Real estate practices in Massachusetts are different than those in many other states. So even if you have owned a home somewhere else, the process of buying one in Massachusetts can make you feel like a first-time homebuyer. Here are some key differences between Massachusetts' and other states' home-purchase process.
The Massachusetts real estate market offers buyers a few different choices: single-family homes, multi-family homes, and condominiums. While there are a handful of cooperatives in the major cities, you will not commonly find them throughout the state. Buyers can also find land for sale; however most vacant land is purchased by builders.
A single-family home has one unit of living space, while a multi-family home has two or more. In both a single family home and multi-family home, the homeowner owns the building and the land under it. Some single-family homes are located in developments managed by a homeowners' association (an "HOA"). With an HOA in place, the homeowners must abide by certain rules and regulations and pay monthly or yearly dues. However, many single-family homes and most multi-family homes in Massachusetts are not in an HOA-governed community.
In a condominium, the homeowner owns the living space and any accessory space (such as a garage or deck) but the condominium owners as a group are part of the condominium association, which owns, maintains, and manages the land and any other shared space.
In most other states, when you decide to buy a house, you or your real estate agent will write up an offer on a standard form that's used statewide. There might be some negotiating back and forth with the seller over the many details contained in the offer form. But as soon as that offer form is drafted and signed, it becomes your purchase contract.
In Massachusetts, get ready for a two-step process. First, when you decide to put in an offer on a house, you will write up an offer on a standard form; but one that's shorter than the offer form used in most other states. The two most commonly used forms are put out by the Massachusetts Association of REALTORS® (the "MAR" Contract) and the Greater Boston Real Estate Board (the ("GBREB" Offer to Purchase Real Estate). Some real estate agencies might have their own form. There is no one statewide standard form.
The offer typically sets forth contingencies that must be met before the deal can go forward, such as a home inspection. The home inspection contingency can be scheduled to extend for anywhere from seven to ten days, or longer if the parties agree.
Another commonly requested contingency is the mortgage contingency. This gives buyers an out if they are unable to secure a loan commitment from a lender by a certain time.
Once the home inspection is complete, assuming the inspection report was satisfactory and/or the buyer and seller manage to negotiate over any needed repairs, the parties sign a longer, more detailed contract, known as a Purchase and Sale Agreement (or P&S for short). (The offer form typically sets a deadline for this, too.)
The Massachusetts P&S may also be drafted on any variety of forms available to real estate agents. The signed P&S becomes the final contract between the parties.
Nevertheless, the initial offer is considered a binding contract between buyer and seller. If for some reason the buyer and seller do not end up signing a P&S, unless the original offer/contract is terminated, it remains a binding contract. In one important case, the seller accepted the buyer's offer but, during the P&S negotiations, received a second, higher offer. The seller declined to sign the P&S and accepted the other, higher offer. The first buyer sued to force the seller to perform under the initial contract. The buyer won, and the seller was ordered by the court to sell to the first buyer. (See McCarthy v. Tobin, 429 Mass. 84 (1999).)
Therefore, you'll want to include all contingencies, such as financing, the sale of another home, inspections, and so on, in your offer, in case it becomes the only contract between you and the seller.
Unlike in the majority of states, attorneys must, by law as well as custom, be involved in Massachusetts real estate transactions. First, attorneys take part in the drafting and negotiation of the P&S described above (although you can submit an offer without an attorney's help, as is commonly done).
The P&S forms ordinarily used by real estate agents are not comprehensive and quite often favor the seller. Typically, both buyers and sellers have attorneys represent them during the drafting and negotiation of the P&S. Attorneys often supply their own forms for a P&S and will often add riders to a P&S drafted on a standard real estate association form or to one drafted by another attorney.
Secondly, attorneys, not title companies, handle real estate closings in Massachusetts. Courts in Massachusetts have held that performing a closing is a legal function that must be undertaken by someone licensed to practice law in Massachusetts. Closings performed by non-attorneys are considered to constitute the unauthorized practice of law.
The closing attorney is, in Massachusetts, responsible for performing a title search, preparing the settlement statement and closing documents, handling the financial aspects of the transaction, and ensuring that all transfer documents (such as the deed and mortgage) are properly recorded in the registry of deeds for the county in which the property is located.
The buyer pays the closing attorney's fee, as part of the buyer's closing costs associated with the mortgage.
On a side note, while the closing attorney represents the lender at the closing, he or she may be the same attorney who represented the buyer in the P&S negotiation, if the buyer consents to this. It is a commonly accepted practice in Massachusetts, even though the buyer and the lender have different interests in the transaction.
"Caveat emptor," or buyer beware, is the rule in Massachusetts real estate transactions. Sellers are not required to complete a disclosure form setting forth any material defects with the property, as they are required to do in many other states. The only disclosure sellers are required to make is a lead paint disclosure on homes built prior to 1978.
In Massachusetts, as in other states, the listing agent represents the seller in a real estate transaction. You should not assume that a real estate agent represents you, the buyer, unless you are specifically told otherwise.
An arrangement known as "dual agency" is allowed in Massachusetts, if the nature of this relationship has been disclosed to both home buyer and seller, and if both have consented. Dual agency means that the real estate agent in a transaction represents both the buyer and the seller simultaneously.
Many experts consider this to be a risky situation for the buyer, because no one is solely on your side, listening to your confidential thoughts about issues like your finances and how far you're willing to stretch to buy the house, and negotiating hard for you on that basis.
There's another, related form of representation known as "designated agency," which occurs when both the seller's agent and the buyer's agent work for the same real estate office. Designated agency is also allowed in Massachusetts, again upon full disclosure.
Many consider designated agency to be risky as well. The fiduciary duty owed to a client runs to the broker in charge of the real estate office, not just to the client's agent. Therefore, in a designated agency situation, the broker in charge owes a fiduciary duty to both buyer and seller, much like with dual agency. In addition, when both agents are in the same office, there is a risk that private information will be shared between the two agents, whether inadvertently or intentionally.
The third option of representation for Massachusetts buyers is buyer agency. This is when the agent, as well as the brokerage for which that agent works, represents only the buyer. These agents are also known as exclusive buyer agents. The seller would have his or her own agent from a separate brokerage house.
Buyers should know that agents who are hosting an open house represent the seller. Be wary of disclosing any personal information to an agent at an open house without first determining whom that agent represents. If unsure, ask the agent to provide a copy of the Massachusetts Mandatory Licensee Disclosure form. This form clearly explains the different representation options in Massachusetts and also discloses what type of representation a particular agent is offering. Agents must present it before discussing any particular property with a potential client.
The best way to find an agent who will represent your best interests is to hire an agent before starting a home search.