Five Common Transaction Mistakes on Real Estate Contracts
A real estate contract defines the roles and obligations of each party in a property transaction and is legally enforceable. Attachments to the agreement may include clauses and contingencies. Reading and understanding your contract is important, especially paying attention to specified deadlines and dates, legal names, contingencies, seller concessions, items to convey, and even a termite repair cap.
Don’t Overlook These Requirements
A simple yet easily overlooked item in a contract is using the proper names of the parties. For title purposes, correct names are crucial. Lenders also rely on this information to be legally accurate during document preparation. Therefore, the party names must be consistent with their legal identification.
If the buyer or seller is an INC or LLC, the proper business name also must be used. If the buyer or seller is a Trust or some other form of “estate,” the authorized individual to sign should be the seller. A real estate attorney can clarify who needs to sign and what specific name to use. In the case of name errors, an addendum is required to address and fix the errors before closing.
Not every deal will contend with a resale contingency though it’s relatively common. If a buyer needs their home to sell before closing their purchase, they must disclose the situation to the seller. The contingency clause will define the condition or action a real estate contract meets before becoming legally binding.
While this is a simple requirement, it’s imperative to avoid delays and ensure all parties are on the same page. Delays tend to create cascading effects on document-specified deadlines and dates requiring additional paperwork to correct the resale contingency oversight.
Many standard real estate contracts contain an items to convey clause defining select items the parties agree will remain with the property, such as appliances, lights, fans, draperies, outdoor items, and more. Review this list carefully and write in any additional items not explicitly noted by default. An items to convey list agreed on by all parties in writing clarifies any confusion or misunderstanding.
Don’t forget less obvious items such as fuel in oil or propane gas tanks. Typically, the containers will convey, but their contents may not. A comprehensive real estate contract signed by both parties should state that the residual propane or oil in the tank is transferred from buyer to seller, becoming part of the buyer’s property.
Moisture problems or termite issues are real problems that your real estate contract can address with a termite repair cap. Generally, the default rule is the seller pays up to 1% of the purchase price for any termite and moisture repairs and treatments. Even so, a default rule is negotiable. Depending on the home’s location and age, fixing these issues can become quite expensive. Both agents and sellers need to examine and determine a reasonable cap carefully. Automatically assuming 1% is appropriate can be very costly.
The real estate transaction mistake that may be the most important to avoid is the seller concession paragraph. This clause in the contract often represents a large sum of money and directly impacts the buyers’ numbers. The buyer must first request seller concession or closing cost assistance upfront if that is their requirement. Secondly, the vocabulary must be unambiguous regarding the concession uses. If the phrasing is unclear, many disputes may arise. The buyer may assume they can use the money for one purpose when the actual language does not permit it. A reputable real estate attorney can help structure the concession paragraph to represent your interests legally.
Everything in a real estate contract is open to negotiation, but extreme attention is necessary throughout the drafting and reviewing of each contract section. A valid, well-written agreement with an experienced real estate attorney can convey every detail of the clients’ wishes and lead to seamless real estate transactions. We hope you found this article helpful. Contact our Chicago area office at 630-568-6656 to discuss how we can help you with any legal questions you may have.