The first legal document signed by both the seller and buyer is the Offer to Purchase Real Estate often referred to as “the offer.”
The offer is a short, one-page form that outlines the key terms of the deal:
- The purchase price
- The amount of the buyer’s deposit
- The time for inspections
- The type and amount of mortgage needed for the purchase
- The closing date
The buyer will put down a small deposit (usually $100) to the make the agreement binding.
The offer is then used by the seller’s real estate agent to produce the more detailed Purchase & Sale Agreement (the “P&S”).
The P&S will supersede the offer when it is signed by both parties.
The most commonly used offers come in one of two forms—binding and non-binding.
The type of offer is easily identifiable by looking at the upper right-hand corner of the document. Binding offers are labeled “FORM B” and non-binding offers are labeled “FORM NB”.
There is only one difference between the two types of offers; the binding offer contains an additional clause that states
If the parties are unable to agree on the purchase and sale agreement, then this agreement shall become the binding agreement between the parties.
In theory, this clause makes sense.
Unlike the offer, the terms of the P&S are negotiated by lawyers.
The lawyers are often unable to agree on P&S terms.
Thus the additional clause in the binding offer would allow the parties to proceed with the transaction without signing the more formal P&S.
Unfortunately, this often cannot happen because the buyer’s bank will refuse to approve a mortgage loan without a signed Purchase & Sale Agreement.
If you have any questions about real estate law, please contact me at firstname.lastname@example.org.