Michigan Purchase Agreement Explained

I want to show you the new buy-sell agreement put out by Aspire North Realtors.

This is called a buy-sell agreement.

Sometimes it's called a purchase agreement or an offer to purchase. Let's get into it. So what's the offer date and time here? The selling broker and selling agent. The reason it's called that and not the buyer's agent is that, that agent might be working down here as a sub-agent of the seller.

And we'll get into that in just a second. But here we're just identifying who the agents are. So who's the agent that's actually submitting this offer? And then who is the listing broker, the listing agent, their contact information over here.

We already know that the agent who listed the property, they're representing the seller. The agent that's submitting this offer to the listing agent, in what capacity are they working?

Are they working as a buyer's agent representing the buyer only?

Are they working as a sub-agent or the agent of the seller only?

Okay. Not representing the buyer, but submitting an offer on the buyer's behalf.

Are they working as a dual agent? This can be really challenging, by the way.

They are balancing and working on behalf of both the seller and the buyer working as a dual agent, or are they working in some other capacity?

Okay. And then here we're identifying paragraph 2, who is the buyer? Paragraph 3, we're identifying what it is that we are offering to purchase.

You can't just rely on a physical address, although here's where you put that in. We need to identify whether this is, this property sits within a city, a village, or a township.

Is it the city of Traverse City?

Is it the village of Suttons Bay? Or is it the township of Suttons Bay? If it's outside of the village of Suttons Bay, it may be in the township of Suttons Bay. It may be in Bingham Township in the county of, obviously, state of Michigan.

Put the MLS number, the tax ID numbers, and the legal description, who the property is owned by, what price.

This is often the thing that we focus on the most.

What's the price? What are the terms? So is it a cash sale? Is it a new mortgage? What type of mortgage is it? Is it conventional?

Is it FHA, VA, et cetera? And what is the amount that you'll be borrowing? Oftentimes I just put to be determined right here because we haven't figured out exactly what our down payment is going to be. That way we haven't figured out exactly what the mortgage loan amount will be, or whether you're seeking owner financing. Doesn't happen very often in our market anymore, but it's there in case it needs to be.

Okay, earnest money deposit.

Earnest money is basically a demonstration of how earnest you are in purchasing this property.

So you don't have to put any earnest money down, but I can tell you that if you're competing against another offer and they do have earnest money, you're not going to be taken seriously by the seller.

It's not required by law or anything, but if you want to look attractive to that seller, you should put some earnest money down.

Okay, here the change from the previous contract is that determining whether it's already been collected or whether it's going to be collected.

I don't collect earnest money at the point of an offer. I, as an agent representing a buyer, I'll wait until the offer is accepted and we have a fully executed agreement. I don't want to be handling checks and money unless I know we've got a deal going. And so that's just a preference that I have.

Earnest money is held in escrow in a non-interest-bearing account. Who is holding that? Sometimes brokers hold that.

I always have the title company hold it, and then the agent signs here acknowledging the earnest money.

Here we're down to fixtures and improvements.

Here's a really important improvement, uh, over the last purchase agreement. It's important to know whether the TV that's mounted to the wall is considered a fixture or not, and then There's all these appliances.

It's traditional that these appliances will go with the sale of a property. Always encourage my sellers to include the washer and dryer, although I'll tell you a quick little story.

I have a dryer called Maytag Drying Station that the upper unit, it's a, it's about, sits about as tall as I am, 6 feet tall. There's a traditional dryer on the bottom, but on the upper part of that you can hang your shirts or hang your dress pants and it dries in that hanging position. And so you don't have to iron nearly as often. I love that, especially when I was a principal and superintendent, and didn't want to sell that with the homes that I sold. But it just gums up the negotiations. It's just easier if the washer and dryer is included. Go buy yourself a new one.

In my case, Maytag quit manufacturing this awesome drying station, so I didn't want to lose that. But anyway, here you get a chance to specifically identify things that are going to be excluded.

One really important thing to note is that in our market, there's an awful lot of homes that are being purchased with the intention of the buyer using them as a short-term rental. So furniture really comes into play an awful lot in our market. Lenders do not want to lend money against personal property.

So That's important.

