Purchase Agreements (Chapter 3 of Michigan Residential Real Estate Transactions)
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Chapter 3: Purchase Agreements
Danielle M. Spehar, Maddin Hauser Roth & Heller PC
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CONTENTS
Basic Legal Requirements
Key Provisions and Negotiating Points
New Construction

I.   Overview

§3.1   The purchase agreement—the written agreement that sets forth the terms of the sale and purchase—is the document that will, or at least should, dictate how the residential transaction is to unfold. In preparing the purchase agreement, remember that, in most cases, your client wants to complete the deal using a purchase agreement that provides sufficient protections and assurances for the parties, without being overly favorable to one party or the other. Know what is important to your client and tailor the agreement accordingly. For example, often a seller will accept a contract that provides the buyer with certain protections, such as a right to inspect the property, as long as the protections do not reduce the seller’s expected proceeds from the sale or give the buyer an unreasonable right to cancel the deal.

The focus of this chapter is the sale and purchase of an existing residential home. Special features related to the sale and purchase of a newly constructed home are summarized in §§3.47–3.52.

II.   Which Forms to Use

A. The Mythical Standard Form

§3.2   Often, the attorney’s first involvement in the residential transaction will not be to draft the purchase agreement but to review a preprinted form, usually prepared by a real estate broker. Despite what you may hear, there is no such thing as the standard form, and each form must be carefully reviewed and then tailored to meet your client’s particular needs. In making changes to the preprinted form, unless there are only a few, it is often advantageous to prepare an addendum to the form, using the same size paper, font, and type as the preprinted form, as opposed to marking up the preprinted form with handwritten revisions.

B. Using the Forms in This Chapter

§3.3   This chapter includes examples of drafted and preprinted purchase agreements; the drafted forms are included in the download of forms that accompanies this book. Form 3.1 is a drafting checklist to use when drafting purchase agreements. Form 3.2 contains numerous sample clauses with alternatives for pro-seller and pro-buyer terms. Form 3.3 is a form I developed that I loosely call a “pro-seller” purchase agreement. I say “loosely” because not all provisions in this form are pro-seller. For example, this form requires the seller to pay the transfer tax for the sale of the real estate. A more onerous pro-seller form might shift the obligation of paying the transfer taxes to the buyer. Consult the drafting checklist for additional alternative clauses. Although form 3.3 was developed for use in transactions in which a real estate broker is not involved, it also works well for brokered transactions.

Form 3.4 is the “pro-buyer” counterpart to form 3.3. Again, some of the provisions may not be particularly pro-buyer, so, as with any form, be careful how you use it. Compare the provisions of form 3.3 to those of form 3.4 and you will readily see where you can obtain an advantage or added protection for your client without making the agreement too onerous for either the seller or the buyer. Consult the drafting checklist for additional alternative clauses.

Additional ideas for clauses can be found in preprinted forms developed for local and regional associations of Realtors. Many of the provisions in these forms are similar to those in forms 3.3 and 3.4. Having been developed for Realtors, however, each form may be characterized as pro-broker. Some contain statements regarding the broker’s agency disclosure form and an arbitration clause relative to disputes over the earnest money deposit and the condition of the property. Although not necessarily contrary to the interests of the seller and the buyer, these are examples of provisions that have been included to meet the special concerns of real estate agents.

With some preprinted forms, an effort has been made to generate an all-inclusive document with both pro-seller and pro-buyer provisions. These forms may use a check-the-box approach to allow the parties to pick and choose which provisions to apply to their transaction.

Some Realtor associations provide optional addendums to be used when the seller will occupy the property after closing, when financing for the purchase is by land contract, or when the property is vacant. In some preprinted forms, although designed to be neutral (i.e., favoring neither the seller nor the buyer), the contingencies provision may allow either party to terminate the agreement at, potentially, a very late stage of the transaction. This provision has the potential to be very negative for one of the parties.

Preprinted forms are developed with a particular person or persons in mind. Equally important, each was developed with a particular geographic location in mind. For example, preprinted forms from west Michigan often contain a contingency for pest or insect inspections because the concern about termite or carpenter ant damage has historically been greater on the western side of the state. Understanding the intended audience and the intended geographic region will help you to use preprinted forms with care.

Some preprinted forms are designed with someone in mind who is not (technically) a party to the agreement—the real estate broker. This highlights the importance of knowing the source of any preprinted form you may be asked to review. Similarly, these forms highlight the need not to presume that something that has been characterized as a pro-seller or pro-buyer form is, in every aspect, favorable to the seller or the buyer, as the case may be. Some typical provisions in which a pro-seller form may differ from a pro-buyer form include the “subject to” clause (discussed in §3.12), the mortgage contingency (discussed in §3.16), the earnest money deposit (discussed in §3.22), the seller’s postclosing occupancy (discussed in §§3.26–3.27), and the inspection contingency (discussed in §3.31).

Footnotes

1 The author wishes to thank Patrick A. Karbowski and David W. Charron for their previous contributions to this chapter.

Forms and Exhibits

Form 3.01 Drafting Checklist for Purchase Agreements
Form 3.02 Sample Clauses for Drafting Purchase Agreements
Form 3.03 Pro-Seller Residential Real Estate Purchase Agreement
Form 3.04 Pro-Buyer Residential Real Estate Purchase Agreement
Form 3.05 Land Contract -- Residential (Pro-Seller)
Form 3.06 Land Contract -- Residential (Pro-Buyer)
Form 3.07 Residential Building, Sale, and Purchase Agreement (Buyer Owns Land)
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