What exactly is an Ohio Residential Purchase Agreement?
An Ohio Residential Purchase Agreement (or simply "Purchase Agreement") is a legally binding contract between a home seller and buyer, to sell and buy a specific piece of real estate. The Purchase Agreement spells out in detail the terms of the sale, and provides instructions for both sides to follow, including steps to take before the sale ("contingencies"), timelines for when certain things need to be done, etc.
The Purchase Agreement is signed prior to closing, but after an offer is accepted by a seller. The Purchase Agreement also includes information about what happens if one party fails to live up to their end of the bargain (the legal term is "remedies"). If another property owner objected due to judgments, easements, restrictions, mortgages or liens , you must do title search to determine what your options are in that situation. After all of the elements have been satisfied, meaning nothing prevents title from passing from seller to buyer, the seller gives possession of the property to the buyer.
It is important to note that the Purchase Agreement is not the same as a purchase option on a property (such as a lease with an option to purchase), nor is it a real estate Listing Agreement. The Purchase Agreement is simply an agreement between a potential buyer and the seller, subject to certain contingencies. The Purchase Agreement does not authorize the broker to act as the seller’s agent, nor give the broker authority to bind the seller to buy or sell the property. A Purchase Agreement ends when the property closing is completed.
Critical elements in an Ohio Residential Purchase Agreement
The Ohio Residential Purchase Agreement is composed of several mandatory provisions that offer a blueprint for the transaction between buyer and seller. Of course, there are variations to the terms depending on the needs of the parties, but the agreement should contain the following core provisions:
- Buyer/seller names and contact info – including email address – of each party provides for avenues by which they can communicate throughout the transaction. Also, having current email addresses increases the chances that a contract can be negotiated and signed in an expedient manner and facilitates communications with the lender during financing.
- Property description – the address (street, city, county, state, zip) in addition to the location, size, legal description, designated use, and other information about the property (i.e. condo, unit numbers, garage space, lot number, easements or encroachments, etc.) provides specificity to the parties as to precisely what is being transferred upon the completion of the transaction.
- Sale price – must appear in both numerical and written form at the top of the purchase agreement. A high price point can impact the size of the required down payment, property taxes, and other significant components of the transaction.
- Closing costs – costs associated with the impending sale, property transfer, or the loan are outlined and allocated to either the buyer or seller.
- Financing – will the home be purchased outright, or does the buyer need an FHA-secured loan? Details about the loan, including the lender or broker used and the interest rate help the parties understand the mechanism by which the closing will close.
- Titles and conditions – plumbing problems, construction defects, age of roof, environmental hazards, etc., fall here. The purchase may be contingent on the seller addressing these concerns or factoring them into the sale price.
- Title settlement – lenders often require the use of certain licensed title companies. The buyer/seller must agree upon the title agent that will serve as the settlement agent. The duties of the settlement agent are to be fulfilled by either the title company or the escrow agent.
- Property condition – how the property will be inspected, including who will pay for the inspection are identified.
- Possession dates – when the buyer will be able to move in, and/or when the seller must vacate the property.
- Earnest money – type and amount of deposit required to bind the buyer to the contract.
- Final walk-through – usually undertaken 48 hours before the closing to ensure that the property is in the condition agreed upon.
- Closing – the date of the settlement, where it will take place, and the individuals present.
Legal requirements in an Ohio Residential Purchase Agreement
The Ohio Residential Purchase Agreement must comply with general legal requirements for real estate contracts in Ohio. According to Ohio law, real estate contracts must be in writing and signed by the party against whom a court action is brought. The writing can be in the form of a printed document, on a personal note or an email.
Ohio Statute 1335.04 and common law requires contracts for the sale of real property to contain essential terms that are specific enough for a court to determine the parties’ obligations. The minimum information contained in a valid contract include:
Other regulations govern additional provisions that can be contained in residential purchase agreements but are not required. For example, Ohio Revised Code: Chapter 5301: Recording Real Property Instruments does not require title to be conveyed in the purchase agreement. Instead, the statute requires that the agreement be recorded in order for the buyer to have marketable title. The purchase agreement must be acknowledged before a person authorized to take an acknowledgement or executed as a deed under the Ohio Revised Code: Chapter 5302: Conveyancing and recording real estate generally chapter.
Common contingencies in an Ohio Purchase Agreement
Unless a purchase agreement is an all cash purchase, the vast majority are contingent on the purchaser obtaining financing sufficient to purchase the property. In other words, that the lending institution will agree to lend the purchaser the money that they are seeking to purchase the property at the terms required by the purchaser. Usually this type of contingency only applies to funded or non FHA/VA loans.
