Clean purchase contracts help avoid problems later.
As an active Realtor and a Principal Broker, I not only write many purchase contracts, but review many more. Here are mistakes I regularly see.1)
- Wrong or misspelled addresses, names, etc.
- Bad dates.
- Timeline issues.
- Contingencies with no expiration.
- Missing addenda.
- Subjective terms.
- Crazy terms.
- Dueling addenda
Let’s start out with spelling errors and wrong names. You do not have a contract if the names of the participants or address is incorrect. This is as basic as it gets. Check the public records to verify the owner(s) of title before writing a contract. Some of the systems Realtors use will only pull the first owner or first two owners. Be sure you are checking the actual public records and not a third-party system. I see this happen constantly.
Bad dates happen from either people rushing, or doing a “copy and paste” or a “save as” from a previously written contract. This is a common error on contracts.
Timeline issues happens, when the agent changes one date and does not adjust the others impacted by it. It also happened from the dreaded recycling of an old contract.
Contingencies with no expiration is one of my biggest pet peeves. There are brokers teaching their agents to do this. One of the most common I see, is where they put a cap on the interest rate of the mortgage. That gives the buyer the option of walking away, if the terms of the mortgage that the lender they choose; exceeds the amount of the cap. I have yet to see one with a deadline for the buyer to cancel the sale on this contingency. Giving the buyer a blank check. Besides not having an expiration, there are reasons the seller will not like it.
- The seller does not have control over the buyer’s credit worthiness.
- The seller has no input as to which lender and what type of loan the buyer chooses.
- Sellers don’t care what interest rate the buyer is paying.
Contracts that are missing addenda, is a result of rushing and not double checking the contract. Take your time. In our state a broker must review the contract before having anyone sign it. That helps minimize errors.
Many real estate agents use subjective terms in their contracts. Contacts should always be black and white, no gray errors. Here are a few I see regularly.
- “Acceptable to Buyer”
- “Market Rate”
- “Actual Cost”
- “Seller to Choose”
Crazy terms, is an area that comes up not as often as the others, but may be the most dangerous. I have seen real estate agents who think they are backyard attorneys and decide to rewrite the standard contracts. I have a simple policy, if you are adding more than a sentence or two, you are practicing law. Don’t do it. A team of attorneys and real estate agents created the standard forms that we use. They have been vetted over years by many professionals, a lot smarter than you.
Dueling addenda is something that has not been as big of an issue as some of the others, but it can be a time bomb. This happens most commonly when a brokerage has a standard addendum and the brokerage on the other side of the transaction has their standard addendum. In many cases those addenda change terms of the purchase contract and may have language, that conflicts with the other addendum. If they were ever to go to court, which addendum’s language is superior? This is one more item for the attorneys to argue over.
A clean real estate purchase contract will allow most transactions to flow smoothly. If there is a dispute or problem in the transaction; the contract will be the document needed to settle disputes or to give directions for resolving challenges. A contract that looks like a 2nd grader wrote it, is a legal mess waiting to happen.
The real estate industry has many part time agents, who do not have the experience or training to write a proper contract. In those cases, the broker they fall under; should take a more active role in the creation of contracts.
In competitive markets, a clean, strong contract will also give you a competitive edge. In the last three months over half of our buyers had their offers accepted even though they were not the highest.
When consumers select an agent, they should look for someone who does it full time and has good experience or are teamed up with an experienced agent. Also, they should check their credentials. What level of license do they carry and what designations have they earned. That will let them know if they have invested in their career and taken extra training. Consumers should never be afraid to interview agents before hiring them. Professional agents will have no trouble answering their questions and addressing their concerns. ##
Randy L. Prothero, REALTOR®
Principal Broker, ABR, AHWD, CRS, e-PRO, GRI, MRP, SFR
Island Style Realty Inc.
Team Leader - "The Prothero Group"
Randy Prothero is well established as an expert in working with military / VA clients and first time home buyers. His home seller's (listing) campaign is one of the most aggressive marketing programs in the area.
Based out of Mililani, Hawaii. Randy services the island of Oahu (Honolulu County) Performs mediations and ombudsman services for the Board of Realtors. To improve overall professionalism in his area Randy also offers classes for real estate agents.