Main Line Homes Blog

PA Agreement of Sale Part 2

Continuing with our explanation of the PA Agreement of Sale (AOS) we will start at the top of page 2. If you want to read other parts of this explanation

Part 1

Part 3

Part 4

Part 5

Part 6

Part 7

Part 8

Part 9

Paragraph 4 A deals with Fixtures and personal property, this paragraph was revised in September 2005. It deals with items included in the sale of the home. Anything permanently installed which is free of liens, such as plumbing, heating lighting fixtures (including chandeliers and ceiling fans) etc. I will tell prospective sellers if they want to take something with them, take it down before listing your home so it does not become a deal breaker, even if you itemize it as something excluded from the sale buyers often fall in love with what you want to take with you. Remove the obstacle beforehand and put up a fixture that will stay with the house and avoid any arguments. Here items such as refrigerators, washers and dryers are added if they are being included in the sale. Items being leased and not owned by the seller are identified here in sub paragraph B. Sub-paragraph C identifies any fixtures and items not included in the sale.

Paragraph 5 explains that Dates and Time is of Essence revised in September 2005. There are four sub paragraphs that explain this concept, make sure you understand this and that your mortgage provider and any contractors such as home inspectors understand this. It is important. In Pennsylvania, if you say in the contract you will do something by or on a certain date at a certain time it is binding and you are in breach of contract if you do not comply. This is not the case in other states, and mortgage providers as an example sitting in another state may drag their feet unaware that time and dates are of essence as this is not the case where they live. So you need to make sure they are aware and that you stay on top of them to perform their duties by the time you have entered in the contract. This is not a time to understand the problems they are having, you need to bring pressure to bear upon them to meet the deadlines. Certain paragraphs are pre-printed with time periods for convenience, like everything else these are all negotiable and can be changed. Just remember to initial and date any changes that are made to the contract.

Paragraph 6 deals with the Mortgage Contingency revised in September 2005. If your offer is conditional upon you getting a mortgage you do not waive this contingency. Sometimes it is waived if a buyer will be getting a mortgage for tax reasons but does not need the mortgage to settle. Some buyers have sufficient funds that they can simply waive this contingency.  If you choose to use the contingency sub-paragraph A the details of your first and second mortgage are outlined. If the mortgage lender is identified you must make application and follow through with that lender. If you change lenders you need to notify the seller of this change. Whilst a mortgage rate is identified a maximum rate is also identified that the buyer will accept. Discount points, loan origination fees etc are also identified as a percentage of the mortgage loan. In the current market, who is financing the deal is just as important as how much is being paid. Sellers want to know that the funds will be at settlement, and buyers want to know that they will not be left at the settlement table with no friends in the room.

Sub-paragraph B details when the mortgage application will be made, 10 days is the default, and mentions that the broker for the buyer, or if there buyer is not represented the broker for the seller is authorized to communicate with the mortgage lender to assist in the loan process.

Sub-paragraph C explains that false statements or incomplete information furnished by the buyer to the seller or the brokers or mortgage lenders or failure to cooperate in good faith in the process  resulting in the mortgage not being approved puts the buyer in default.

Sub-paragraph D has 4 parts and begins with the mortgage commitment date. This is when your lender has reviewed the application, appraised the home and commits to the rate and fees offered and will fund the mortgage. This commitment needs to be provided to the seller by the date entered here. This is where time and date become important. If the seller does not receive this commitment the mortgage commitment date is extended until the Seller terminates the Agreement in writing to the buyer. So if your mortgage company drags their feet you can lose the home of your dreams, especially if the sellers have a back up offer.

It continues that as soon as the buyer has the commitment they will deliver a copy to the buyer. The seller can terminate the agreement in writing after the mortgage commitment date IF the mortgage commitment is not valid till the date of settlement, OR is conditional upon the sale and settlement of other property, OR does not satisfy all the terms outlined in paragraph 6 A, OR if it contains any other condition not specified in the AOS that is not satisfied or removed within 7 (pre-printed, remember this can be changed) days after the mortgage commitment date in paragraph 6 D 1 other than certain terms that are usually done closer to settlement such as insurance and confirming employment status.

If the agreement is terminated for any of these reasons the deposit monies are returned to the buyer according to the terms of paragraph 30 and the agreement is VOID. Buyer is responsible for their costs incurred for inspections, title insurance, appraisal fees etc as outlined here.

