Common Contract Pitfalls to Avoid – Part 1
Earlier this year, I had the privilege of presenting at Savannah Area REALTORS® on Common Contract Pitfalls to Avoid. Several Realtors asked me if I had any written materials regarding this presentation – which I didn’t – until now. This will be a three part series highlighting some of the topics discussed at that presentation. The following are issues that I have seen over the years that have caused problems (that could have been avoided).
1. Poorly Written Special Stipulations and Other Provisions:
If an average person cannot understand something you have written, there is a problem. Special stipulations and anything else you include in a contract document MUST be written so that there is only one possible interpretation. Further, don’t make it too simple that you have left out critical information (i.e., what limitations if any are there on a seller’s contribution, when does something required to be fixed need to be completed by, how is it going to be completed, etc.). For example, the parties agree that something needs to be repaired, like a Trane air conditioning unit. The seller who wants to spend as little money as possible hires a non-licensed contractor and fixes the unit using a used part. While the seller technically has complied with his/her obligation, the purchaser likely will not be pleased. In this example, the stipulation should have required (a) the seller to use a Georgia-licensed contractor and (b) that any part required to repair the unit be a new, Trane part. Some special stipulations and other contract provisions can be challenging to draft the right way – ask for help!
2. Not Asking for an Elevation Certificate:
If you do not ask the seller to provide a finished-floor flood elevation certificate within the due diligence period AND flood insurance is required, bad things can happen. First, your buyer may be stuck paying for a flood elevation certificate (add that to the home inspection, appraisal and termite). Second, if the certificate is not obtained prior to the expiration of the due diligence period AND your buyer learns that the flood insurance premium is too expensive for his/her budget, you no longer have the right to terminate the contract (without serious repercussions). Also, if you ask the seller to provide the certificate, make sure you require the certificate to be produced in enough time to allow the buyer to seek advice from an insurance specialist before due diligence expires.
3. Financing Contingency Period Too Short:
Every Realtor wants to submit the most attractive offer possible (i.e., the best price, a short due diligence period and a quick closing date). But you have to balance the desire to submit the “most attractive offer” with the goal of protecting your client. For example, what if you only put 15 days for the financing contingency period and the lender is not able to give the buyer the green light within that time? Many times the seller is willing to give an extension, but what if they are not? What if during the15 days the seller received a better (back-up) offer and the seller is looking for a reason to get out of the contract? You have just placed your buyer in a very difficult position. Do they roll the dice and let the financing period expire hoping that everything works out OR terminate the contract on a home he/she just had an appraisal, inspection and termite performed? So what can you do to minimize the chance that you are never in this situation? If you know the lender your client is working with, call them prior to submitting the offer. Try to obtain the time frame the lender believes will be required to get the green light. Just don’t guess.
4. Letting the Due Diligence Period Expire Before Concerns have been Addressed:
So your client has an inspection completed and you submit an Amendment to Address Concerns to the seller. Your due diligence period expires in four days. After three and a half days you have heard little to nothing from the listing agent. You get busy showing property and you realize the due diligence period expires without finalizing the concerns in the amendment. Let’s just say I would not want to be in the room when you try to explain what happened to your buyer. Just because you send over the amendment doesn’t mean anything if it’s not signed by the seller prior to the expiration of the due diligence period. You must have those issues 100% resolved before due diligence ends (or seek extension). In addition, you must know your buyer’s position regarding whether he/she will want to terminate the contract if the seller does not address the amendment in time (or is not willing to grant an extension). Bottom line is you must have a plan.
If you have any questions regarding this post please call me on my cell anytime at (912) 484-1996 (even nights and weekends) or email me at email@example.com .