Confusing Real Estate Contract Clauses to Watch Out For When You Sell a Home
Barb Schlinker Radio Show
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In Colorado, I know we don’t typically use attorneys to draft these legal contracts. Real estate agents are licensed to fill out the forms the state gives them to complete the legal contracts for buyers and sellers. What are some Confusing Clauses you see that home sellers should watch out for in selling homes?
These contracts were designed to make sense to buyers and sellers and be completely understandable: Real estate agents are NOT supposed to Make Up language that could be considered ‘practicing law without a law license’.
Yet, it happens all the time. Some of their brokers ask their agents to include, as part of the contracts they are writing, their company-specific addendums which alter the meaning of the contract…most often… in favor of their client Technically, if we have our clients sign ANY, non- State Approved company specific addendums, we MUST hire an attorney to explain them to our clients. It’s just not very practical if you have 8 buyers waiting to hear an answer on their offers – to go hire an attorney, during business hours to review addendums.
Many offers get submitted and are expecting a response AFTER Business Hours. But, if the client wants attorney services, we would simply slow things down and let them hire that attorney. Most real estate contracts get done without real estate attorneys. It seems to me, that real estate attorneys get involved when agents mess them up with stuff like this. We typically advise our clients NOT to sign any boutique addendums created by other Real Estate company’s lawyers for that reason
I see phrases in the contracts almost on a daily basis that could put the seller into future legal jeopardy if they are not careful about counter off any ‘mysterious’ language in the contract.The best way to explain this is give you some of my favorite examples: Paragraph 10.6.1.2: If in sellers possession seller to deliver copies of: Anything that: Any other documentation and/or disclosures in the seller’s possession that could affect the future value of the property and/or the buyer`s ownership and/or use of the property.
My personal favorite: Any negative condition(s) in the neighborhood or of a neighbor which may not be apparent to a Buyer but may affect values of real estate. What are some other issues you see out there that cause confusion?
a. Escalation Clauses!
b. Let’s define that.
Let’s say there are multiple offers coming in on a home
Multiple Offers Happen often now
Agents use an Escalation Clause to pay a little over the highest offer up to their max:
●Buyer A: Offer $500K, but willing to pay $2000 over highest offer up to a max of $520K
●Buyer B: Offer $495K, but willing to pay $1000 over highest offer up to a max of $520K
●Which is the best offer?
●These are VERY Confusing to a seller because it puts in doubt 2 things:
○ How Much Their Best Offer Really Is
○ Which one of the Two Prices They Will Pay
○ Seller has to send a Counter Proposal and hope the buyer accepts at the higher number
With many sellers, if they confused they will not act or even counter the buyer that confuses them. It’s a great position to be in….choosing the best offer. My Next Favorite is the Wording on an Escalation Clause: This: Parties further agree that if the property does not appraise for the agreed upon sales price, the Buyers will pay up to $15,000 over the appraised value.Or This? Appraisal Gap: In the event that the appraised value is less than the Purchase Price, the Buyer will pay the differential in cash, which Buyer represents Buyer has readily available resources, up to a maximum of $5000.
The issue with these is they are NOT Crystal Clear. Do they mean or Buyer will pay $5000 over the appraised amount – thus the appraiser is the authority on value Or… If it appraises low buyer will add $5000 to the price to make up the difference but if its too low seller can still walk away from the contract
There are only two contractual / potential ‘outs’ for a seller in the contract: If they don’t agree on inspection and If it doesn’t appraise and seller will not lower their price / AND buyer will not pay the difference in cash In both cases, the buyers have an option to continue with the sale.The reason they are written that way is: Lets say a seller accepts a contract and 2 weeks later an amazing offer comes along. We have to present ALL offers. But the seller cannot take out and shoot buyer#1 unless the contract is defeated by a missed deadline or buyer demand that is not rescinded. In any case, you want to hire an agent who understands this contract very well and is always working on your side…
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