If a loan is being used for the purchase, work that outside of this purchase agreement in the form of a bill of sale, because lenders only want to work off an appraisal for real property, not personal property.

Oil, gas, mineral rights. When I'm representing a buyer, I always mark included because it says right here, unless previously severed. Title companies don't research mineral rights.

It can be a real rabbit hole to determine whether or not mineral rights come with the purchase or not.

It's the safest to always mark here for a buyer, included unless previously severed. Possession.

This is an improvement because it adds right here, no later than noon, X number of days after closing. So we have a specific time. So possession will either be given to the buyer at closing or no later than noon. X number of days. So before it was just X number of days and we didn't really know what time of day was the expectation for the property to be handed over.

And by the way, one thing to consider here, when I'm working with buyers, I encourage them if they can to give the seller time after closing because in this crazy seller's market, you wanna make sure your offer is as attractive as it can be to that seller. But what tends to happen over time is that the closer we get to closing, the farther away we get from the, the time when we're really trying to impress to taking over the property, the attitude of the buyer can change over that time. And we haven't been tough right up front and saying, hey, we want it at noon, 5 days after closing. And if you don't deliver it to us, we're going to charge you $1,000 a day or whatever. And the reason we don't do that is that we want them to accept the offer.

You don't want to come off as really tough right here, because if you're up against competing offers, the seller might say, "I don't want to deal with that person. They seem like they're too uptight, unforgiving," or whatever. So just know that whatever you agree to upfront, you need to be prepared to see that through at the end. Seller's disclosure here, you're just marking down whether or not you've been provided a seller's disclosure or not.

Where it says right here, seller is exempt from, uh, disclosure statement. That is the case with estates. So if a property is inherited, then no seller's disclosure statement is required.

Okay.

Based paint disclosure. So homes that were built prior to 1978 may have lead-based paint in them.

You need to fill out a lead-based paint disclosure. Homes built after 1978, it's best— there's a, a little signature form has to do with lead-based paint that just acknowledges this home was built post-1978.

Property inspection. So this is where that earnest money deposit comes into play.

Most of the time has to do with paragraph 13, property inspections.

So most often homes are contingent upon buyer finding that inspection satisfactory. And here we are spelling out X number of days after the effective date of the agreement to 5 PM. So in other words, we go under contract on Monday the 1st, 3 days for inspection.

That means Thursday at 5 o'clock is the expiration day and time. And so that's really important to know because If you find something wrong with your property and you don't communicate and the inspection period elapses, that means if you want to get out of the deal, you have put your earnest money deposit at risk. So more into that as I go down under property inspections, go down here.

So you have an inspection, you've made an offer, it's been accepted, you're in your inspection period.

You get the inspection report and you no longer want this property, you wanna terminate the agreement.

So you simply need to communicate that within that specified inspection period, and you'll get your earnest money deposit back.

Seller cannot dispute that. You can also say, I didn't expect that it would need a brand new roof, that's a significant expense. If it's still within the inspection period, you can modify the agreement based on what you find during inspections, okay? You might find that the home has elevated radon levels, you wanna put in a radon mitigation system, but that's gonna cost, let's say, $5,000. You wanna knock 5 grand off the purchase price. That's the time to negotiate that is within whatever timeframe we've indicated up here.

Right here, if 3, it says, if the buyer neither removes the inspection contingency nor terminates the agreement in the inspection period, the buyer shall be deemed to have waived this inspection contingency. So if you do nothing, you communicate nothing, and the timeframe outlined up here comes and goes, you cannot use the inspections to back out of the deal.

If you end up backing out of the deal because there's something wrong with the property later, then you are putting your earnest money deposit at risk. You may not get back whatever you put down as an earnest money deposit. Okay, marking this is if you waived inspections.

I would not recommend that as a general practice.

Sometimes a buyer is actually a building contractor or is highly, highly knowledgeable about it. They've had a chance to check it out, so they're not going to hire a traditional home inspector.

Regulatory inspections.

So this is where we're talking about well/septic inspections or zoning ordinances. So let's just read through this.

If any zoning ordinance or governing authority requires an inspection at the time of closing, including but not limited to the well and/or septic.

If not already provided, seller shall order said inspection within 5 business days of the effective date.

So once the house goes under contract, both parties have agreed, the clock starts ticking.

