Pennsylvania Agreement of Sale: Required Contents, the Zoning Classification Trap and Transfer Tax

Introduction

Key Things to Know

1. 1

   An agreement of sale is the contract that binds a Pennsylvania home buyer and home seller to the sale: price, deposit, financing and inspection conditions, settlement and possession dates, cost allocation and default remedies. What makes this state different is that the State Real Estate Commission dictates the contents rather than the form. 49 Pa. Code 35.333(a) opens with the words that an agreement of sale, other than for a cemetery lot, mausoleum or cremation space or opening, shall contain, and then runs eleven numbered items deep. Your drafting job is to satisfy a checklist, not to copy a state form, because there is no state form.

2. 2

   Item (6) is the one with teeth. It requires the zoning classification of the property, except if the property, or each parcel of it if subdividable, is zoned solely or primarily to permit single-family dwellings, together with a statement that the failure of the agreement of sale to contain the zoning classification shall render the agreement voidable at the option of the buyer and, if voided, deposits tendered by the buyer shall be returned to the buyer without a requirement of court action. Read that twice: the agreement has to carry both the classification and a warning about what happens if it does not.

3. 3

   The eleven items are specific and several are easy to miss: the date of the agreement, the names of the buyer and seller, a description of the property and the interest to be conveyed, the sale price, the dates for payment and conveyance, the zoning classification item, a statement identifying the capacity in which the broker or a licensee employed by the broker is involved and whether services have been provided to another party, an escrow provision, a prescribed Real Estate Recovery Fund statement, a statement that access to a public road may require issuance of a highway occupancy permit from the Department of Transportation, and a cancellation notice for time shares and campground memberships.

4. 4

   Pennsylvania writes your financing contingency for you, at least in part. Subsection (b) says an agreement of sale that is conditioned upon the ability of the buyer to obtain a mortgage shall contain the type of mortgage, the mortgage principal, the maximum interest rate of the mortgage, the minimum term of the mortgage, the deadline for the buyer to obtain the mortgage, and the nature and extent of assistance that the broker will render to the buyer in obtaining the mortgage. A mortgage clause that says only that the sale is subject to financing is missing five of the six.

5. 5

   Two kinds of clause only count if they are loud. Subsection (c) requires bold face printing for a provision relieving the seller from responsibility for defects involving the sale property, or a provision requiring the buyer to execute a release to that effect at the time of settlement, or a provision of similar import, and for a provision reserving to the builder-seller the right to change, or depart from, the building specifications for the sale property. The rule does not forbid either clause. It forbids burying it.

6. 6

   Deposits have to be addressed in the agreement itself. Item (8) requires a provision that payments of money received by the broker on account of the sale, regardless of the form of payment and the person designated as payee, shall be held by the broker in an escrow account pending consummation of the sale or a prior termination of it. That is a contract term the Commission requires you to write, so name the escrow holder, the amount and the release conditions. The seller's property condition disclosure runs on a separate track, and our property disclosure statement pages cover it.

7. 7

   The money item Pennsylvania leaves to you is the transfer tax. The Department of Revenue states that realty transfer tax is imposed at a rate of 1 percent on the value of real estate, including contracted-for improvements to property, transferred by deed, instrument, long-term lease or other writing, and that both grantor and grantee are held jointly and severally liable for payment of the tax. Joint and several means the Commonwealth can collect the whole amount from either side no matter what your contract says, so the allocation clause is the only thing standing between the two of you. Local realty transfer taxes are commonly charged on top and collected with the state tax by county Recorders of Deeds.

Pennsylvania Requirements for Real Estate Purchase Agreement

• Omit the Zoning Classification and the Buyer Can Void the Agreement

  49 Pa. Code 35.333(a)(6) requires the zoning classification of the property, except if the property, or each parcel thereof if subdividable, is zoned solely or primarily to permit single-family dwellings, together with a statement that the failure of the agreement of sale to contain the zoning classification of the property shall render the agreement voidable at the option of the buyer and, if voided, deposits tendered by the buyer shall be returned to the buyer without a requirement of court action. The remedy belongs to the buyer, the agreement is voidable rather than void, and the deposit return needs no court. The single-family carve-out is why the item gets skipped on the deals where it is mandatory.

