Real estate contract language matters. Poorly written and inadequately structured real estate contracts will cost money, time and aggravation…or the deal itself. Clients often assume their real estate agent understands this; many are blindsided to learn that most agents lack the skills required to effectively write and manage a contract.
In Georgia, real estate agents handle all aspects of a sale, to include writing, negotiating and managing contracts. No mandatory reviews; no lawyers, no oversight, nothing. Broker reviews? Well consider the requirements to become a managing broker, then consider that many offices do not have a resident “in house” broker. It can take days to catch up with the “virtual” broker. Assuming of course, that the agent makes the effort; few do.
The body of the standard GA sales contract is written by real estate attorneys, it is a straight forward document. Variables come into play with time frames, special stipulations and amendments. A contract is a “living” document; both buyer and seller are expected to do certain things, in certain ways within certain time frames. When these fail to happen or fail to happen per agreement, issues develop. So many agents miss the very basics and their clients face unnecessary adverse exposure.
Something commonly seen in a contract: “Seller to have the electrical issues noted in the report repaired by closing.” Who is paying for that? Who is making the repairs? By closing? What if they are not completed? How do we know the repairs were made?
A better way to say the same thing: “At no cost to the buyer, seller to have a licensed electrician repair items 2, 4, 6 (from the attached inspection report) not less than 7 days prior to closing. Seller to provide the buyer’s agent with paid receipts at this time demonstrating that all work has been completed to current codes. Buyer reserves the option to have the repairs inspected at his cost.”
In GA, there are NO review requirements for contracts. The AGENT handles every aspect, from start to finish. No mandatory broker reviews, no mandatory lawyer reviews. Consider as well that in GA one can become a MANAGING broker without EVER writing a contract or closing a deal.
Taken literally (and contracts are) in the first example the seller isn’t required to pay for the work; they are required to make repairs. And they can have anyone do that – including themselves. The questions of who, what, when, where and how must be answered, and the “if that doesn’t happen” scenario is often wise to address. Words matter in contracts – Should or Shall? Remember how the word “is” was dissected by the DC crowd back in the 90’s?
Errors with basic parts of real estate contracts:
- Response time – most offers have a requested response time limit. This is often misunderstood, missed or simply not complied with. Contracts can be rendered unenforceable if time frames are not adhered to.
- Proposed financing – stipulates how the buyer is to pay for the home. Each method has an appropriate form; that form contains numerous time lines and other key info. While methods can change, all parties must agree in writing. You cannot for example, change from cash to a loan without universal agreement.
- Earnest money – how much, by when, what method, who is holding it?
- Due diligence – what is it, when does it begin, how long, business or calendar days, any changes must be universally agree to in writing.
- Binding agreement – If the contract is fully agreed to at 9PM, when is binding agreement? When does the clock start ticking on timelines? Have both parties been provided a fully executed contract? Does the acceptance correctly correspond with the requested response time?
- Seller disclosure items – What is required to be disclosed and what isn’t? What is a “fixture”? What is left and what is taken? What is each side responsible for with HOAs? What other disclosures are required?
- Home warranty – who orders it, what is the cost, who pays, what type. A perfect example is a warranty in place during the listing. Unless the stipulation is clearly specific, the buyer might be forced to accept that warranty.
- Termites – Many ask for a bond, what type of bond? How long is it valid and who pays for it? What about a termite letter? Who pays for that?
- Is there a well and/or septic inspections, CCRs or deed restrictions, survey, rights of ways/easements? Were permits pulled for basement finishing? Are there wetlands or flood zones? Flood elevation certificate needed? Is the CLUE report an issue?
- And with all of the possible variables, has the contract been tweaked to allow adequate time to investigate and address issues?
Errors with basic amendments:
- Problems with routine amendments are frequent. Issues range from timing, lack of signatures, lack of initialed changes, failure to acknowledge acceptance by all parties and more.
- Almost every home has an inspection and a request for repairs. Agents regularly fail to properly complete this document. While they usually enumerate and list repairs, ambiguity reigns when taken literally.
- Appraisals can be a major headache as well. There are a number of ways to get ahead of appraisal issues and several ways to challenge a low appraisal if one occurs. Most agents are not proactive here.
Notice and default:
- Does agreement via text serve to bind a deal? Does an oral agreement or a broker speaking for a client? What happens if there are multiple offers or a spouse changes their minds? What is delivery of notice?
- Deals fail on a regular basis for a variety of things. What happens to the buyer’s earnest money? If it fails during due diligence, what is required? After due diligence? What happens if the buyer can’t secure financing? What is the financing contingency?
On average, people buy or sell a home once every 5-7 years. The importance of vetting an agent to represent one’s interest cannot be overstated; this is often the most significant financial investment made. The real estate industry has no interest in raising standards; the majority of agents are not successful and are “hobby” agents. Hobby agents do not write effective, efficient and secure contracts. Hobby agents are problems and professional agents exploit their weakness to ensure the best outcomes for their clients, don’t be exploited.