Now Available on Amazon Constitutional Sound Bites

Real Estate Contract Contingencies & The Attorney Review Period

Sign on the Dotted LinePeople making an offer to buy a home should be certain the written contract offer includes an attorney review period. Small contract matters can have big consequences.

Residential real estate transactions typically begin with a written offer from an interested buyer to a seller.  Form contracts[1] are often used with blank spaces for the property address, identification of the parties, offer price, desired closing date and title issues.  Though the initial contract is based upon standardized provisions, every real estate transaction has unique aspects.

The Inclusion of a Contract Contingency

A real estate contract frequently has “contingencies” agreed upon by the parties. Buyers often make an offer to buy before having sold their house. They must sell their current home to have the down payment to make the purchase. The offer to purchase is “conditional” on the sale of their home. That is a “contingency.”

The uniqueness of each real estate sale makes an inclusion of contingencies beyond the standard contract in the offer important.  While a real estate attorney would prefer to examine a contract prior to the submission of the offer,[2] no offer should be submitted unless the contract at least contains an attorney approval or modification provision.[3]

The attorney review period may be the most important contingency of all. This is a time after contract signing when attorneys for each party review the contract and make suggestions for changes to protect their clients.

Most contracts are a “done deal” at the time of offer and acceptance. The parties are liable to fulfill their obligations. If the parties have signed a contract without a review clause prior to consulting an attorney they are stuck with the contract as it’s written.

Buyer Protection Clauses

Contract Contingency in the Fine PrintContingencies are escape hatches in a real estate contract and allow renegotiation in limited areas. They can end the deal without penalty if certain conditions are not met. Real estate attorneys are familiar with the kind of contingencies that are critical. Typical examples are:

 

1       Buyer ability to get a loan at market interest with 10% down

2       Inspections of major systems and structures.

3       Projected renovation costs.

4       Environmental hazards.

5       Water, soil and septic issues.

6       Title, taxes and liens.

7       Review of  Condominium Declarations and Bylaws.

Appropriate use of contingencies can be buyer-protection clauses (sometimes called “jump out” contingencies) and always considered in any real estate purchase agreements. With the attorney review clause a prospective home buyer can insure the proper protections for his situation become part of the contract.[4]

Professional Contract Review

Home buying and selling are major financial transactions, often the largest of someone’s life. As it is to be and has been someone’s home, the process is also an emotional one. The attorney review period allows a dispassionate professional to provide advice.

The attorney review can have major impact.  In one instance, the seller had crossed out a soil boring clause from a standard contract. The buyers loved the property. The buyers’ attorney insisted the clause be reinstated. It was discovered the property had been over a plume of chemical contamination. The contract was voided. Without the attorney review and contingency reinstatement the buyers could have been forced to buy the property or pay the seller damages.


[1] For example, Chicago Title Insurance Company has available a form contract online for downstate Illinois transactions, or for Florida transactions a form contract developed by the Florida Bar & the Florida Association of Realtors is available.  However, note that neither of the two contracts have a standard attorney review provision.

[2] There are good reasons to see an attorney before submitting the offer.  In Illinois for example, suggested changes by an attorney during the attorney review period may be considered a “counter-offer” and subject to another acceptance by the seller.  There has been a case that after suggested changes by the buyer’s attorney, but before the seller agreed to the changes, the seller received an offer for more money from another buyer.  The Illinois court treated the suggested changes as a counter-offer, and the first buyer lost the chance to buy the property.

 [3] The attorney review or approval clause can itself be significant.  There are real differences between “review” and “approval” that expand or limit the effect the attorney can have on the final contract. The possible differences among review clauses show the value of seeing an attorney before making the offer.

[4] Properly negotiated and drafted contingencies can make a deal smooth and protect both parties from unnecessary litigation in the event something upsets the transaction.  Anticipation of potential problems and providing for them through contingencies before a final contract is signed can avoid the heartache of a civil lawsuit.

Comments

Trackbacks

  1. […] When a buyer contracts to buy a home, he wants to be certain that the seller can legally sell it. Ownership of real estate can be very complex. There can be a variety of parties with an interest in the real estate.1 Some examples include a mortgage, unpaid property taxes, mechanic’s liens, IRS liens or judgment creditors. These parties may have an interest in the property involved in the contract. A buyer wants to be sure that once he has the property he will not in any way be surprised by another party’s claim on it. There may be other issues involving the property itself, a neighbor may have built his driveway on the land.2 These issues are title problems, and the reason one needs title insurance, and why proper title insurance is always included as a contract contingency. […]

  2. […] source of regret. The right to review and to rescind based upon the review should be included as a contract contingency in a purchase […]

  3. […] Real Estate Contract Contingencies & The Attorney … – People making an offer to buy a home should be certain the written contract offer includes an attorney review period. Small contract matters can have big consequences. […]

  4. […] Real Estate Contract Contingencies & The Attorney … – People making an offer to buy a home should be certain the written contract offer includes an attorney review period. Small contract matters can have big consequences. […]

  5. […] Real Estate Contract Contingencies & The Attorney Review … – People making an offer to buy a home should be certain the written contract offer includes an attorney review period. Small contract matters can have big consequences. […]

  6. […] Real Estate Contract Contingencies & The Attorney Review … – People making an offer to buy a home should be certain the written contract offer includes an attorney review period. Small contract matters can have big … […]