Five Common Mistakes Made on Real Estate Contracts
1) Using Proper Names
One of the most simple yet easily missed items on the contract is using the proper names for the parties. Not only is this important for title purposes, but lenders rely on this information when they are prepping their documents. Party names should be consistent with their identification. If the buyer or seller is an LLC or INC, the proper business name should be used. If the buyer or seller is a Trust or some other “estate,” then the individual authorized to sign should be the seller. Consult with an attorney to clarify any questions on this issue. Otherwise, addenda will need to be signed at some point prior to closing to fix any errors.
2) Resale Contingency
Though this doesn’t come up in every deal, it is pretty common. If the buyer is waiting for their home to sell before they can close on their purchase, it needs to be disclosed to that seller. Simple yet very important. Delays are common in these situations and all parties need to be on the same page.
3) Items to Convey
A lot of standard real estate contracts contain a clause where the parties select which items convey with the house such as appliances, fans, lights, draperies, outdoor items, etc. It’s important to thoroughly review this list. It’s also important to write-in any items that are not specifically noted by default. If there is any question about what items convey with the home, they should be written out for all parties to see and agree on. Don’t forget about fuel such as propane gas or oil in containers. Generally, the containers convey but the contents may not! If there is any questions regarding whether an item is a fixture or not a fixture, consult with an attorney who can help.
4) Termite Repair Cap
The default rule generally is the seller pays up to 1% of the purchase price for any termite and/or moisture repairs and treatment. However, this is not set in stone and is fully negotiable. For some deals, this can be quite an expense. Agents and sellers should carefully examine what a reasonable cap would be. Don’t automatically assume 1% is appropriate.
5) Seller Concession Paragraph
This may be the most important clause in the contract because it can be a large sum of money and directly impacts the buyers’ numbers. First, the buyer needs to make sure they request seller concessions or closing cost assistance upfront if that is what is needed. Second, the verbiage needs to be clear and unambiguous regarding what the concessions can be used for. Many disputes arise when the verbiage is not clear. The buyer may think they are able to use the money for one thing when the actual language does not allow for that. If you need help writing this paragraph, connect with a reputable real estate attorney who can help.
Remember, everything is negotiable in a contract, but it’s extremely important to be very thorough in drafting and reviewing each and every section. Make sure the contract is accurately conveying the wishes of the client.