Sub-paragraph E discusses what happens if the mortgage lender or insurance company requires repairs to the property. Buyer is required to deliver a copy to the seller who will within 5 (pre-printed, remember this can be changed) days seller will notify the buyer if the seller will make these repairs. If the seller will make the repairs to the satisfaction of the mortgage lender or insurer the buyer accepts the property and agrees to the release in Paragraph 27.  If the seller will not make the repairs, the buyer can choose within 5 (pre-printed, remember this can be changed) days to make the repairs or terminate the agreement in writing with all monies returned to the buyer as outlined in Paragraph 30.

Sub-paragraph F deals with any seller assist given to the buyer. Remember mortgage lenders must be made aware of any funds being given to the buyer by the seller to complete the deal so that there is no fraud in the mortgage application in relation to loan to value ratios.

There is also a boxed paragraph here dealing with FHA/VA loans if this is applicable with sub-paragraphs G, H and I.  These deal with the property appraising, that an inspection can be carried out and a certification that the terms of the contract for purchase are true.

The PA Agreement of Sale (AOS) is 10 pages long, 11 if you include the Lead-based paint hazards disclosure and inspection contingency addendum and consists of 34 paragraphs and 622 lines excluding Notices on the back of the pre-printed pages, which can take it to 17 pages.  It is continually being updated due to revisions through use and often law suits which have arisen as a result.  Each paragraph states when it was last updated. This agreement is most commonly used in resales of existing homes. Builders will often have their own contracts. Whether you are a buyer or seller it is helpful to understand this form better before you buy or sell a home.

Page 1 lays out the general terms of the agreement of sale and is probably the meat and potatoes of the agreement. This is not to say that the other pages should be taken lightly as in any contract you need to pay attention to every clause. If you do not fully understand something consult an attorney.

Page 1 starts by listing the brokers and agents involved and who they represent. The AOS states that when a Broker is the same for Buyer and Seller the Broker is a Dual Agent. All of Brokers licensees are Dual Agents unless there are separate Designated Agents for Buyer and Seller. In the case where the agent represents both Buyer and Seller the agent is a Dual Agent. These terms should be familiar to you as they are outlined on the Consumer Notice which you should have had explained to you when you first had a substantive discussion about real estate with your agent, as well as the terms Buyer's Agent, Seller's Agent and Transaction Licensee. For an explanation of these terms see Who Represents You? 

Paragraph 1 of the AOS then states the date on which the agreement is being drawn up, this date is referred to in any addendae that are added when the AOS is written or later. Sellers are listed by name, all whose names are upon the deed need to be listed here. Whilst the MLS sheet often gives the names of the owners this should not be relied upon entirely without checking. Sometimes the MLS sheet may only say "Owner of Record".  This information should be cross checked with the Public Records and verified with the Selling Agent. In the case of a 1031 exchange words stating "or their Assignee" will be used, but this then requires the striking of a later paragraph in the AOS which states the AOS cannot be assigned. Any discrepancies here are a "Red Flag". Buyers are also listed by name. If you intend to purchase the home as an investment through a corporation or through a family trust this needs to be entered here. Sometimes wording is used as follows, the name of the buyer or their assignee as in the above case of a 1031 exchange or a possible straw purchase where a well kown purchaser is not revealing who is actually buying the property. However again if this is used a later paragraph needs to be struck from the AOS as it states that the AOS cannot be assigned.

Paragraph 2 identifies the property being purchased legally, 123 Main Street, in the Township of Anywhere, County is identified in the Commonwealth of PA. The legal identification is entered as per where the deed is recorded in the Public Records, for example the Tax id number or parcel number.

Paragraph 3 deals with the terms of the agreement, updated in September 2005. Sub paragraph A identifies the Purchase price, this is noted in script and below this it identifies how this purchase price will be paid numerically. How much will be paid at the signing of the agreement, if any additional payment will be made and when following the execution of the agreement. Another line is left blank should there be a desire to make a further deposit. Finally the amount due at settlement is noted. This is then totaled and should equal the amount identified as the purchase price above.

Sub paragraph B informs that any payments within 30 days of settlement will be by cash or cashier's check and will be paid in Dollars to the Broker for the Seller unless otherwise stated here, these amounts will be held in an escrow account until the completion of the agreement or its termination in line with the agreement and all laws and regulations applicable.  No check given with the agreement is cashed till the acceptance of the agreement of sale.

Sub paragraph C states the date and time by when the seller needs to respond to the AOS.

Sub paragraph D gives the Settlement date, which can be moved forward if buyer and seller are in agreement and even later.

