as to familiarize yourself, as a buyer or as a seller, with the required form.
The PCDS law punishes a seller who fails to provide the completed PCDS form in a timely fashion by giving the purchaser the right to receive a credit in the amount of $500.00 against the purchase price. Additionally, if a seller willfully, i.e. knowingly and intentionally, fails to deliver a PCDS to a buyer, that seller may be liable for ACTUAL DAMAGES suffered by the buyer.
The new disclosure law does not take the place of any other existing equitable or statutory remedies. This means that purchasers may have other rights against sellers who knowingly fail to disclose hidden or latent defects but that all buyers should assume that, subject to the information delivered in the PCDS, that they are purchasing the property “as is”.
Please note, however, that this disclosure requirement is NOT a substitute for the various inspections otherwise provided for in the basic contract form.
The contract should also reflect the intended use of the property, usually as a single-family residence. If you’re counting on the income from a second unit, however, be sure that the contract reflects its intended use as a multi-family dwelling.
Paragraph 10 indicates that title is acceptable, as determined by reference to New York State title standards, if it is marketable, i.e. if there are no defects in the title to which a reasonable person would object. The attorney’s primary responsibility in any real estate transaction is to make sure that title to the property in question is marketable. Title is transferred at closing by a warranty or other deed, as specified in the contract.
Sellers pay a transfer tax, currently $4 per $1,000 of the sale price, at the time of closing. Taxes are pro-rated between the parties on the day of closing, as are fuel, rents, and applicable association dues. These adjustments and a list of closing costs are reflected on a Statement of Sale prepared by your attorney, usually a day or two in advance of the actual closing.
Buyers have the right to make a final inspection of the property within two days of closing to insure that the house is in the same condition it was at the date of seller’s acceptance, reasonable wear and tear excepted. Any repairs the seller has agreed to perform can be checked at this time as well.
Any real estate contract will reflect a proposed closing date and place. The parties should not make specific moving plans until their attorney confirms that a closing has in fact been scheduled. Although these contract closing dates are actually only target dates, they can almost always be met if both sides cooperate and communicate effectively, keeping in mind the length of time required for the various inspections, loan applications, and processing of paperwork by the lenders’ attorneys.
The exact closing date is set only after the purchasers’ attorney has delivered the proposed deed, current tax receipts, title insurance report, survey (if needed) and other documents to lenders’ counsel. Any conditions in the lenders’ commitment letter (except those to be satisfied at closing, i.e., fire insurance policy or binder and receipt, signed final application, etc.) must also be satisfied by the purchaser in advance of closing.
Other than the concerns set forth above, the C.R.M.L.S. standard form contract deals with deposits (held by listing agent or sellers’ attorney to be applied to purchase price at closing or returned if contingencies fall and notice is given), time period of offer (offer is irrevocable for designated period of time), real estate broker (seller generally pays commission), attorney approval (be sure attorney is given at least five business days to properly review contract with you), additional contingencies or disclosures attached to the contract, notices (must be in writing and properly mailed, faxed or delivered in order to be effective), and merger clause (the written contract is the entire agreement – no enforceable side agreements unless in writing). Anyone who is noted as a seller or a purchaser must, of course, properly execute the agreement and any addenda. Witnesses are a good idea in case the signature must be proven in Court. It is also important to date the contract, as the timing of the contingencies is often based on the date of sellers’ acceptance.