• The Eleven Items Rule 35.333(a) Requires in Every Agreement of Sale

  Subsection (a) provides that an agreement of sale, other than for a cemetery lot, mausoleum or cremation space or opening, shall contain: the date of the agreement; the names of the buyer and seller; a description of the property and the interest to be conveyed; the sale price; the dates for payment and conveyance; the zoning classification item; a statement identifying the capacity in which the broker, or a licensee employed by the broker, is involved in the transaction and whether services have been provided to another party in the transaction; an escrow provision; a prescribed Real Estate Recovery Fund statement; a statement that access to a public road may require issuance of a highway occupancy permit from the Department of Transportation; and, for a time share or campground membership, a prescribed cancellation notice. Subsection (d) reduces the list for a cemetery lot or plot or a mausoleum space or opening.

• A Mortgage-Conditioned Agreement Must State Six Named Terms

  Subsection (b) provides that an agreement of sale that is conditioned upon the ability of the buyer to obtain a mortgage shall contain the type of mortgage, the mortgage principal, the maximum interest rate of the mortgage, the minimum term of the mortgage, the deadline for the buyer to obtain the mortgage, and the nature and extent of assistance that the broker will render to the buyer in obtaining the mortgage. Most states leave the financing condition wholly to the parties. Here the skeleton is specified, and the fifth term is the operative one, because the mortgage deadline decides whether a buyer who cannot close is protected by the condition or in default under it.

• The Escrow Promise Is a Required Term of the Contract

  Item (8) requires a provision that payments of money received by the broker on account of the sale, regardless of the form of payment and the person designated as payee, shall be held by the broker in an escrow account pending consummation of the sale or a prior termination of it. The point is placement: this is a mandatory CONTENT of the signed agreement rather than a free-standing bookkeeping duty, so the escrow promise is something the buyer and seller can read in their own contract. State the holder, the amount, the form of tender, and what happens on consummation and on termination. The rule reaches money received by the broker whoever the instrument names as payee.

• Two Clause Types Have To Be Printed in Bold Face

  Subsection (c) provides that the following terms shall be printed in bold face if made part of an agreement of sale: a provision relieving the seller from responsibility for defects involving the sale property, or a provision requiring the buyer to execute a release to that effect at the time of settlement, or a provision of similar import; and a provision reserving to the builder-seller the right to change, or depart from, the building specifications for the sale property. Neither clause is prohibited. The requirement is typographic, so a buyer can see what is being given up, and the words of similar import are wide enough to catch a release-style clause written in other language.

• Who the Rule Binds, and Who It Does Not

  49 Pa. Code 35.333 is a State Real Estate Commission rule, issued under the Real Estate Licensing and Registration Act (63 P.S. 455.101 to 455.902) and amended under sections 404, 606 to 606.6 and 608 to 608.3 of that act. The duty it creates is a licensing duty, enforceable against a broker or a licensee employed by a broker, not against a private seller selling directly. The item (6) consequence is written differently: it attaches to the agreement, providing that an agreement of sale lacking the zoning classification is voidable at the buyer's option with deposits returned, and it names no licensee condition. Any page that states only one of those two halves is stating something false.

• Realty Transfer Tax Is 1 Percent and Both Sides Are Liable for It

  The Department of Revenue states that Pennsylvania realty transfer tax is imposed at a rate of 1 percent on the value of real estate, including contracted-for improvements to property, transferred by deed, instrument, long-term lease or other writing, and that both grantor and grantee are held jointly and severally liable for payment of the tax. There is therefore no statutory default payer to fall back on: joint and several liability lets the Commonwealth collect the whole amount from either party whatever the contract says between them, so allocation is purely a contract term. The Department also states the tax is collected, often along with an additional local realty transfer tax, by county Recorders of Deeds, so name a payer for each component rather than for one.

• The Five-Day Cancellation Notice Is Not a Right To Cancel a House Purchase

  Item (11) applies only in the case of an agreement of sale for the purchase of a time share or campground membership. For those, the agreement must carry a statement regarding the purchaser's right of cancellation, set forth conspicuously in bold face type of at least 10 point size immediately above the signature line for the purchaser, in substantially the form the rule prints: you, the purchaser, may cancel this purchase at any time prior to midnight of the fifth day following the date of this transaction, with written notice by certified return receipt mail or any other bona fide means of delivery which provides a receipt, effective on postmark or on deposit with that means of delivery. A home purchase is neither of those two things, so this rule gives a house buyer no cancellation right at all. A walk-away route in a house deal has to come from the agreement's own conditions.