Realtor Seminar Resources
The Following materials are drawn from seminars presented to Realtors by Lew Oliver
Top Problem Issues in Contracts
The following issues come up again and again in residential contract disputes and FREC complaints, or otherwise just screw up deals (or ruin your day). 95% of all conflicts revolve around these issues. If you study them, you will avoid much heartache Section number references next to the title of each topic refer to “AS IS” Contract - references may be slightly different on regular contract.
NAMES, EXACT SPELLINGS, FOREIGN/MARRIED STATUS - Preamble
- Get all names as exact/correct as possible, with marital statusBUYERS
If the deal is an REO sale or Short Sale, buyers names CANNOT CHANGE, so make sure your buyers decided exactly who they want on title UP FRONT!!! - Foreign buyers - don’t let them put minor children on deed! (This happens a lot)SELLERS
- Look up exact seller names from previous deed (property appraiser website has copies)
- Ask if your sellers are foreign! It matters! If they are, FIRPTA will apply! (see below)
- Ask if any sellers have divorced or died
FIRPTA issues are easy to miss and easy to misunderstand. Listing Agents: ask if seller is a foreigner! (SEE ABOVE). If the seller is foreign (a “non-resident alien”), this is a FIRPTA matter.
Note that holders of green cards, and certain “resident aliens” (the definition of this is complex) are not considered “foreign” for FIRPTA purposes. There is an exception to FIRPTA withholding if (1) the sales price is under $300,000 AND the (2) buyer will use the home primarily for its own family AND (3) buyer signs the correct affidavit.
If FIRPTA withholding applies, we STRONGLY recommend to foreign sellers that they hire a firm that specializes in processing the FIRPTA (we have good recommendations) and NOT just any random accounting firm. Specialty firms are better & cheaper. Also, if the $300k sales price/buyer occupant FIRPTA exemption possibly applies, Listing agents should include a clause in Additional Terms REQUIRING buyers to sign the necessary affidavit to avoid the 15% withholding if the seller cares about it (as most of them do). Clause should say: “Buyer agrees to execute the necessary affidavit to avoid FIRPTA withholding.” Put this in the contract!
This can be a big issue. Be sure to address these items (which are not pre-printed): washer/dryer, pool equipment, alarm systems, water purification systems. Also, be sure to tell sellers that if it’s attached to the property (drapes, blinds, pot hangers, light fixtures, built in speakers), the assumption is that IT STAYS. If they want to take a “mom’s chandelier” or their favorite overhead pot holder, or favorite drapes, they need to say so!DEPOSITS SHOULD BE WIRES! - Section 2(a)
Listing Agents especially should verify that deposits have been received on time! SPECIAL NOTE TO BUYER’S AGENTS: If your Buyer does not WIRE the deposit, then your buyer will almost POSITIVELY BE IN DEFAULT because the deposit must be in “COLLECTED” funds and there is NO WAY a personal check or even a cashier’s check will be collected by the title company in the typical contractual 3-day default period for delivery of the deposit. This could give sellers a pretext to terminate if they get a better offer. Your Buyers will be VERY angry if that happens because you did not tell them to wire the deposit. BEWARE!!!IT’S A BAD IDEA FOR REALTORS TO HOLD DEPOSITS - Section 2(a)
Don’t. Just don’t. Lots of potential headaches.WIRE WARNING - REQUIRED FOR CASH TO CLOSE! - Section 2(e)
Make sure your buyers understand that wires are required for closing and please GOD send them the day before (or 5 business days ahead if overseas). Title companies emphasize this also, but buyers often ignore countless reminders. WIRE WIRE WIRE ONLY. NO CASHIER’S CHECKS AND NO “ACH” DEBIT TRANSFERS. Please help title company emphasize this by repeating it often to your buyers.DANGER TO SELLERS - AUTOMATIC EXTENSION OF CLOSING! - Section 5(a)
Sellers should be aware that, if buyer is financing, Buyer has a RIGHT to an extension of the Closing Date if certain lender/CFPB requirements are not met in time for closing, possibly with little or no advance notice. This can be a nasty surprise to sellers. This is why I recommend that sellers strike Section 5(a) of the contract (see suggested contract clauses).TENANTS? - Section 6(b)
If you haven’t visited the property, make sure there aren’t tenants! Surprise! If there are tenants, mark this box and provide the information required. Also note requirement for pro-rations and credits for deposits and rents.FINANCING - RULES OF THUMB! - Section 8
This is the biggest problem area of all contracts. Most professionals do not fully understand this section of the contract and all its implications. Remember these rules:
(I) Buyer is not required to actually deliver a loan approval letter to Seller, only “written notice” that they got one! Example e-mail: “Dear Seller/Seller Realtor: today we received our Loan Approval. Thank you.” That’s all that is required. The Seller does not have a right to see the actual approval letter.
