Essential Ohio Residential Purchase Contract Terms
As a standard practice, every real estate purchase contract in Ohio will include some basic information identifying the parties to the transaction. The buyer and seller will each be named, and the contract should also contain a legal description of the property in question (this is not the same as the parcel number). Finally, the contract should specify the sale price of the property and the date on which the sale will close.
Beyond those components , real estate purchase contracts in Ohio can vary significantly. Some of the most common additional components include provisions for earnest money deposits (also known as a good faith deposit) to be given early in the process, as well as contingencies—the circumstances that must occur (or be waived) prior to closing. Most real estate contracts in Ohio contain contingencies regarding the completion of appraisals and inspections, the securing of financing, and any required governmental approvals.
Statutory Requirements for Ohio Contracts of Sale
In Ohio, as in other states across the country, a real estate purchase and sale contract is legally required to include certain provisions in order to be considered valid and enforceable.
Under Ohio Revised Code 1335.05, unless a salesperson or broker is provided with written authorization to coordinate a real estate transaction, the real estate purchase and sale contract must include: As is standard for any purchase agreement, the contract must include a description of the property, the purchase price, the closing day and place, and any conditions or contingencies for which the enforceability of the contract is dependent. In Ohio, an additional prerequisite is that the sale must be subject to a sale of the buyer’s property unless waived. There are also specific disclosures that must be included for Ohio real estate contracts. The seller must disclose any code violations for the property that would prohibit the certifying owner from renewing their certificate of occupancy. They must also state if the property is in a flood plain. Since there is no statewide property disclosure form, sellers act in good faith, even if they miss something. In addition, the seller and the buyer must be provided with a lead-based paint disclosure if the home was built before 1979. In Ohio, most contingencies are standard, including those allowing the buyer to conduct quality inspections and secure financing for the property. There is no set time period for these contingencies, as the seller can decide how much time the buyer has to conduct inspections and secure financing.
Contingencies in Ohio Real Estate Sales
Common contingencies found in Ohio real estate purchase contracts include inspection, financing, and appraisal contingencies. These contingencies can impact the purchase process in several ways.
Inspection Contingency
One of the most common contingencies is the inspection contingency. These contingencies typically allow the buyer to hire inspectors to examine the property for various issues, including: If there are issues discovered, there are various options available to the parties to remedy the issues. Typically, if the contract has a contingency that is not satisfied, such as the house doesn’t pass inspections or appraisal, the buyer has the right to terminate the contract and get back their earnest money deposit. Again, the contract may have requirements regarding notice and timing to get this deposit returned.
Financing Contingency
Essentially, the financing contingency allows the buyer to walk away without penalty if they are unable to obtain financing to purchase the property. This contingency allows time for the buyer to apply for a mortgage, understand their credit, and get sufficient financing to purchase the home. Ohio does not require you to obtain a mortgage and many people purchase property without financing.
Appraisal Contingency
Many times, the seller will order an appraisal to be done on the property. This is a method the seller can use to determine the property value and often in contested cases is used to rebut claims that the purchase price was too high, or that there was fraud in the purchase price or transfer. However, many lenders require an appraisal as part of the loan process, and frequently the lender orders the appraisal, and will also pay for the appraisal. The lender often requires the appraisal to be completed prior to closing, with a specific amount deducted from the sales price for any variance between the appraisal and the sales price. This is known as an "appraisal offset". If the appraisal comes in below the sales price of the property and an appraisal offset has not been included in the contract, the buyer will not be required to purchase the property, because the bank will define the value of the property as being lower than the contract price. As with all the contingencies, if the obligation of either party does not include a fixed time frame in which an obligation must occur, there is no obligation until the last date by which the obligation could occur.
Legal Liabilities and Rights of Buyers and Sellers
The legal rights and obligations of buyers and sellers are established by the real estate purchase contract. In Ohio, the purchase contract may be drafted by the parties or drafted by the real estate agent and provided to the parties. Experience shows that the best practice is for an attorney to draft the purchase contract, as it is the attorney who can offer advice to the client about the transaction.
Ohio real estate contracts give the buyer the right to inspect the property. The buyer shall be given the opportunity to examine the condition of the property. An inspection is the best way to discover problems with the property. What the buyer does with the information is a matter between the buyer and seller and will depend on the nature of the problem. The buyer can ask the seller to repair the item. The seller has no obligation to do so. If the buyer wants a remedy, the buyer must ask for it in writing and give details so that the seller knows precisely what the buyer wants. The buyer can, of course, make a lower purchase offer or withdraw from the transaction and find another property.