Sub paragraph E is a legal notice notifying buyer and seller that settlement will take place in the county where the property is located or an adjacent county during normal business hours unless Buyer and Seller agree otherwise.

Sub paragraph F explains how the deed will be transferred, presuming Fee Simple deed of special warranty unless stated otherwise here.

Sub paragraph G details how transfer taxes will be paid by buyer and seller equally unless specified differently here.

Sub paragraph H details what charges will be adjusted and paid on a pro-rata basis at settlement. These can be payments from the buyer to the seller for taxes paid in advance or from the seller to the buyer for rents received in advance as an example. Seller pays up to and including the day of settlement and Buyer pays for days following settlement unless stated differently here.

That completes Page 1. I have found this page usually takes the longest to complete as buyers discuss the price they are going to offer.

Part 1

Part 2

Part 3

Part 4

Part 5

Part 6

Part 7

Part 8

Part 9

When looking for a town home location is everything. 3 Treaty Drive is one of those locations. Very private and NOT near the turnpike. Updated bathrooms, new carpets on the second floor, hardwood floors on first floor 2003, appliances new in 2003, very spacious loft with closet. Can easily be used as 4th bedroom. Very nice breakfast area with bay window. Living room open with the dining room for easy flow to entertain. Patio right outside the living room. There is an entrance hallway and a foyer that could be used for a computer area. Garage entrance from the house. Currently there is leased security system. There is an Open House this weekend October 28th 1-5 PM so we hope to see you there.

Chesterbrook is a town center development that features offices, a hotel, shops, single family homes, carriage homes, town homes and apartments. These are arranged in different subdivisions/neighborhoods which each have their own home owners association or condominium association depending on how they were originally set up. Each neighborhood has its own style and some are more desirable than others depending on location and floor plans. The Quarters is one of these more desirable neighborhoods located centrally within Chesterbrook. 3 Treaty Drive is close to the shops and Open Space, the homes here have one car garages, and spacious floor plans.

Chesterbrook is close to

Valley Forge Park accessible by walking paths, several shopping areas including King of Prussia Mall, several well known Main Line Restaurants including Nectar, Georges, Margaret Kuo's, Teresas and Christopher's to name a few and close to major routes such as the PA turnpike, 202, 476 for access to Philadelphia airport and the Schuykill Expressway for access to downtown Philadelphia and Manayunk. Paoli, Devon and Wayne train stations are only minutes away as well.

For full details go to http://3TreatyDrive.VandekarTeam.com

Part of the process of selling or buying a home is the home inspection. However, many people do not understand the purpose of the home inspection. So let's look at what it is not and what it should be whether you are a seller, a buyer or simply a homeowner.

As a buyer the home inspection is not a way to get the house at a cheaper price although negotiations may take place on what is discovered this is not the intent. The purpose of the inspection is to reveal the condition of the home, the major parts and systems within the home when you buy it. Now you may discover some issues that you were unaware of when you viewed the home and this may impact your decision to purchase or not. An older home is going to generally reveal more defects than a brand new home, although this is not always the case. For someone who likes older homes the report detailing the numerous defects may not faze them, but a first time buyer may feel overwhelmed that there are so many things minor and major that need attention and decide the home is not for them. As an aside here, just because you are buying new construction does not negate having a home inspection. In fact it may be well worth the cost to have an inspector make sure the home is contructed correctly during the building process. I have heard several instances where windows have been installed incorrectly, or framing is wrong. So do not presume that just because your are buying new construction you can skip a home inspection, put it into the contract.

Many home buyers use the home inspection to get the seller to fix everything. I usually suggest that the buyer concentrate on major items rather than sending the seller an enormous list of things to be put right. Now you may include some small things which you are willing to give up in negotiation but be careful, those may the only things your seller is willing to attend to and you are still left with major issues un-resolved. All of this is also dependent on how much you can do yourself, how much time you have to attend to these issues and also how long you are going to own the home.

An inspection is not insurance, you can get a home warranty to cover the systems within the home for a very reasonable price, and any good realtor will suggest this as they are well worth the investment. Unless the home inspector has been terribly negligent you will have a hard time collecting from him if some issue arises due to the disclaimers and contract you sign.

