On Contract Language That’ll Drive You Nuts
BY CAROL ANNE WARREN, GRI, ABR, AHWD, CNE
Barb Freestone, Senior VP – Professional & Business Development atAAR, recently sent out an email. She’s writing a new class and asked her contacts to give her wording that they’ve seen in a contract that drives them crazy.
Oh boy! I love this subject! I also appreciate whacking two birds with one stone. I can answer Barb and write this piece all at the same time.
Article 26 of the Arizona Constitution gives real estate licensees the right to write contracts in the course of doing our business. While being given the right to write is very nice, I wish that there was also some way to give the ability.
Most of the problems that I see happen when the writer knows what they mean, but they don’t cover the “what ifs.”
In contract writing boot camp, I remember being told: “KISS – Keep It Simple, Stupid.” KISS is always a good plan, but too much KISS can be frustrating. Sometimes we need more elaboration. We are writing a legal and very important document, after all.
They say: “Contingent upon sale of Buyer’s property.”
- Which property? Identify it, please.
- Is it in escrow?
- What are your contingencies? How solid is it?
- Where are you in the process? Are inspections complete?
- When is it supposed to close?
- Can I see your sale documents?
- What happens to the earnest money if it doesn’t close by the expected date?
- Can I still show my property?
- What if I get a better offer?
- Most importantly, why didn’t you use the addendum created especially for this situation: the Buyer Contingency Addendum?
AAR has forms for most situations that we run into. The Additional Clause Addendum is invaluable, but I’ve only seen it used once in the past year. (Good job, Janet!)
Or they say: “Seller to stay in property 20 days after close.”
Seriously? That’s it?
- Is the Seller going to pay rent or a post-possession fee? How much? Starting when?
- Is this a landlord/tenant situation?
- Will there be a lease?
- Is there a security deposit to guard against damage or theft?
- When do we transfer utilities?
- What if the Seller won’t move when the 20 days is up?
- What if the Seller is ready to move two days after close? Do they still have to pay for 20 days, or is it prorated on a per-diem basis?
- Is the buyer / new owner allowed on the property during this 20 days? If so, how much notice is required, and how do they give notice?
- What about insurance?
- What if something breaks? Who’s responsible to fix it?
Now, think of ten more questions that apply to this situation, and then raise your hand and repeat after me: “I will never be involved in a pre-possession or post-possession.” If you’re not comfortable making that commitment right now, at least be sure to consult your broker’s policy on these types of deals.
(This is kind of funny coming from me. The last two that I did worked like a charm, but that was only because we had truly excellent clients on both ends of the deal.)
They say: “Buyer can sell off parcels.”
Well, not without paying for them first he can’t.
This one was written into a Seller financing offer on a piece of raw land. The intent is to allow the Buyer to sell portions of the property without triggering the due-on-sale clause. Bob Conlin (my former and now deceased Broker who had forgotten more about real estate than I’ll ever know) once gave me release language, and I still use it every chance I get. Let’s just say it’s a little different than “Buyer can sell off parcels.” AAR would rather I didn’t share it here, but I’d be happy to email it to you. Just drop me a line at firstname.lastname@example.org. (Since Bob always shared his knowledge and clauses freely, he would have liked that.)
They say: “Buyer is a Realtor.”
First of all, you are one and pay a handsome sum for the privilege, so why don’t you use this very important trademark correctly, all in caps with the ®? (There are lots of ways to get the “R” in a circle. The way that my fingers know to do it is to make sure my number lock is on, hit “Alt” and hold it down while I type in zero – 1 – 7 – 4. The ® magically appears.)
Second, I’m looking in NAR’s database and don’t see your Buyer, so he isn’t a REALTOR®.
Oh – here he is on the Department of Real Estate’s website.
My counter read, “All parties are aware and acknowledge that Buyer is a real estate licensee in the State ofArizona.”
Now, the ADRE database shows that he’s inactive. Do we still have to disclose? Yes. Inactive is still licensed and licensed must be disclosed.
They say: “Buyer has been told that house might flood.”
My counter: “Buyer is aware and acknowledges that property is subject to flooding. The latestYavapaiCountyflood status report and elevation map are attached and incorporated into this counter offer #1. Buyer to initial both and return with this accepted counter offer #1.”
You can safely bet your last dollar that I got the map and elevation off of the county website, date-stamped today.
I don’t mean to sound snippy. I admire that these agents flagged an issue up front and that they gave me enough information to clean up the language to get us all where we’re trying to go.
My first problem is that I hate to counter unnecessarily. If the deal is acceptable, to write a counter just to clarify language gives the other party a chance start that pesky thinking thing that they do and get all twitchy and bail.
My second problem is that my broker and I could end up with the liability for the wording. If I mess up then the other side’s wants and needs become my baby, and I don’t feel particularly appreciative of that.
My third problem is the other agent’s fiduciary duty. Unless we’re doing a dual agency, you can rest assured that I’m going to be attempting to slant things towards the best interests of MY client as I re-write THEIR agent’s words. This could be a little awkward, don’t you think?
So now I’ve given you some ideas and some language. Talk with your broker if you aren’t sure how to say what you mean. That’s why they get the big bucks. (I just heard a collective snort from all of the DBs out there. That was fun.)
If you have any spectacular contract writing SNAFUs from other agents, share them in the comments below and we’ll make sure that Barb sees them. This is going to be fun! I can’t wait to see what you guys have run into.
Carol Anne Warren, GRI, ABR, AHWD, CNE has been selling real estate full time for over 24 years and obtained her real estate broker’s license in 1997. She specializes in residential homes, lots, acreage and horse properties. Carol Anne is a certified feng shui consultant, an e-PRO, an Accredited Buyer’s Representative, an At Home With Diversity graduate and instructor, a Certified Negotiations Expert, a Certified Distressed Property Expert, a member of AAR’s Master of Real Estate Society, a Short Sale Foreclosure Resource, a Seller Representative Specialist and a partridge in a pear tree. She completed the stringent requirements for her Graduate REALTOR® Institute (GRI) designation in 2007. She is an AAR-trained mediator and an AAR-certified ethics instructor and has served on AAR’s Professional Standards Committee (among others).Tags: addendum, clause, contingent, contract writing, counter