Are you attempting to sell your home without using a real estate agent? Are you a real estate agent getting ready to write a contract, or to prepare an addendum to an existing contract? If you’ve answered “yes” to either one of these questions, then this was written for you in mind. As lawyers, we’ve seen a simple misunderstanding turn into an expensive mistake. Here are five tips to save you some money (and headaches) if you are getting ready to buy/sell your home. However, these tips don’t just apply to real estate contracts…they apply to all contracts (such as employment contracts, contracts for the sale of goods, and any other contracts where promises and/or money is exchanged).
1. If you are going to use a “term of art,” make sure that you use it correctly
Are you in the construction industry or perhaps in the hospitality industry? If so, there are certain “industry” terms or “terms of art” that have been used time and time again and have developed a specific meaning in a certain context and perhaps a completely different meaning in all other situations.
These “terms of art” have become very important and should only be used when appropriate. There are words that might mean one thing to a realtor yet they might convey an entirely different meaning to someone else…like a judge who is being asked to interpret a confusing provision in a contract. Here’s an example: A buyer and seller are negotiating the terms of a real estate contract and the parties want to clarify the point in time when the buyer’s deposit becomes non-refundable. In the real estate world, another way to say “non-refundable” is “hard.” However, not all people know this definition of the word “hard” and if a judge is asked to interpret this language, neither party may like the answer.
2. Say what you mean
We’ve seen a fair number of contracts that include an addendum that states that one party will pay all “settlement/closing” costs. The term “settlement” or “closing” and the costs attributable to this situation may be unclear. If you don’t want to define the term “settlement/closing” costs, define what items are not “settlement/closing costs.” For example, state “all costs associated with the settlement/closing except for transfer and/or recordation fees, property taxes, past-due HOA fees, and insurance.”
3. Even if you think you’ve said what you mean, say it again, differently
In casual conversations, if you don’t understand what someone else is telling you or asking you to do, the most common response is, “Huh?” As you are writing a provision to be included in a contract, if there is a chance where you think someone might give you that blank stare and say, “Huh?”…you should restate what you mean. For example, if the buyer wants to ensure that she can cancel the contract (and receive a full refund on any deposit paid) in the event that the “perfect” financing deal can’t be worked out, then the contract can say something like, “In the event that the buyer is unable to obtain favorable financing, then she can elect to cancel the contract and receive a full refund of her deposit. The buyer reserves the sole discretion to terminate the contract if she cannot obtain the financing that she desires.”
4. Make sure an addendum fits the contract
Most real estate agents will use boilerplate contracts. Many people prefer these boilerplate contracts because the words and phrases that they contain are “battle-tested” in that they have been litigated, litigated again, and litigated some more. Courts have interpreted and declared that if language in a contract is written in a particular way, it cannot be challenged as confusing. However, when writing an addendum to a contract, it is easy to muddy the waters. It is important to double check the language of the boilerplate contract to make sure that the language in your addendum does not seem to conflict with it or a prior addendum. If you think they’re might be a problem, consult an attorney.
5. Ask a lawyer to review the contract and the addendum
When a real estate dispute goes to trial Judges have a tendency to “split the baby” and render a decision that forces each party to win a little and lose a little. The easiest way to “split the baby” in litigation involving a contract dispute is to render the contract null and void, which will cancel the contract and put the parties back to the same circumstances as if the contract had never existed. But in some situations, this result can seem terribly unfair. Therefore, the best practice when writing an addendum to a contract is to ask an attorney to review the addendum together with the contract to ensure that if the addendum is later struck down, the rest of the contract will remain enforceable, which will give you (or your client) the benefit of the deal.
If you want to read more about mistakes not to make see Kyle Hiscock’s article The Top 8 Reasons A Real Estate Deal Falls Through on his Rochester Real Estate Blog.