If 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 keeping track is hard. To help you out, we’ve come up with a complete review of one of those documents: a Memorandum of Agreement (MOA) template, memorandum of understanding (MOU), or deal sheet. This review will spell out everything you need to know about this real estate document and make it easy 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 the buyer and the seller after an accepted offer.
So if you have had those questions, read on, and you’ll go through this review, and you’ll find everything you need to know about the Memorandum of Agreements.
A Memorandum of Agreement may sound complicated and 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 likely heard of something referred to as a deal memo. 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 signed by both parties is the agreed-upon objective for both the buyer and the seller through cooperative work, common goals, and good faith.
The buyer and the seller have the same plan, and they agree to work on getting a deal done and commit to meeting an agreed deadline to sign the purchase contract.
Memos are typically 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, and the form summarizes agreed-upon terms that both sides 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.
As you 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, and 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 before both parties involved sign the purchase contract or agreement.
So if a Memorandum of Agreement is not legally binding, are there any repercussions for breaking them? Since they’re not legal documents, there are no legally backed consequences to breaking a Memorandum of Agreement.
But there can be other consequences when a 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 occurs, the buyer will likely be out of 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 to 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 is likely expecting the deal to come to fruition shortly.
If you back out and break the Memorandum of Agreement, the counterparty, and your agent will probably be upset with you. This could cause issues if you want to keep using the same agent.
As you’ve probably gathered by now, a Memorandum of Agreement template is pretty straightforward, and it is no more than a summary of a proposed transaction that outlines the terms agreed upon up to this point.
Not much data is included in the document, making it easy for both sides to fill out and understand before the lawyer’s jargon gets too involved.
Let’s look at some things you typically see within a Memorandum of Agreement template. This will include the following:
That may seem like a lot of information just by looking at the bulleted list, and in reality, it’s all basic stuff you can fill out in just minutes once the buyer and seller negotiate the terms of the deal. But remember 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.
