The Rules of Thumb to Keep in Mind Regarding Form Contracts for Real Estate Purchases
Kapil Patel, Attorney at Parikh Law Group
Kapil Patel has worked as an Attorney with Parikh Law Group since 2017. He specializes in real Estate law (both residential and commercial) as well as other commercial matters.
While using a streamlined contract provided by your real estate agent or broker may provide time and convenience benefits, especially useful given the pace at which many real estate transactions occur, there are some key things to know to follow that may end up saving you much time, money or hardship down the road.
Here are some common points we share with clients when they are using standard form real estate purchase contracts, and pitfalls both buyers and sellers can avoid:
- Read The Part Where The Contract Advises Each Side To Consult With An Attorney
If you have questions or concerns related to contract or legal terms while negotiating with the other side, it is important to consult with a real estate attorney. The standard real estate contract forms that are used in real estate transactions have become quite streamlined, however, there may be questions that your real estate agent may not be able to answer. Once the contract is signed, it becomes much harder to add important items like sale contingencies, items to be included in the purchase price, etc. We often have clients come to us seeking advise after the written contract has already been signed. At that point, the other party has already agreed to the terms as they were initially written and presented. Many times, the other side is unwilling to accommodate a modification or request made after-the-fact, leading to an adverse transaction or even ending the deal.
- Have Your Own Attorney
As a rule of thumb, it is advisable to never share an attorney with the other party. There may be conflicting interests at play, resulting in one party’s interests being outbalanced by the other side’s interests, thus not serving to their benefit. Having your own advocate in your corner is always a good idea, and paying the costs associated to have the full representation of an attorney is a small cost compared to the potential losses you might suffer as the result of partaking in a deal that does not represent the best interests of both sides separately.
- Specifically Outline Which Items Are to Be Included In the Sale
Certain personal property or other commercial items are often requested to be included in the sale purchase price. It is important to specifically list these items and describe them in details in the contract so that there is no confusion as to what was meant to be included later on. It is also important to specify the quantity of certain items. The party who is bound by the contract to include certain items should also check and confirm what exactly is to be left behind. Likewise the Buyer should also check and confirm that the Seller has in fact left those items behind per the contract. For example, if the window treatment hardware and curtains are to remain at the property, be sure to specifically state this in the contract. Many times there may be multiple appliances like refrigerators in the property and a Buyer may have believed that all were to be included, whereas a Seller may have only intended for one to be included. It is best to add descriptive language such as room locations, names of items, colors or other distinguishing details so that everyone is on the same page.
- Earnest Money Deposit – Don’t be Afraid to Go Higher
If you are a Buyer and you really love a property, a good tip is to ensure that the Earnest Money Deposit offered is fair and reasonable for total purchase price, as a decent sized earnest money deposit may show the Seller you are serious and have the motivation to follow through with the purchase as you have a good amount of money at stake. Also, when several offers are at play, the difference of the size of the down payment offered can often make the difference between a Seller accepting or rejecting an offer. Lower earnest money deposits often signal lower incentive to close on the deal, since there is not a lot of money to lose by the Buyer. If you find yourself putting an offer in on a property to really want, and there are other offers likely to be considered, a larger earnest money deposit may go a long way in getting your offer accepted and showing good faith to follow through to closing. Ultimately, the earnest money deposit is credited back to you as a Buyer at closing towards your closing costs. Additionally, as a Buyer, you have certain protections in the contract that allow you to get you earnest money deposit back if the contract is canceled due to certain clause or contingencies (i.e., attorney review, inspection, and loan contingency).
- Carefully Choose An Inspector
As a Buyer, choosing the right inspector can have a significant impact on your purchase. It is always best to choose an inspector on your own. Of course, taking the recommendations of your realtor is fine, but be sure to research the inspector’s reputation, reviews, and find any other relevant information on the company that you can. Unfortunately, some inspectors are just better and more thorough than others. Also, make sure the inspection takes place in a timely manner and per the contract terms, and if you require more time, be sure to request so in advance rather than after-the-fact.
- Seller’s Real Property Disclosures – Read Carefully!
We regularly advise buyers to take a good look at the Seller’s Real Property Disclosures. If there is anything noteworthy contained in those that warrant further inspection or explanation, the attorney review and inspection periods are the time to make requests for additional information, documents or representations from the Seller. Often, the disclosures will guide the inspector on what specific areas to give proper attention to during their inspection. Also, while we would love to live in a world where all Sellers are truthful and forthcoming in their disclosures, unfortunately this is not always the case. If you do purchase a property and later find that the Sellers failed to disclose a material defect or other condition, you may have recourse if deliberate fraud was involved.
- The Contract is Your Entire Agreement
Almost every contract concludes with a paragraph stating that the contract represents and is inclusive of ALL Agreements made by the parties. What this means is that if you have any verbal deals or understandings, handshakes or phone calls, those are irrelevant and most likely unenforceable if the terms are not reduced into writing within the contract itself or some other addendum. Likewise, if you notice that something you spoke about is not reflected in the contract or was left out, make sure it gets put into the agreement somehow before (or sometimes after) signing. Once the contract is signed, the attorney review periods begins. During the attorney review period, there is no guarantee that the other party will hold true to their word regarding what the parties may have discussed as ultimately what is agreed to in the contract is all that the other side can be held to. Attorney review is generally used to address items that are not addressed in the existing clauses/terms in the contract (i.e., appraisal contingency).
- Do Not leave any Portions Empty and Double Check Everything
This may seem like it goes without saying, but we unfortunately see circumstances where even the most meticulous and detail-oriented buyers and sellers simply forget to fill out an area of the contract or mistakenly enter incorrect information. This is one of the most common pitfalls as often these transactions move quickly, there is a lot of excitement and things just get overlooked. One of the best ways to avoid this to read and re-read every section of the agreement a few times with your agent, maybe even out loud. Another thing to avoid is stating N/A in a contract section unless you are completely sure the provision is in fact not applicable. Also, remember to use your full legal name and not any nicknames, as this may void the contract.
In summary, form real estate purchase contracts are a great way to save time and money, particularly when time is of the essence in a real estate transaction. However, it is to follow these helpful tips and guidelines as rules of thumb. If you have questions about an upcoming or existing real estate matter, feel free to call one of the attorneys at Parikh Law Group at (312) 725-3476. We have served clients on thousands of real estate transactions and are happy to help guide you through the process with representation on your side. For more information, please visit www.plgfirm.com