Thursday, June 6, 2013


As a practical matter, an Offer to Purchase Real Estate (Offer) is generally a one to two page document outlining only the basic terms of a real estate transaction such as the purchase price, the parties involved, the closing date, personal items to be included and what inspections are to be performed prior to closing.   This then leads to the signing of a formal Purchase and Sale Agreement (P&S) which can be over ten pages long and will include additional terms not outlined within the Offer.

While an Offer cannot list all of the terms contained in a standard P&S, a Buyer should be sure to include a clause that the “property must appraise for the purchase price” listed therein.   This language protects the Buyer should the property appraise for an amount less than the purchase price.   Unfortunately, if this phrase is not included in the Offer, the Seller may object to the inclusion of this language in the final P&S.   Generally the Seller will claim that the inclusion of this language is an additional term that was not contemplated within the accepted Offer and materially changes the terms of the transaction.   

Frequently an argument is made that a mortgage contingency clause would protect the Buyer if the property does not appraise for the purchase price.  This may be true in transactions where the Buyer is only putting down 3% with a purchase price of $150,000 as the bank would likely deny financing.  But this could become a large problem when the Buyer is putting down 20% of the purchase price of $400,000 as the bank may not deny financing.   In the second situation with a $400,000 purchase price the bank may be willing to lend so long as the house appraises for at least $360,000.  But as the Buyer do you want to pay $400,000 for a house you know is only worth $360,000?  Likely not.  If you do not have a provision in the P&S requiring the property to appraise for the purchase price and your bank is still willing to lend you money for the purchase you could find yourself in a tough spot.  By this time you likely have already paid your second, and usually significant, deposit with the signing of the P&S and if you back out you could lose your deposits to the Seller. 

By including in the offer a simple clause stating that the property must appraise for the purchase price you reserve your right to re-negotiate with the Seller should the property come back at any amount below the appraisal amount.  Why pay $400,000 for a house that appraises at $393,000? 

Phillips Silver has helped many clients throughout Massachusetts buy and sell homes.  If you are looking for legal representation concerning the purchase of a new home please contact us to discuss how we can help you.  We have experience representing buyers and their lenders in connection with the purchase of property in Massachusetts.  We can also help if you are selling your home or other property in Massachusetts

The information you obtain on this blog is not, nor is it intended to be, legal advice. You should consult a lawyer for advice regarding your individual situation. We invite you to contact Phillips Silver and welcome your calls, letters and electronic mail.   Please note, contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.