As a result of the buyer’s inspection, it may come to light that the property is not in as good condition as Buyer had been led to believe it was or that the buyer’s financing will have a cost of funds which exceeds his expectations. These are examples of problems which might arise and for which the buyer and seller can agree on a modification to the purchase contract to resolve the problem.
If, however, the parties cannot come to terms, then depending on the wording of the real estate purchase contract, the seller may have a claim against the buyer for the specific damages or losses caused by the buyer’s failure to perform the contract. Those damages may include lost marketing time, carrying costs, and the difference between the amount the seller receives for the property (which will be less than what would have been realized if the transaction completed) and the market value of the property determined at the time of the default. It is, therefore, very important to carefully read the wording of the real estate purchase contract, since it may define the seller’s remedy in the event the buyer crosses the line and breaches the purchase and sale agreement.
In addition to seller loss of money as a result of the buyer’s breach, 10% of the total purchase price (sometimes referred to as the "deposit") may be an amount the buyer agrees to give to the seller if the buyer defaults on the contract. The "deposit" is usually paid (as it is in most states) once the buyer has the right remove the buyer’s contract contingencies. The "deposit" is in essence an advance payment of the seller’s damages. In the event of a buyer breach, the seller shall give the buyer written notice of default and the seller shall be entitled to receive from the buyer the deposit amount. The seller is entitled to attorney fees for pursuing the claim, which was defined in the real estate purchase contract as a right in favor of the seller.
The purchaser has certain rights granted to him or her under statute. Pursuant to Section 5302.30 of the Ohio Revised Code, a residential buyer may have a statutory right to bring an action against the seller to recover actual damages for a seller’s intentional or knowing misrepresentation of, or intentional or knowing concealment of, the condition of the property. The circumstances of the alleged seller misconduct and the remedies available in equity are far too complex and beyond the scope of this discussion. Suffice it to say that the buyer has the right to engage you, the attorney, to pursue a claim against the seller.
How to Modify a Real Estate Contract in Ohio
Amending a real estate purchase contract in Ohio requires careful attention to detail to ensure the modification of the original agreement is properly documented. While it may be tempting to simply cross out a line and write in a new provision, such a method poses the threat of being viewed as an unlawful "unauthorized practice of law." It is not a practice of law to fill in a form or plug information into the fillable areas of a Purchase Agreement form. It is considered the unauthorized practice of law to take a Purchase Agreement form with blanks and "draft" or create language designed to modify the form.
Pursuant to Ohio Revised Code Section 5301.09, any deed or instrument of writing by which the estate of inheritance is granted or contrived must be by deed. In the context of real estate transactions, deeds usually are not what grants the interest; the contract of sale is what gives the interest in the property and the deed conveys the property. Real property is not vested in the grantee of a contract for its sale but becomes vested only on the delivery of a deed. Calesar v. Weir, 146 Ohio St. 125, 64 N.E.2d 226 (Ohio 1945).
The amendment of a real estate contract in Ohio requires the mutual assent of both parties. As such, it is not enough just to have one party sign a change to the Original Agreement, especially where the Contract has a merger clause (a clause that states the entire agreement is contained within the four corners of the written document with no other terms or promises). The Original Agreement is merged and may not be modified or amended except in writing. Ohio courts have found that modifications to a written contract require the signature of all parties to the agreement .
The good news is, the Revised Code does provide some guidance with respect to the execution and delivery of real estate amendments:
For an amendment to be valid, it must follow these general guidelines:
The validity of a Contract of Sale or Purchase Agreement may not be attacked on the basis it was never executed, if the parties have delivered their copy of the contract to their mutual agent, provided there is consideration and the subject matter is clearly designated. Perry v. Reeder, 115 Ohio App. 370, 185 N.E.2d 747 (Ohio 1962).
The Supreme Court of Ohio has held, the written agreement contemplated and required the signing by the parties to the contract in the exact same manner as an indorsee would indorse a negotiable instrument and, in the absence of such signing, the instrument, while effective as the contract of one party, was ineffective as the contract of the other party. State ex rel. McCorkle v. Supt., Prison Reformatory, 106 Ohio St. 81, 138 N.E. 357 (Ohio 1923).