(II) Seller’s agent SHOULD NOT ASK FOR loan approval letter ANYWAY!!! Why? - Because realtors are not qualified to read it or interpret it (you will only screw it up) and the buyer will claim that if you did not object to the various contingencies THAT ARE ALWAYS THERE, that you must be agreeing to accept those contingencies! Don’t do it!!!
(III) If you represent Seller and get a written notice of loan approval, whether they attach the actual approval letter or not, reply with this: “Dear Buyer/Buyer Realtor: Thank you for giving written notice of having obtained a loan approval; I am not reading or approving the letter itself (if you sent it). By delivering your notice, you have now waived your financing contingency and placed your deposit at risk if you do not close. We look forward to closing on the Closing Date. Thank you.”
(IV) If you represent Buyer, WARN WARN WARN the Buyer that if they do not send written notice of getting a loan approval by the loan approval date, they risk having the Seller immediately terminate the contract and lose the house (though the buyer does get the deposit back).
(V) If you represent Sellers, and the Buyer does not send written confirmation of getting a loan approval by the loan approval date, you MUST tell the Seller that they can now TERMINATE the contract and sell the property to someone else if they want (but must return the deposit). This is VERY IMPORTANT. I suggest ALWAYS terminating unless it's totally a buyer’s market. The buyer will squeal, but you can always sign an addendum getting some concession for extending the loan commitment date (more Deposit, immediate release of some/all of the Deposit, higher price, etc.). You HAVE to INFORM the Seller of their options!!!
(VI) Everyone should remember that, if the loan approval date comes and goes - and no one does anything at all - then the Buyer AUTOMATICALLY waives and loses the loan approval contingency, and the deposit is now lost/at risk if Buyer fails to close. Alternatively, Seller may cancel the contract per (V) above, but return the deposit. In short, Buyer WILL LOSE either the house or the deposit.
If you didn’t write the contract, read EVERY SINGLE FILLED IN BLANK AND HANDWRITTEN ADDITION carefully, and watch for TYPED INSERTIONS (these are easy to miss!!!!). Stuff gets slipped in all over the place. Pay very close attention to Section 9(a) to make sure the buyer didn’t include a seller contribution or the like (even though it does not belong here). I have seen this be totally missed by listing agents! DANGER!!!!INSPECTION PERIOD - Section 11(a)
If Buyer fails to cancel “AS IS” contract by the last day of Inspection Period (remember there is extra time if the last day is weekend or holiday), Buyer has placed their DEPOSIT AT RISK (except if there is another later contingency such as financing). Warn Buyers!WALK THRU ISSUES - Section 11(b)
Buyers need to understand that they cannot lawfully refuse to close if they are unhappy with a relatively small item or two on a walk-thru. Sellers should understand that the home must be in the same condition at closing walk-thru as it was when the contract was signed, even on “AS IS” contracts. “AS IS” does not mean that sellers may allow the home to deteriorate before closing. If there were no leaks and scratches, and the A/C worked at the time the contract was executed, then that must all be true at closing as well.BUYER DEFAULT DAMAGES - Section 15 & Additional Terms
If you represent a Buyer, it’s a good idea to remove the option for seller to sue buyer in cases of buyer breach of contract. Most buyers understand that they may forfeit a deposit if they default, but they do NOT want to face other, larger damages. Buyer’s realtors should add this clause to Additional Terms: “In the event of a Buyer default, Seller’s damages shall be limited to retention of the Deposit.”HOA/CONDO DISCLOSURE - Riders
If you represent a seller and there is an association, the disclosure and applicable attachments are REQUIRED. Remember that - BY LAW - buyers can CANCEL the deal AND get their deposit back up to THREE days after getting the required disclosures. I have often used this requirement to get a buyer out of a deal, to the great annoyance of sellers. Listing agents: don’t let that happen to you!SHORT SALE DISCLOSURES - Short Sale Rider
Make sure short sale Buyers understand what the short sale means. Carefully avoid advising sellers that short sales are advisable or their best option. USE THE WAIVER AND DISCLOSURE FORMS WE PROVIDE (OR SIMILAR)!!!! Be careful negotiating your own short sales!POST-CLOSING OCCUPANCY - Post-Closing Occupancy Rider
Be careful with post-closing occupancy agreements. Kind of risky for Buyers. Probably not a bad idea for Buyers to get legal advice on this one.