Closely related to the financing contingency is the inspection contingency. Purchaser reserves the right to have the property inspected for the presence of termites and/or other wood destroying insects, a general home inspection, and a radon test of the residence for the potential presence of the naturally occurring but hazardous gas found under the ground. If the purchaser is not satisfied with the results of any or all of said inspections, the Purchaser may cancel the Agreement and go buy another place.
The appraisal contingency is the lenders confirmation of the value of the property. If the appraisal of the property by the lender is less than the purchase price agreed upon by the parties, the lender will not loan the purchaser more than the value of the property as determined by the appraisal. A lower appraisal may cause the purchaser to be forced to pay more than the property is worth, or may cause the purchaser to seek to renegotiate the Agreement with the seller.
Modifying and amending an Ohio Residential Purchase Agreement
The parties typically have some latitude with respect to amending or modifying the agreement after it is signed. First, the buyer may terminate the agreement if he/she does not timely receive copies of the seller’s disclosure. In such a case, the buyer is entitled to a prompt refund of their earnest money deposit. More commonly, one or both of the parties may wish to modify or amend the agreement to address contingencies. For example, a seller may wish to extend the due diligence period to give buyer additional time to conduct due diligence, or the buyer may wish to extend the inspection response date set forth in the agreement.
An amendment modifies the substance of the contract. It may include an extension of the closing date or the due diligence period or other contingencies. Changes to a purchase price and/or the earnest money deposit also may be accomplished through an amendment . Modifications are much simpler and are used for minor changes such as changes to contact information for the parties or their respective closing agents. In Ohio, an amendment or modification typically is accomplished by using the form promulgated by the Ohio Bar Association. Part A of the form provides a reference to the paragraph(s) being amended or modified. Part B includes the specific information and detail about the amendment or modification (e.g., extending the due diligence period, changing the time for inspections or other dates, increasing the purchase price). There is no requirement that the form be used. The process is as important as the format. The parties or their agents must mutually agree to the terms of the modification or amendment and sign and deliver the document in order to be effective.
Although offered by sellers or buyers, amendments typically are drafted by the listing or buyer’s agent once the parties have agreed to the terms.
Tips for Ohio Buyers and Sellers
Buyers should try to put their best foot forward with the first offer they make. Your initial offer shows you are serious about the property. A good faith deposit is key; the larger the deposit, the more seriously your offer is taken. Make a fair offer based on comparable properties in the area. Avoid making extremely low offers unless your agent feels strongly that you will get the home anyway. Your willingness to negotiate will shine through and a qualified agent will write the offer that best gives you leverage with the seller. If they turn down your first offer, don’t rush to give them your top dollar but instead prepare to counter negotiate.
Another important tip for buyers is to make sure you get seller disclosures. These disclosures are legal disclosures to inform the buyer of anything that might be wrong or unusual about the property or title of the property. Occasionally sellers will not fill out these disclosures, believing it is not important if the buyer home inspects anyway; however, the sellers are legally required to disclose any relevant information to the buyer regardless of an inspection. If you receive disclosures that include anything that seems questionable, do not sign until you have sought proper legal advice. It is better to wait than to buy a litigious surprise.
For sellers, make sure your home is in good condition and primed for showing. If your home is cluttered, dirty or too personal it can turn buyers off. Make repairs and clean the space to make it as attractive as possible. In addition, set the price fairly to gain the most interest by potential buyers. For both buyers and sellers, communication is key in negotiations and throughout the transaction process.
Typical mistakes to avoid when it comes to Ohio Residential Purchase Agreements
While Ohio purchase agreements provide a useful framework for the sale of real estate, there are a number of common pitfalls that can lead to disputes down the road. Parties should be aware of the following mistakes to avoid: Omitting Deadlines Purchasing a home is often time-sensitive: you need to have your financing lined up, make arrangements to move and maybe even start thinking about a change of schools for your children. Likewise, the seller is on a tight timeline as well, anxious to find a buyer and move on to the next stage of life . In order to properly process your real estate transaction, it is important that you and your real estate lawyer list out all critical dates and deadlines so that the sale can proceed in a timely manner. Different buyers, sellers and sometimes even lenders expect different things from the process, so special provisions might include: Purchasing real estate is an emotional process and one that can easily lead to overlooking some important details. The assistance of a knowledgeable real estate lawyer and some advance planning can help you avoid unnecessary headaches.