A contract is enforceable even though it is never signed by either party, if the parties, by their words or actions are found to have accepted and acted upon the contract. Reitz v. Giese, 129 Ohio St. 44, 193 N.E. 399 (Ohio 1934).
An option to purchase real estate is not an interest in real estate and does not have to comply with Ohio’s recording laws. Klapp v. Hurst, 66 Ohio St. 232, 64 N.E. 370 (Ohio 1902).
Real estate purchase contracts in the state of Ohio, or elsewhere for that matter, are very technical legal documents and should be drafted, modified, and adapted by a qualified attorney who is licensed in the applicable state. A party or real estate agent who tries to make substantive changes to an Ohio real estate contract without appropriate legal representation could very well be committing an unauthorized and unauthorized practice of law.
Role of Realtors and Attorneys
The real estate purchase contract is similar to a traditional contract, either express or implied, in many regards. Parties and real estate agents will negotiate the terms of the contract, both orally and through the drafting of a written document (the Residential Purchase Contract ("RPC") provided by the National Association of Realtors ("MLS"). This means that there are many moving parts to a traditional sale in Ohio. Real estate agents and attorneys have their roles under Ohio law, and act as a conduit between the buyer and seller.
Real estate agents and attorneys will interact on behalf of the seller and buyer throughout the terms of the purchase contract. A real estate agent’s role is to represent the client, their best interests, and to advocate for them. Attorney’s often have dual roles here, and look at it from a legal perspective by making sure the terms of the contract are enforceable and the legal remedies are available. For example, if a buyer is a first time home-buyer, they may rely on their real estate agent for advice on getting a mortgage, negotiating vendor services (home inspection, staining), closing details, etc., whereas an attorney may play more of a support role unless the buyer reviews legal implications of an addendum (without title insurance, etc.).
Through the life of the contract, the buyer and seller may encounter issues such as making a timely deposit, completing a property inspection, getting financing in place, reviewing title commitments, etc. Here is where the real estate agent and attorney should step in to help with these concerns and work on a potential resolution outside of court. A closing will be the last stage in the process where the buyer will often times be relying upon their attorney for assistance in reviewing the final documents being signed.
Common Pitfalls in Ohio Real Estate Contracts
A common mistake is assuming the legal concept of an "as is" property means the seller has no obligations to treat the buyer fairly or honestly. This is not true. Like in other states, Ohio law imposes a common law duty of fairness that applies to residential real estate contracts. To avoid potential litigation over contractual obligations, it pays to clarify exactly what "as is" means to the parties.
Akin to "as is," one of the most common mistakes is for a party to sign a real estate purchase contract and not make it binding by not having a legal signature.
Some sellers will insist on a seller finance clause. In Ohio, seller financing is relatively rare. In Ohio, many creditors will allow for delivery of a deed to the property, followed by the seller keeping the deed in the event the buyer defaults with the mortgage loan.
A common pitfall for Ohio residential real estate buyers is failing to pay for an environmental inspection of a property. Buyers elect not to get this inspection in order to save money, however, if there is contamination on the site, even if the buyer is unaware, when it comes time to sell the property later, the buyer will be responsible for cleaning up the contamination.
In Ohio, sometimes buyers assume the seller must disclose something about adverse matters on the property. This is simply not true. While there are some limits on what obligations buyers have regarding disclosure, it is important to ask questions in order to avoid surprises.
Closing on an Ohio Real Estate Property
Steps to Closing a Real Estate Deal in Ohio
If you are paying cash for the property, the closing will be very simple. You will walk into the title company or attorney’s office, sign several pieces of paper confirming that you do in fact intend to buy the property and you actually have the money to pay for it. Then, in exchange for your signed purchase price, you will receive the keys to the property and a new deed is created for the property to reflect you as the owner (called a "warranty deed"). The deed is then recorded in county records and you are listed as the new owner of the property . If the property is being financed, there is a lot more paperwork involved, including a mortgage that is signed by the buyer and secured on the property, making the property collateral for the loan. At the closing, the lender will give the buyer the loan proceeds, and those funds can be used to pay the seller the purchase price of the property. Again, the deed is recorded to show the new ownership of the property. Once the closing takes place, the new buyer can take possession of the property and begin to make any desired changes.