A real estate contract is a binding document that obligates both parties to its terms, and great care must be taken when drafting it. Any imprecise terms or sloppy drafting could come back to haunt one or both of the parties, especially the one who drafted it. One way to avoid the risks of a contractual mistake or oversight is to hire a real estate lawyer to review all terms.
Each Transaction Should Have its Own Contract
There is no such thing as a typical real estate contract. Each transaction has its own terms that are negotiated by the buyer and seller. For example, there could be repairs that need to be made, and the contract will specify who is responsible for them.
Every deal may have its own contingencies, and these need to be spelled out in the agreement. Otherwise, parties will not have the contractual protections necessary for their situation. Someone should closely review the contract, both as it is drafted, and before it is signed. After the real estate deal is closed, the parties lose the legal right to change the contract, and a judge will enforce what is written and interpret any ambiguities.
Everything should be in writing and included in the contract itself. Text messages, verbal conversations and emails that include negotiations but that do not expressly make it into the contract will likely be deemed unenforceable.
Clearly Address the Inspection Process and Other “Outs”
One important contingency is the inspection process. This is often what can hold up the deal and cause disputes between the seller and buyer. The reason why this is a contingency is that the buyer has the ability to walk away from the deal if the property cannot “pass” an inspection. Another common contingency gives the buyer an out if they cannot obtain the financing to buy the property.
In addition, the contract should clearly specify what is included in the sale. The seller may wish to include some personal property items as part of the sale. The contract should exclude what the seller wants to retain, so the buyer does not expect to take possession of these when the deal closes. Otherwise, the buyer may be entitled to them as part of the transaction. All important material terms should be included.
Perhaps the most important part of the real estate sales contract is the provision that covers what happens when one of the parties does not live up to their obligations under the contract. This will give the other party the legal right to enforce the contract and penalize the other side when they have breached the terms. Parties need to watch out for provisions that might waive their right to a jury trial and it is important to include prevailing party provisions so there is an ability to recover attorneys fees and costs if a dispute arises. It is also important to understand liquidated damages provisions before you sign. Having a real estate attorney review a contract before execution may save time, money, and heartache for the parties later down the line.