By Gary Wilson, Esq. –
Recently the Buyers I represent have two major concerns. First, they want to know that they are not overpaying for the home or investment property that they are purchasing and, second, they want assurance that the property does not have any hidden surprises. A good purchase contract and a professional real estate attorney can help alleviate the stress that comes with making a major purchase, whether it is a home or investment property, and address the Buyer’s concerns.
Once a Buyer selects a property, the Buyer will sign a sales contract, make a deposit and present it to the Seller. The Seller then has the option to accept the sales contract without any changes, or, make a counter-offer to the Buyer with changes, such as a higher purchase price. Once this sales contract is signed by both the Buyer and Seller, it governs the transaction. Typically, the Buyer cannot go back and demand changes to the contract because he forgot to include a provision.
These sales contracts come in many different forms and all have numerous addendums that can be added. They include:
1. Standard Sales Contracts. There are several “standard sales contracts” that are commonly used in Southwest Florida. These contracts contain numerous provisions that provide protections for both the Buyer and Seller of the property. These contracts also typically contain provisions and time periods to complete an inspection of the property and requirements relating to obtaining a mortgage on the property. If these requirements, such as making a verifiable good faith effort to obtain a mortgage, are not strictly followed, the Buyer may lose its deposit. The same is true for the period of time the Buyer has to make an inspection of the property and notify the Seller of any “defects” that need correcting.
Usually, these contracts do not contain a provision requiring that the property appraise for the amount the Buyer is paying for the property. Due to the crazy valuation changes we have seen since 2007, the Buyer may find it important to add an appraisal clause in the contract that would give the Buyer an opportunity to cancel the contract and receive a full refund of their deposit, if the property does not appraise for the purchase price. This will help to alleviate the first concern mentioned above.
2. Lender Sales Contracts on Foreclosed Properties. There are numerous contracts being used by banks for the sale of properties they own after they complete a foreclosure on the property. These contracts provide protection only for the Seller and give the Buyer little or no protection, once the Buyer’s right to inspect the property has expired. The law in the area of foreclosures is changing at a rapid pace. A Buyer will want to make sure the foreclosure was done properly and that the Seller has acquired good title to the property. The Seller of foreclosed properties in most instances will want the Buyer to use the Seller’s title company and accept a title policy without the Buyer independently reviewing the underlying title to the foreclosed property. In most instances these contracts allow the Buyer to inspect the property, but require that the Buyer then either accept the property in its condition, without any adjustment in the purchase price for defects in the property, or, cancel the contract and receive a refund of the deposit. Before you sign one of these contracts you need to make sure you know what you are getting into.
3. Short Sale Contracts. These are often the worst contracts from a Buyer’s perspective. Most of the time the Buyer will make the initial offer on one of the “standard contracts” with all of the protections that these contracts give the Buyer. The Seller will normally accept this contract with the provision that the sale must be approved by the lender within a certain period of time. The lender does not have to approve the sale and the Seller may come back to the Buyer repeatedly and ask for extensions to give the lender additional time to approve the sale. Meanwhile, the Buyer may be stuck waiting to hear from the Seller’s lender thereby precluding the Buyer from looking elsewhere. These extensions are often required because the Seller is trying to get the lender to accept less than the amount owed on the mortgage. The Seller is also trying to get the lender to release it from liability for the short fall in the payoff. If the lender approves the sale, the lender will usually submit an addendum to the sales contract that almost totally rewrites the contract to the lender’s benefit.
There are many other things to consider when submitting an offer to purchase property and it is helpful if you can discuss these with a real estate attorney who is familiar with the form of contract that you are being asked to sign. Even the most standard contract contains numerous provisions that the Buyer may not understand without the help of a real estate attorney. No Buyer should assume that the “standard sales contract” protects the Buyer or addresses all of the Buyer’s concerns. The purchase of real estate may be one of the largest investments most people make in their life. Please spend time with a professional to help you understand the terms of your purchase.
This Article does not constitute legal advice and may not be relied upon as such. Each individual’s facts and circumstances are different. If you have any questions regarding your particular situation, please consult with legal counsel.
Gary Wilson, Esq.
Mr. Wilson is a partner with the law firm of Salvatori, Wood, Buckel, Carmichael & Lottes. Practicing law in Naples for over 30 years representing numerous buyers, sellers and developers of real estate, Mr. Wilson’s practice area is concentrated in the area of real estate law.
Salvatori, Wood, Buckel,
Carmichael & Lottes