Friday, May 27, 2005

Contracts: It's The Little Things That Matter

In contracts, it's all about the bottom line; the terms; how much the seller will net (or have to bring to the table in some instances); the closing costs for the buyer; and who's paying for what. A lot happens at the closing and it's important that the little things have been taken care of.

When your Realtor writes or presents your contract, it's imperative that he or she pay attention to detail. A lot can happen to the buyer or seller if a box is checked (or left unchecked); an addendum is left out; or something required of the contract is not completed.

The little items on a contract may cost you a lot of money or sabotage your contract altogether if not handled properly. Especially in a competitive situation, the listing agent is looking for reasons to reject contracts as much as reasons to keep one that's going to be the win-win scenario for his client. These little items may make the difference in accepting or rejecting your offer. Even if you're proposing more money, the terms may stop your offer dead in its tracks. Below are some "small" items that I'm talking about, that can cause of lot of headache or kill your contract if not handled well:

Inspections – There are various inspections that buyers can request (but in a hot market, they may not have such a privilege). The request is usually as simple as a checkbox. Thus, make sure your agent has the right box checked -- yes or no. I've seen some contracts where the agent/buyer apparently believed that since they didn't want an inspection, then leaving a "No" box blank is okay -- not so. Sellers want to leave nothing to the imagination and want you to say "no," if you're not requesting a pest, termite, home, or environmental inspection.

Disclosures – These are usually required by federal, state or local edict. The consumer will be asked to sign several forms that have nothing to do with the transaction as far as commitment is concerned, it's just a form designating that you've been told something -- Property Disclosure, RESPA Disclosure, agency disclosure, federal lead based paint disclosure, disclosure of brokerage relationship, and property owners/condo owners association disclosures are just a few of the disclosures that you might be required to sign. Leaving them unsigned could come back later to haunt you.

Other Terms clauses – Escalation, home of choice, and rent back clauses are three clauses that you definitely want to nail down early in the contract. If you're escalating your price -- what's your top price? Saying that you'll outbid any other offer by $2,500, but not writing it down, may result in the price escalating far beyond your buying power. Don't assume, "It will never escalate that high," because you just don't know. Nothing is new in the contract-writing arena. More than likely, there are other buyers just as hungry for the house as you -- and they may have more cash in the bank.

If you don't want to go homeless after the sale, then stipulate in your listing agreement that you a) want to find a home of choice and that you b) may want to rent back from the buyer so that you have time to find your home of choice. In a seller's market, don't assume you'll find your next house in a couple of weeks. Be smart and stipulate to the buyer that you need time. Keep in mind, however, that you need to be careful about how long you need to rent back. Most purchasers will only be able to hang on to their mortgage rate for a maximum of 60 days. If you want to rent beyond that, they may not qualify for the loan.

Don't wait until the day before you actually write a contract to sit and read it over. Get to know this document ahead of time. There's no good reason for not knowing what it says and what it may require of you before you actually have to submit it for your next home. Discuss with your Realtor the approach you want to take so that you are prepared to handle emotions at the contract writing.

Published: May 20, 2005

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