IMPORTANT GENERAL SUGGESTIONS/HINTS
REVIEWING OFFERS SUBMITTED TO YOU
If you did not draft the contract offer, and instead are reviewing something submitted by the other side, it is a VERY VERY VERY good idea to compare the contract with a blank “master” contract form that you have highlighted with a yellow marker where every blank is located. This allows you to check to see what has been filled in in EVERY LOCATION. Hand written information is fairly easy to see on first glance, BUT most realtors have software that allows them to type in data, and some even remove the blanks where they have typed data in, and the typed information just “blends in” and is easy to miss. It’s also easy to miss small check marks in boxes, etc. So do a side by side comparison to make sure you are not missing anything!!!OFFER/ACCEPTANCE/COUNTEROFFER CONFUSION
Many a deal has exploded because of confusion over whether or not there is a contractual “meeting of the minds” as required to form a contract. Avoid too many hand markups. If you must use them, make sure there are clear initial blanks for ALL buyers and sellers next to every change, WITH DATES. If there are a LOT of changes from multiple back and forths, it’s much better to start from scratch with a clean version so all signatures and initials have the same dates. It is VITALLY important to make sure your clients understand that there is NO DEAL until BOTH sides have signed off on EVERYTHING AND EVERY CHANGE and then also . Many a FREC complaint has arisen from creating bad or inaccurate or dashed expectations with clients. CONTROL EXPECTATIONS until you have signatures! If you must say “they agreed on the phone” or “the realtor said it was fine”, be sure that you add: “however, it’s NEVER a done deal until we get a signature, and people can be flaky, so don’t count on this JUST YET.”HAND MARKUPS HINTS
- NO CONTRACT should EVER EVER EVER have more than ONE SET of written changes from one party on one date. ONE ROUND ONLY!!!. If there is a NEW counter from the other side, type from SCRATCH
There are 6 Critical “Suspense/Milestone” Dates you should note and understand cold.
- Effective Date - when last party has signed and DELIVERED signed contract to OTHER SIDE
- Date Deposit Is Due - Watch this!!! You have to remind your Buyer/Notify your Seller. If buyer is late, they may lose the house, and seller needs to know they can cancel (or at least that their buyer has breached)
- Inspection Period End - DANGER!!! - BOTH SIDES WATCH CAREFULLY!!!
- Loan Approval Date - DANGER!!! - BOTH SIDES WATCH CAREFULLY!!!!
- 3 Days Before Blosing - This is critical for financed deals - If buyer has not yet received and acknowledged the “CD” (Closing Disclosure) by this time, seller needs to know that there is a good chance the closing will be delayed PAST the Closing Date.
- Closing Date - Both sides watch closely.
When you mark your calendars with critical dates, mark the DAY BEFORE, to give you time to react/warn/fix/think.MEASURING DAYS
All periods marked by a number of days are CALENDAR days, NOT business days, but if a period ends on a weekend/legal holiday, the date is pushed back to 5PM the NEXT BUSINESS DAY.REALTOR E-MAIL DISCLAIMER
Add to the bottom of every e-mail signature line the following in BOLD LETTERS: “Notwithstanding anything to the contrary stated or implied in this e-mail, nothing in this e-mail shall be interpreted by any person as amending or creating any contract or contract provision, or agreeing to any contract provision or change. Only writings signed by all buyers and sellers shall be considered binding on buyers and sellers to create or amend a contract.”
SUGGESTED CONTRACT CLAUSESSuggested Contract Clauses to Protect Sellers When Buyer Finances:
1. Section 5(a) of the Contract is deleted and there shall otherwise be no extension of the Closing Date for any reason related to financing, including failure of Buyer’s Lender to produce timely Closing Disclosures.
2. The appraisal contingency set forth in Section 8(b)(vii)(3) of the Contract shall expire on the Loan Approval Date. If Buyer wishes to ensure that the Property appraises, then Buyer shall arrange for such appraisal before the Loan Approval Date.
3. To ensure that Buyer is diligently pursuing financing in an expeditious manner, Buyer shall deliver to Seller within 7 days of the Effective Date written proof from Buyer’s lender that Buyer has (i) filed an application for a loan, (ii) received a Loan Estimate, and (iii) delivered to lender a written “notice of intent to proceed” based on that Loan Estimate. If Buyer fails to do so within 7 days of the Effective Date, Seller may at any time thereafter terminate the Contract, but must return Buyer’s Deposit.
4. Seller will pay for (or provide a credit for) an Owner’s title insurance policy at the promulgated rate (subject to any applicable re-issue credits) based on the sales price of the Property, however this payment is contingent upon Buyer using the title agent designated by Seller.
5. Buyer hereby authorizes and directs the title/closing agent to deliver Buyer’s Closing Disclosure to Seller and all realtors upon receipt by title/closing agent unless specifically prohibited by Buyer’s lender, and Buyer further agrees to deliver the Buyer’s Closing Disclosure directly to Seller and to all realtors as well.
1. Buyer shall sign at closing the FIRPTA affidavit required by the title company to avoid FIRPTA withholding of a portion of seller proceeds.Suggested Contract Clauses to Protect Buyers:
1. Seller shall arrange and pay for an open/expired permit search to be delivered to Buyer at least 2 days before the end of the Inspection Period. If Seller fails to so deliver in time, then the Inspection Period shall be extended to 2 days after such delivery.
2. Seller remedy in the event of a Buyer default is limited exclusively to the retention of the Deposit.
3. Buyers shall have until the Closing Date to obtain the Flood Elevation Certificate referenced in the contract (if applicable).