Seller's got to order that within 5 days. When I'm listing a home on behalf of a seller, I usually order it right at the listing time. I handle that for my sellers.

Inspections at the seller's expense unless otherwise agreed upon. Upon receipt, seller shall provide said written results to buyer within 48 hours.

And if said report discloses a condition unsatisfactory to the buyer, then the buyer shall have 48 hours from the receipt to make written to the seller to correct any unsatisfactory conditions. Okay. I'm really, really excited about this as an agent. Because I actually bought a buyer of mine a brand new septic and drain field. It was a significant expense.

In my opinion, there was culpability on the part of the seller.

The determination made by the governing authority was never shared with me or my buyer. So this really does a great job of really spelling that out, which is an improvement. Hopefully will keep situations like I just described that happened to me and to my buyer client from happening into the future. Additional conditions, this is where you might put in, hey, I can only buy this if I sell my own house. So these are where you put other conditions in here.

Can be anything. One thing to keep in mind as a buyer, the more additional conditions you put in there, the less attractive your offer is going to be in all likelihood to that seller. Okay. Paragraph 16, the close on or before date. So whatever date you put in here, you are proposing that this be closed on or before. Everyone thinks that's the closing date.

No, it can happen anytime before that.

Title insurance. It's really important for you to understand what the title insurance is insuring and what it's not insuring.

Okay. Just like homeowner's insurance, you want to know if a tree falls and smashes your roof, is the homeowner's insurance going to pay for that or not? Are you insuring your home against a flood or not?

Same thing with title insurance. Title insurance, by the way, is the only type of insurance that insures you into the past. It insures you against a claim against your ownership of the property. But there are exclusions often cited in title policies, so it's important for you to review your title policy prior to purchase.

For example, I represented a client who was purchasing a piece of property and back in the chain of title, the state of Michigan had actually deeded the property to the local school district with a reversionary clause that said that if the property ever stopped being used for recreational purposes, it would revert back to the state of Michigan ownership. Obviously very highly unlikely in this case. But as a buyer of real estate, you want to have your eyes wide open on what the title insurance is insuring you against and what it's not insuring you against.

Prorations.

So here's another improvement is just the clarity around how the prorations are being done. For example, just represented a buyer buying a piece of property, had a 1,000-gallon propane tank that was 50% full.

Which means there's about 500 gallons in there that has yet to be used, but that seller already paid for it. So it's reasonable to expect the buyer to buy that fuel that the seller has already paid for but has not used under a separate check at closing. So that's prorated. Same thing happens with taxes at closing.

I mean, that's all spelled out here. Taxes are, are prorated at closing according to this language.

Assessment. So this is a major difference from the previous purchase agreement. Previous one said that the seller will pay off all the assessments. So in the case of the Village of Northport, there could be remaining money due on a sewer assessment. The seller, unless agreed upon otherwise, somewhere in the document, the seller had to pay that off at closing. Here, the buyer shall assume and pay all future installments of such assessment unless otherwise agreed upon in writing. So that's an important thing to know as a buyer, whether you are assuming the assessments that might be associated with the property or not.

Property damage, if something happens during the time that it goes under contract but before closing, this spells out how do you handle that if a fire breaks out or something like that. Walkthrough, customary to have a walkthrough happen prior to closing. Usually 48 hours prior to closing.

Home protection plan, heirs, successors, and assigns.

So in the rare case that a seller goes under contract, agrees to sell a home, and then passes away, that purchase agreement binds that seller's personal representative, heirs, or anyone succeeding the seller in the interest of the property. The buyer cannot assign the contract without the seller's written permission.

Compliance, some different compliance stuff as it relates to earnest money forfeiture, release, dispute resolution, limitation, attorney's fees, multiple listing service, et cetera, et cetera.

I'm just gonna skip down to the expiration, when this offer will expire. How long are you giving the seller to respond before the offer is no longer valid?

And then here's the space for people to sign.

Here's a space if the seller wants to make a counteroffer.

So there's an awful lot as it relates to the buy-sell agreement, otherwise known as a purchase agreement or an offer to purchase. I really like the new purchase agreement put out by Aspire North. I think it's definitely an improvement over the past one, and I look forward to using it.