Interpretation of the Ohio Real Estate Purchase Agreement

What To Look For In An Ohio Real Estate Purchase Agreement

The most basic requirement for an enforceable real estate contract is a "meeting of the minds" resulting in a written contract that has been signed by both parties. Ohio Revised Code section 1302.04 makes contracts for the sale of real property enforceable only by a written instrument signed by the party to be charged or by his agent. Here are the basic elements of an Ohio real estate purchase contract:
Legal Description – A description of the property, including the address, is essential. The legal description is a detailed description of the property. It can be by metes and bounds, lot and township, or however it is legally recorded with the county .
Sales Price – the offered sales price and the method of payment will constitute the exchange between seller and buyer.
Contingencies – will include disclosure of defects in the property, financing contingency, appraisal contingency, inspection contingency, as well as an escape clause for terminating the contract if no agreement can be reached on the contingencies.
Earnest Money Deposit – this is the deposit made by the buyer as indication of good faith to enter into a contract for the sale of the real estate. This earnest deposit is held in escrow by the seller’s broker or attorney.

Importance of Contingencies

The contingency clauses in an Ohio real estate contract are commonly understood, but rarely do any one clause get any level of attention outside of the parties to the contract. This section provides the basic overview and importance of the various common contingencies and clauses that are seen in these agreements. Although not an all-inclusive list, the following is a summary of a number of these types of contingencies or clauses for most common sales in the state.
As stated above, a contingency in a real estate contract is a condition which must be satisfied before a purchaser is required to proceed with the sale. For example, with a financing contingency, the contract usually provides that it is contingent upon the purchaser obtaining loan approval by a certain date.
It is important for purchasers to understand that not all contingencies are created equally. The parties can negotiate the various terms governing such contingences, such as the square footage of the premises, price, financing, surveys, and other common contingencies. The Ohio real estate contract does not require a seller to provide contractual contingencies for the purchaser. So again, as with a financing contingency, a seller need not agree to such clauses. There are typical clauses for contingencies in these contracts and you should work with your attorney to negotiate the terms of these clauses.

Understanding Earnest Money Deposit

The inclusion of earnest money deposits (also known as an "escrow deposit") is a common feature of Ohio real estate contracts. The earnest money deposit functions in much the same manner as a good faith deposit for a rental lease in that it conveys to the seller the buyer’s intention of completing the purchase of the property and on the part of the seller that the property will be held until the contract is satisfied and/or in the event the buyer fails to perform, the seller may keep the deposit in compensation for the time holding the property off the market or in lieu of damages for the buyer’s breach of the contract.
In Ohio, there is no law that requires an earnest money deposit; however, the Ohio Association of Realtors has created forms that can be used to set the terms of the contract. In summary, the earnest money deposit: The amount of the earnest money deposit should be specified on the purchase offer. It is suggested to treat the deposit like any other financial aspect of the purchase contract, such as the purchase price or repairs to be made or not made, which become a subject of negotiations as to who will pay for a given expense or if the expense will be incurred at all. Since the earnest money deposit is not capped by statute, it is up to you and the seller to arrive at a satisfactory amount. The amount of the earnest money deposit is obviously negotiable, but it is suggested to be an amount that would make you pause if the deal should go south. The earnest money deposit amount should be high enough that you will think twice about walking away from the deal especially if circumstances are such that you may lose the entire deposit amount as a forfeited purchase price due to a breach of the contract.
In most purchase contracts, the earnest money deposit is delivered to the buyer’s agent. They deposit the funds into their company’s general escrow account until the purchase contract is closed whereupon the company issues a trust check to the appropriate company (title insurance company), seller’s attorney, or closing agency as directed in the closing instructions. In rare cases, the buyer and seller may agree to have the deposit funds held by some other company, such as an attorney or closing agent. In this case, the deposit funds are not issued as a trust check but are returned directly to the buyer upon receipt of a signed release of the deposit by the seller.

The Title and Escrow Process in Ohio

Once the offer has been accepted and before closing and transferring property from seller to buyer, the title must be researched and verified to assure that the property is free of liens, easements or other restrictions, and that the buyer receives clear title. This is done through a title search. Title in this respect means proof of the right of ownership. The title search is usually done by a title agency, often on the same day as acceptance of the contract, since it is time-sensitive information which can affect closing. Parties may require an abstract of title, which is a condensed history of the title of the property from its original grant, created by skilled professionals called abstractors. The abstractor searches court records, then abstracts (summarizes) the information found. An abstract and a title search will both reveal recorded liens on the real property, such as mortgages, as well as date of deed, parties to the deed, covenants and restrictions, parties entitled under the will, etc. Before proceeds are disbursed at closing, a title insurance commitment should be received and a final title search should be done to insure that no documents were recorded during the interim period that would affect the property.
There are two types of title insurance policies that can be obtained for a fee by the contracting parties. Owner’s title insurance protects the interest of the person(s) named in the policy in the real property. Such a policy covers against "hidden risks", such as (1.) parties in possession of the property that did not sign a deed to the property; (2.) undisclosed heirs; (3.) conveyances by people who lacked authority; (4.) forgery; and (5.) insufficient acknowledgement. Lenders’ title insurance policies cover existing mortgagees, guaranteeing the validity of the lien on the property.
Once all terms are satisfied, the lender’s funds are disbursed and the closing takes place. An escrow agent collects the supplied funds from the buyer and the lender, such as earnest money and a loan deposit. The funds are held in escrow until all instructions have been satisfied. Instructions are given by the buyer and seller through their counsel and should include upon the trigger of conditions, such as the receipt of certain documents or the happening of a certain event. Conditions are then considered satisfied once it has been determined that adequate documents have been received and all requirements fulfilled. Once conditions have been met, the funds are disbursed from the escrow account. The title agency is responsible for the issuance of policies of title insurance for owner and lender. Policies are not issued until after closing, but are effective as of the date of closing. Agents are not permitted to commit any title insurance until they are notified by the Ohio Department of Insurance that they have obtained a license to issue such policies. Such notification is based upon the title agency’s completion of the required examinations and payment of the next year’s two percent premium income tax.
If the buyer and seller agree to a residential real estate purchase contract, they must also complete a Residential Property Disclosure Form. This form must be filled out completely and signed in order to comply with the Residential Property Disclosure Act. A disclosure statement must be provided to each buyer who signs the contract and to each subcontractor who is given the contract. The Residential Property Disclosure Act requires that certain disclosures be made if the property has been occupied as a residential dwelling prior to the date of transfer, unless the transfer is exempt. The Residential Property Disclosure Law requirements discussed above may be avoided by checking one of the exemptions recognized by the Act. One exemption provides that the following entities are not required to provide a disclosure statement: (1) a trustee; (2) a mortgagee; (3) an executor of an estate; (4) a receiver or guardian; (5) the state or a political subdivision; and (6) a court appointed sheriff, marshal or other person acting in a similar capacity.

