Real estate purchase and sale agreements can and should be complex. They involve an expensive commodity with significant obligations of both buyer and seller. Detail and clarity are essential to make sure the intent of both parties is met so the agreement will travel smoothly to closing.
In English common law, an agreement to purchase and sell real estate had to be in writing. The purpose of that requirement was to prevent a person from claiming breach of a fraudulent oral contract. Florida has adopted that requirement by statute. All real estate purchase and sale agreements in Florida must be in writing. If the contract is not in writing, even if a deposit is made and the parties move toward a closing, the agreement will be unenforceable.
An offer does not become a contract until it is accepted. Notice of acceptance must be delivered to the other party and until that happens, the other party can usually revoke any offer or counter-offer he or she made.
A contract must address certain items to establish the parties agree on all essential terms. At a minimum, the contract must name the parties, describe the property, include the purchase price and be signed by both buyer and seller. The signature requirement can be a problem, especially when some but not all of the owners of a property signed or if someone signed who does not have authority to sell for the real owner.
A deposit is not required for a binding contract. Most sellers insist on a deposit and local practice is for a deposit of 10% to ultimately be made in connection with a residential purchase. The deposit will be applied as part of the purchase price or may be refunded to the buyer if contract conditions are not met.
Anyone who has purchased Florida property recently may now be asking if that is all that must be in a contract and why is my contract 10 pages or more? The answer is because even form contracts drafted by Florida Realtors, the Florida Bar or even a local Realtor’s Association try to address issues that arise in a typical transaction so there will not be argument or confusion. In addition, Florida mandates certain disclosures in residential sales contracts. Trying to address all of these issues in a sales contract makes the document morph to 10 pages or more. And, when purchasing from a developer, buyers can face a contract and attachments exceeding 30 pages as the developer seeks to fine tune a contract more favorable to the developer.
The sales contract most frequently used in local residential sales is created by the Legal Resources Committee of Naples Area Board of Realtors (NABOR), with input from the Real Estate Section of the Collier County Bar Association and the Marco Island Area Association of Realtors. The committee includes local real estate brokers and experienced real estate attorneys who do their best to draft a one size fits all contract. The contract is 10 pages long and is updated bi-annually.
The NABOR contract not only includes the address and legal description for the property, but a list of personal property that is traditionally included in the sale of a home in Southwest Florida. Those items include built-in fixtures, home entertainment systems, home security systems, kitchen appliances, washers, dryers, window treatments and keys and access devices (including community access devices). The contract includes a line to list items that are excluded from what the committee felt is normally included.
Closing date is specified and time made of the essence for closing. When time is made of the essence, if either party fails to meet the deadline the party is in breach of contract. In most contracts, when time for performance is not specified, the implied time for performance is a “reasonable time.” If time is not made of the essence, the dates in a contract may not be critical.
The NABOR contract includes options for the buyer to confirm method of payment. If the buyer will be getting a mortgage, the contract can be made contingent on obtaining the mortgage. If the mortgage is not obtained, the buyer does not have to close. The NABOR contract defines the effective date of the contract as the last dated initials or signature. It then uses effective date for calculating almost all deadlines under the contract. With exception of the closing date, the contract does not specifically say that any other deadline is time of the essence. That does not mean a deadline can be missed, but it helps avoid a technical or minor delay in performance giving the other party a clear and immediate right to terminate.
The NABOR contract provides the buyer with 15 days from the effective date to inspect the property using licensed inspectors. If the inspections reveal defective conditions as defined in the contract, the buyer can request the seller to repair or give the buyer a credit equal to the estimated cost of the repair. If the seller refuses, the buyer can terminate the contract and obtain refund of deposit.
Even if the buyer does not request any repairs, the contract requires the seller maintain the property in the same condition from contract to closing. It places the risk of loss from any damage on the seller until closing. That is an important clause, as without it the risk of any damage passes to the buyer as the buyer has an equitable ownership interest in the property as soon as the contract was signed. At common law, if the property was damaged after contract, the buyer would still have to buy it although the seller would have to assign any insurance to the buyer. In the worst case, the house could burn down and the buyer would still have to buy it, even if the seller had no insurance.
The NABOR contract specifies who pays for what. It incorporates local custom that the buyer generally pays for everything to protect the buyer such as inspections, survey, recording expenses, association approval and transfer fees and title insurance. Buyer pays the cost of any mortgage to purchase the property. The seller pays for documentary stamps on the deed, estoppel or payout letters concerning liens, assessments and mortgages. Each party pays their own attorney fees. The contract also provides that taxes, rentals and expenses are prorated as of the closing date, with the buyer charged with any expenses of that date and entitled to the benefit of any income for that date.
The NABOR contract includes three provisions required by Florida law. First is a homeowners association disclosure, which warns buyers that if they do not receive a disclosure summary of homeowner association assessments prior to signing the contract, they have three days after receipt of the summary to terminate and get their deposit back. Similar warning language is included concerning purchase of a resale condominium. The buyer has three days from receipt of various condominium documents within which to terminate the contract and get back the deposit. It also include warnings that radon may be present in residential real estate and that the buyer should not rely on the seller’s current property taxes as amount of property taxes the buyer may be obligated to pay.
Some people think the day ends at 5 PM when dealing with a real estate sale contract. The NABOR contract even includes a statement that deadlines expire at 11:59 PM.
The NABOR contract does an excellent job of addressing matters that are pertinent to most residential sales. But, there are a lot more issues and contingencies. NABOR publishes a total of 73 forms including contracts, listing agreements and a litany of amendments and addenda that can be used to modify or add to the terms of its form contracts. Those additional forms include agreements to occupy before or after closing, contingency for attorney review, if change is needed when a co-op is the subject property, making the purchase contingent on sale of the buyer’s home and even a lease back by the seller.
Realtors are allowed to fill in the blanks on these forms, but not to draft additional forms or alter the pre-printed language. Drafting or alteration is generally considered the practice of law requiring an attorney.
The NABOR contract runs 10 pages. Addenda and amendments can pile on additional language. The terms and content can be overwhelming and even confusing. Good legal advice is helpful, but the bottom line is both buyer and seller in a residential real estate transaction should know what they are signing before they sign it.
William G. Morris is the principal of William G. Morris, P.A. William G. Morris and his firm have represented clients in Collier County for over 30 years. His practice includes litigation and divorce, business law, estate planning, associations and real estate. The information in this column is general in nature and not intended as legal advice.