Real Estate Contract Clauses – Be Careful Out There!

Just when you think you have seen it all something new comes up.  A Student called and asked me to look at a contract he had received back from a seller.  The contract had a large number of changes that were either struck out or written over.  While I don’t give legal advice I do have an opinion on real estate contract clauses and changes sellers or buyers make to an existing contract.

There were the usual changes like shorter inspection period and closer closing date.  But the eye-opener was the changes to the specific clause that discussed what happened if the seller defaulted, under what conditions he could cancel and what recourse the buyer had in this situation.

The strike-outs in this clause were carefully crafted to give the seller a “Get Out of Contract” at any time.  There was no recourse including the buyer filing a Breach of Contract lawsuit.  This alteration to the contract is wonderful if you are the seller.  I am sure it will be used by some investor from here on out.  As for the buyer it is an abomination!  If a seller can back out any time before closing and the buyer has no recourse, why even have a contract?

Essentially this modified clause allows the seller to keep marketing the property.  If he finds a higher offer to accept it without worry about recourse from his current buyer!

Who in their right mind could be so callous and outright mean to put in a clause like this?  First one I can think of is the attorney for the seller.  The attorney either had a ton of experience or was just out of law school.  Based on his other changes I think the latter.

Secondly, the other people who actually do this ALL THE TIME are lenders who are approving short sales.  Their “addendum” to your contract with the home seller states that they have the right to cancel their approval up until and including the day of closing without any recourse to them.  You can sue the seller for Breach of Contract as he is always willing to sell but you have to pay off his upside-down mortgage to close!

In summary, if you don’t read every page and understand every clause in contracts you sign, you could be paying for some very expensive mistakes in your investing career.  While I joke with my wife that “real men don’t read”, not reading before you sign anything can be very costly and may be career ending.  If you are afraid of legal issues and don’t understand real estate law, simply have an attorney “shadow” your transaction.  Pass the burden of getting it right to him.  His insight and overview will be the cheapest insurance you can buy before you need it.

To your limitless success,

Dave Dinkel

Real Estate Mentor Program Founder

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