Why Good People Write Bad Contracts!

It doesn’t matter whether you are the buyer or seller, when it comes to contracts.  No one wants to pay too much or accept too little.  No one wants to be taken advantage of.  Everyone wants to win.

 

A good contract is a balancing act between price and terms.  Written well, there are things in the contract to benefit both sides.  So why would someone write a contract that appears lopsided?

 

Let’s start with terms.  One of the most common terms is the financing contingency.  Unless the buyer is offering all cash, there is usually a financing contingency.  But unless the terms of the contingency are spelled out, the seller is left wondering just what kind of loan the buyer is going for and if they have a snowball’s chance of getting it.

 

So a good financing contingency will spell out the details of what the buyer is attempting to do:  amount of the mortgage, type of financing, down payment, etc.  If a buyer fails to be approved for the financing spelled out, he has the ability to “walk” from the contract and all deposits are returned to him.  Being pre-approved for a mortgage gives the buyer the ability to have a shorter mortgage approval date and therefore provide more security for the seller.

 

But that binder deposit is the only assurance that the seller has of the buyer’s good faith.  So the larger the deposit, the more assurance the seller has of the buyer’s intent.

 

How soon is the closing date?  A typical closing might be 30-45 days from the date of acceptance of the contract.  However, this is negotiable.  A faster closing might make the seller happy to have cash in hand.  Longer closings will usually require some concession or a larger down payment to assure the seller that the property will close as scheduled.

 

Inspection clauses are built into the typical contract and are written to be fair to both sides.  Changing those terms or timelines can tilt the favor to one side and make the contract less likely to be accepted.

 

In most states, written verbiage in a contract supersedes the typewritten.  So be careful not to negate a portion of the typed contract by writing in unnecessary notes.

 

Finally, we get to price.  If you are the buyer, how much to you offer?  If you are working with a Realtor, that person should provide you with information regarding recent sales and market trends.

 

For example, if most homes in an area are priced very similarly for quality and other factors, then they should have similar market values.  If those homes have sold for approximately 5% off list price and this home is listed realistically, then the seller will have the expectation of something around the same number.

 

A buyer who wants to test the seller may come in a bit lower, but too much lower and the result is an insulted seller who won’t take the contract seriously.

 

The reverse is true as well.  The seller who refuses to budge on anything runs the risk of offending the buyer, who probably has a second choice lined up and may just move on.

 

No one intentionally writes a “bad” contract.  Mis-information or advice is more common.  But in real estate contracts are about “homes”.  The seller is emotionally attached and the buyer is becoming attached as well.  So both parties need to recognize that there is more going on than just business.  A well-written contract with reasonable price and terms is likely to be negotiated and accepted.  When that happens, both buyer and seller win.

For more on this topic contact the author CrissieCudd@WatsonRealtyCorp.com