All that paper is still a contract…

by Tracy Molnar on August 9, 2006

If you’ve ever been in a real estate closing, you know all the paperwork that gets shuffled around. There are usually more signatures than an average evening out for Barry Bonds, yet many people don’t even give their real estate contracts a once over. Experience show that this can be problematic. Some of the problems commonly encountered in real estate transactions are as follows:

From the Seller’s Perspective:

  • Not enough earnest money. You’ll want to make sure that you get enough earnest money to show that the buyer is, well, earnest in their interest in your home. You’ll also want to make sure that not too much time lapses between their initial and additional earnest money payments.
  • No late fee clause or the late fee is too little or too late. The late fee should be sufficient enough to deter late payments.
  • Not getting a credit report on the buyer, not making sure the buyer has financing, or requiring too small of a down payment. Sellers can be burned if they don’t know their buyer is creditworthy or has the money to close the deal.
  • Buyers who add too many additional conditions. Be wary of buyers who add too many additional conditions to the contract. A contract is, after all, an agreement or a meeting of the minds. If the buyer’s list of conditions goes on and on, there’s more chance the buyer might try to wiggle out of the deal.

Problems facing Buyers:

  • Waiving Inspections. Your home is likely the largest purchase you will ever make. You will want competent inspectors to make sure your investment is sound.
  • Allowing your Seller to become your tenant after closing. This isn’t necessarily a terrible idea, but you should be aware that tenants have certain rights by law, and that evicting a tenant will take time and potentially significant legal fees.
  • When purchasing a rental property with existing tenants, read your lease! Whatever lease terms existed before closing will apply after the closing. Make sure the lease has terms you can live with!
  • Be aware of Homeowner Associations Restrictions, Covenants, Fees and Dues. Most real estate contracts do not list the restrictions, covenants, etc. so make sure you review them separately.

Buying or Selling a home is a complicated legal transaction. You (or your agent or lawyer) should look over the contract carefully.

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