Ohio Requirements for Property Transactions

In addition to the terms commonly found in most all real estate purchase contracts, the Ohio Real Estate Purchase Contract contains several items that are required by the Ohio Revised Code. These statutory sections require disclosure of lead-based paint for homes built before 1978, seller disclosure forms for all residential property transactions, and in certain cases, a residential property disclosure form.
The federal government has passed a law, which requires any time that certain homes are sold, leased or rented, the disclosure of lead-based paint and lead hazards is required. This law applies to residential properties built before 1978. The Seller Disclosure form contained in your Ohio Real Estate Purchase Contract complies with this federal law to ensure the seller has complied with the disclosure requirement prior to selling their home . Prior to signing the Ohio Real Estate Purchase Contract the seller must make the appropriate lead based paint disclosures. According to Ohio law, the buyer must receive the lead based paint disclosure no later than one day before the finalization of the transaction.
Ohio law is not limited to lead-based paint disclosures. Ohio law also requires the seller to provide a residential property disclosure form for all residential property transactions. The Residential Property Disclosure Form contains questions about any defects or issues relating to the property that the seller is aware of including, but not limited to:
Once again, according to Ohio law, the buyer must receive this Residential Property Disclosure Form no later than one day prior to the finalization of the transaction. Interestingly, if the Residential Property Disclosure Form is not provided as required by statue the buyer has a statutory right to terminate the purchase contract.

How to Execute a Property Purchase Agreement

Negotiation
Once both parties have signed the contract, if a home inspection is called for per your agreement, that process should begin immediately and result in the renegotiation of a repair addendum.
Finalizing the Property Sale
There are typically several steps that can be followed to finalize the sale of your residential property:

• Attorney’s Fees: The purchaser often pays the real estate attorney fees for preparing the deed, etc., and may also pay additional attorney fees for preparing and recording the mortgage and other buyer expenses.
• Mortgage Company Fees: The mortgage company may charge the borrower for the cost of the mortgage and its recording and other buyer expenses.
• Seller Costs and Closing Costs: Seller-related expenses cover all costs that a lender or mortgage company does not pay for. These can range from the home inspection, title search, tax certification, termite inspection, and smoke detector certification to selling or marketing costs.
• Title Company/Abstract Service Fees & Charges: Besides title insurance, a title company or abstract service prepares certain paperwork, such as recording a mortgage, disbursing funds from the sale, collecting the down payment and closing costs, and calculating the final accounting. Depending on the amount of the down payment, a title company may also charge to issue a title policy with a regular rate, a standard rate, or an ALTA rate.
• Other Miscellaneous Costs: Miscellaneous costs may include taxes, interest, and legal and recording expenses.

Closing Process
Your attorney should be present at the closing, where the buyer signs certain documents and pays the purchase price. The seller then acknowledges the deed and record title to the buyer and receives the balance due from the purchaser.

Common Pitfalls and How to Avoid Them

One common mistake that sellers make is to assume that the buyers’ lender’s review of the property and the buyers’ due diligence are sufficient to protect them. Lenders’ policies and procedures are not designed to protect the seller’s interests. For example, did you know that although Ohio law provides a strict liability standard for home caveat emptor, meaning let the buyer beware, this does not mean the seller is without liability? If the buyer discovers a material defect that the seller knew about at the time of the sale, and if the buyer can prove the seller knew about the material defect and failed to disclose it, the seller will be liable for damage caused by the material defect . When in doubt as to whether a defect should be disclosed, contact a real estate attorney for guidance.
Another common mistake arises when the buyer has pre-approval for financing, and the seller believes the sale is virtually assured. However, neither the seller nor the seller’s agent should count on the buyer being approved for financing. Given the 2008 financial meltdown, banks have become extremely cautious in over lending to borrowers. All is not lost, though. Keep in mind that buyers who pay all cash also need to satisfy their lenders’ requirements. Therefore, until the closing is confirmed, and the sale proceeds are in hand, don’t celebrate too soon.