As a home seller it is well worth having an inspection before you place your home on the market so you know the condition of your home prior to sale and negotiations. It will allow you to correctly complete the Sellers Property Disclosure Form and can be made a part of the disclosure. Carrying out a termite and radon test allows you to take corrective measures if needed and know the result and not worry what might turn up and derail the sale of your home.  Now I have found every home inspector will find some different issues, if you have three inspectors each will find some different things to point out. So be aware that just because you have had an inspection carried out and you make it available to the buyer they may still want to have their own inspection as well. Most good agents will even suggest this for several reasons. For the reason above that a second set of eyes going over the home will reveal something not seen already and to protect the buyer legally as the inspection you carried out as seller does not protect them. But a benefit of having your own inspection is that it provides some assurance to the buyer that you are a concerned home owner and may help the home to sell more quickly.

As a homeowner it is well worth having an inspection carried out whilst you own a home. Over time different issues arise and the home inspection will allow you to know where you should budget your money for repairs. Can that roof wait or do we need to attend to it before the winter? Maybe the heating and A/C systems would save you money by updating them, if you intend to stay in the house, or even if you are selling will the investment be a worthwhile return.

You should always be at the inspection and follow the inspector round and ask questions, it is your inspection. If you do not know how a system in the house works, ask. A good inspector will also provide helpful maintenance suggestions as well. How long will the inspection take? Obviously this varies depending on the size of the home, but you should allow 2-3 hours at least. Also make sure the inspector you are using will issue you an easy to understand report, preferably with photos as this is something to refer back to if an issue arises later. Many home inspectors will also give an estimate for work that needs to be carried out which gives you a guideline when getting quotes from contractors.

So to summarize a home inspection merely shows the condition of a home at the time of the inspection. It is not a pass or fail, but simply a report that allows you to address issues depending on their degree of urgency.  It is not a report on whether a home is up to code, although the inspector may make comments on this during the inspection. It is worth having an inspection done if you have lived in your home for some time.

If you have any questions or need a list of reliable home inspectors feel free to contact me at Nick@VandekarTeam.com. We will also be having a seminar with a home inspector on a regular basis and if you would like to attend please let me know.

October 2008 Information supplied by David Gorenberg of LandAmerica

1031 Exchange Update

§1031 Tax-Deferred Exchanges to Undergo Scrutiny

On September 17, 2007, the Treasury Inspector General for Tax Administration issued a report regarding taxpayer compliance in the context of IRC §1031exchanges (the "Report"). The Report was prompted in part by the fact that from 1998 to 2004 the number of Form 8824s filed more than doubled to 338,500, and the gains deferred more than tripled to in excess of $73.6BB. The Report, is the culmination of an audit by the Treasury IG for Tax Administration, and also incorporates concerns raised in a Government Accountability Office report on the so called Tax Gap. The overarching conclusion is that the Service's reliance on voluntary compliance of taxpayers (for instance in correctly reducing basis in calculating and characterizing gain from the ultimate sale of replacement properties where successive prior exchanges are involved) likely results in the underreporting of capital gains.

In connection with the same, The Report underscores there are no direct Code provisions mandating the filing of Form 8824, and that that while sufficient authority apparently exists to mandate the filing (the Service refers to authority under IRC §§6011 and 6012) there is uneven guidance on the point and few if any enforced penalties for failing to file the form. Presently, the form is an attachment and is not otherwise an information return or reporting document. While accuracy-related penalties of IRC §6662 can be assessed for failure to file Form 8824 with regard to a partially completed or incomplete exchange, there is no information available to indicate that such action is ever taken. The Report concludes and the Service concedes in written response that the Service must improve (both in consistency and completeness) guidance to taxpayers and their representatives as to when and how Form 8824 is to be filed.

Also in connection with examining the risk of underreporting of gains, The Report considers IRC §1031 exchanges of vacation homes or second homes. The Report notes that if used exclusively by taxpayers the same are "are not eligible for like-kind exchanges", but that where not all the use is personal the rules are complex and little exists with respect to a published position by the IRS on like-kind exchanges involving such properties." Here too the Service concedes in its written response that it needs to improve compliance through the publication of guidance on the topic.

In short, in response to three key recommendations contained in the report:

i) The Service will conduct a study of reporting and compliance issue associated with §1031 exchanges, based on returns
selected by the National Research Program. Based on this study, the Service will recommend audit target areas for §1031 compliance enforcement.

ii) The Service will revise certain guidance to provide that taxpayers must file Form 8824 if the taxpayer completes an exchange under §1031. Among the revisions will be Section 11.4 of the FAQs on www.irs.gov; Form 1099-S; and Publication 17 "Your Federal Income Tax".

iii) The Service will also provide additional guidance regarding §1031 exchanges of second- and vacation-homes that were not used exclusively by the owners. Part of the guidance will be in the form of a Tax Gap Sheet to stakeholders and practitioners about the filing requirements of Form 8824.

