What is a Memorandum of Agreement in Real Estate?
Go Back To Previous PageIf you are looking into how a real estate transaction works, you’ve seen just how much paperwork they involve. It seems like there’s just document after document, and it’s hard to keep track. To help you out, we’ve come up with t
his complete review of one of those documents: a Memorandum of Agreement template. This review will spell out everything you need to know about this real estate document and make it easy for you to understand. What is a Memorandum of Agreement? Is it a legally binding document? What happens if you break the agreement? What can you expect to see in a Memorandum of Agreement sample?
A memorandum of agreement is a proposed transaction summary circulated to lawyers and brokers representing both the buyer and the seller after an accepted offer has been negotiated. So if you have had those questions yourself, then read on. You’ll find everything you need to know about the Memorandum of Agreements as you go through this review.
What is a Memorandum of Agreement MOA in Real Estate?
A Memorandum of Agreement may sound complicated and like it is full of legal jargon that might be hard to understand. Still, it’s a pretty easy
document to read and understand. You may not have heard the word memorandum before.
However, you’ve more than likely heard of something referred to as a memo. Well, if you did not know, the word memo is short for memorandum. So this document boils down to just a memo. Getting into a formal contract is the agreed-upon objective for both the buyer and the seller through cooperative work, common goals, and good faith. Both buyer and the seller have the same goals and objectives: getting a deal done.
But a memo detailing what?
Memos are typically pretty short and sweet, and a simple Memorandum of Agreement is no different. This document is just a summary of a proposed transaction that may or may not happen. We use this memo in real estate. The form summarizes agreed-upon terms that both sides (the buyer and seller) agreed to and would like to move forward with.
The document’s point, also known as a “deal sheet”, is to inform the lawyers on both sides of the sale what the real estate agents and their
respective buyers and sellers have agreed. It will usually fill the lawyers in on sale price, any contingencies that the sides have agreed on, and any other terms that the real estate agents have added in as part of the deal.
Is a Memorandum of Agreement Legally Binding?
As you now know, a Memorandum of Agreement sample is just a summary of the potential transaction that may or may not happen. So the short answer is no, this document is not legally binding. That is, at least not on its own.
Once there is a signed purchase agreement the deal is binding. Although as you’ll learn, that is more to do with the purchase agreement than the memorandum.
Since they are not legally binding, it is somewhat common to see a Memorandum of Agreement broken by either party. Maybe the seller gets cold feet about selling their house. Or perhaps they get a higher offer that comes in before getting the purchase contract signed by both parties involved.
What Happens if you Break a Memorandum of Agreement?
So if a Memorandum of Agreement is not legally binding, are there any repercussions for breaking them? Since they’re not a legal document, there are
no legally backed consequences to breaking a Memorandum of Agreement. But there can potentially be other consequences when buyer or seller breaks them. The most common issue is that someone (typically the buyer) may cost some money.
Sometimes buyers will pay for their attorney to do a title search and look into the property. Or they might have paid for the home inspection out of their pocket. If either of these occurs, then the buyer will likely end up being out those costs if the seller decides to back out of the Memorandum of Agreement.
Secondly, breaking a Memorandum of Agreement can lead brokers and other people involved in the agreement with a bad taste in their mouths. As a buyer or seller, if you allow your real estate agent to negotiate a price and you’ve come up with a Memorandum of Agreement, your agent (and the rest of the counterparty) are likely expecting the deal to come to fruition shortly.
If you back out and break the Memorandum of Agreement, the counterparty and even your agent will probably be upset with you. This could cause issues if you want to keep using the same agent, as they might not appreciate it if you constantly break Memorandums of Understanding MOU.
What does a Memorandum of Agreement include?
As you’ve probably gathered by now, a Memorandum of Agreement template is a pretty straightforward document. It is no more than a summary of a proposed transaction that outlines the terms agreed upon up to this point. There is not a lot of data included in the document. This makes them easy to fill out and understand by both sides before the lawyer jargon starts getting too involved.
Let’s take a look at some of the things you will typically see within a Memorandum of Agreement template. This will include:
- Effective Date and MLS number
- Property address
- Sale price
- Any additional terms and contingencies
- Closing date
- Inclusions and exclusions explicitly described, scope of work if any renovation
- Seller’s and buyer’s names and addresses
- Both side’s attorney’s names, firms, addresses, phone number, fax number, and email
- Both side’s broker’s names, addresses, agent names, phone numbers, email, agent license IDs, and brokerage license numbers
That may seem like a lot of info just looking at the bulleted list here. In reality, it’s all basic stuff that you can fill out in just minutes once the buyer and seller negotiate the terms of the deal. But keep in mind that even though a Memorandum of Agreement sample will have the sale price, closing date, and information for everyone involved in the sale, it is not legally binding or legally enforceable.
Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.