Now, more than ever, the selection of a qualified intermediary for your next exchange is critical. LandAmerica established its 1031 exchange services in 1990 solely to facilitate tax-deferred exchanges. To ensure the highest caliber service to our clients, each office has passed a rigorous internal certification standard.

This communication is not intended to be a "reliance opinion" within the meaning of Circular 230, and we do not provide tax advice on any matter; therefore we are not providing any guidance to the recipient on a "more likely than not" or higher confidence level and have not assured the recipient of success on such level, if the Internal Revenue Service were to disagree with our conclusions.  If such communication were to be considered a "reliance opinion" within the meaning of Circular 230, then the recipient may not rely on such advice for penalty protection. No recipient of this communication may use any information in this communication for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed herein.


Why LandAmerica 1031? The selection of your qualified intermediary (QI) is crucial to the success of your exchange. Many QIs provide inadequate financial guaranties or security for the net proceeds of your sale. We back our documents and provide 100% security of your funds at no additional cost through a guaranty by our parent company, LandAmerica Financial Group, Inc. (NYSE: LFG).

As a member of LandAmerica Financial Group, Inc., we have unparalleled financial strength and the resources to guide your transaction to a satisfactory, tax-deferred outcome. We service every type of exchange: deferred, build-to-suit, front and back reverse, and even personal property.

Strength and Security - LandAmerica is a premier provider of commercial and residential real estate transaction services including title insurance, valuation services, assessment, flood certification, tax payment services and more. The individual and combined strength of each of the operations within LandAmerica is reflected by the high financial ratings from Standard & Poor's, Demotech, and Fitch ratings.

This week at our office meeting I attended an excellent seminar given by LandAmerica about 1031 exchanges.  David Gorenberg of LandAmerica 1031 is a Certified Exchange Specialist® and has the experience to not only handle the exchange smoothly but explain it succinctly and humorously as well. He managed in a short time to explain for us what should have taken much longer. He also has allowed me to share these highlights from LandAmerica's brochure on the subject.

A 1031 exchange is a powerful tax tool with the potential for substantial tax savings in every transaction. Tax-deferred exchanges have become a necessary procedure for owners of businesses and investment property of all sizes.

Eligible properties include commercial and residential real estate, qualified leaseholds, home offices, bussines vehicles, aircraft, boats, trucks, tractors, trailers, buses, factory equipment, FCC licenses, livestock and more.

Section 1031 of the Internal Revenue Code allows up to 100% deferral of the realized gain. This includes the capital gain plus the accumulated depreciation recapture. For investors large and small, there is n o other provision of the tax code that offers this magnitude of tax deferral. Please note this applies to Federal tax, and State taxes may be payable, but these are usually much lower depending on your state.

Reasons to exchange:

• Change the type of property you own
• Consolidate
• Diversify
• Accommodate life transitions
• Relocate
• Change tenants
• Transition from maintenance intensive property to professionally managed property

Who can Exchange?

• Corporations
• Partnerships
• Individuals
• Limited Liability Companies
• Trusts
• Foreigners who own U.S. property

If you are a business or investment property owner interested in deferring capital gains taxes, you should consider a 1031 Exchange.

How does it work?

At LandAmerica 1031 they've made it easy for you. Just follow these steps:

Step 1 The Contract

You sign the contract to sell your exisiting business or investment property relinquished property).

Step 2 The Contact

When closing is scheduled on the relinquished property, but before the property is transferred, you contact LandAmerica 1031 to set up and execute the 1031 Exchange.

Step 3 The Closing

At transfer of the relinquished property, the net sale proceeds are delivered to LandAmerica 1031, which assumes complete control of the net proceeds.

Step 4 The Identification

You use the forms provided by LandAmerica 1031 to notify them in writing of the identified replacement property(ies) within 45 days of the transfer of the relinquished property.

Step 5 The Acquisition

You close on the acquisition of the replacement property(ies) within 180 days from the transfer of the relinquished property, or the due date of your federal income tax return, including extensions, for the year in which the relinquished property is transferred.

Every transaction is unique and will raise its own challenges, so you need to use an expert. For more information visit LandAmerica 1031 or contact me and I will help you connect with David Gorenberg of LandAmerica.

If a 1031 Exchange is of interest to you or you would like more information please email me your information as we will be planning a seminar on this in Devon, PA in the near future and we can add you to the mailing list.