REAL ESTATE CONTRACT TIPS
By Kaiser Wahab, Esq.

One of the most important transactions in a person’s life is the purchase of a house, condominium,
or co-op. After the buyer and seller agree to a purchase price for the property or unit, they will
“go to contract.” In other words, this means the deal is formalized in writing. Buyers often
mistakenly believe that after their offer has been accepted they may back-out at the last minute if
they have a change of heart or find a more desirable property. Often a buyer intent on backing out
of an offer that has been accepted will cite a “3 day right to cancel” law or a “first-time buyer”
exception. In general, these exceptions do not exist. The real estate contract is therefore one of
the most important contracts a person may ever sign. Drafting and modifying the real estate
contract is a critical step that allows the buyer’s and seller’s attorneys to negotiate the best deal
points for their clients. A well negotiated contract should address the major concerns and
contingencies that can derail what otherwise should be a predictable sale and closing.

Typically the real estate contract contains contingencies that must be satisfied before the sale goes
forward. These include assuring the buyer obtains a mortgage, allowing for a premises inspection,
and that, after closing, the buyer will own the property free and clear of any liens or claims by
others. Typically real estate contracts require all parties to act in a good faith manner, meaning
that neither party can deliberately fail to fulfill their duties. In addition, where a party is in breach
of their obligations under the contract, damages may be available after suit and in some cases a
buyer can compel a seller to complete the sale.

Before signing, the parties should consider following issues and address them in the real
estate contract:

Contract Tip 1: Always Conduct an Inspection of the House or Cooperative or
Condominium

Homebuyers typically retain a third party inspection firm to survey a house, and much less often
do the same for a condominium or a co-op. However, it is always good practice to conduct an
inspection regardless of the type of property. Such inspections can reveal all sorts of defects
ranging from electrical deficiencies to problems with the plumbing. These deficiencies can be
addressed in the real estate contract and the buyer can be made responsible for repairing them
before closing.

Contract Tip 2: The Real Estate Contract should be Contingent on the Purchaser Securing a Mortgage Loan Commitment

Where the purchaser has to finance the transaction with a mortgage, the mortgage application is
usually prepared after the real estate contract is signed. To minimize the risk of binding the
parties to a sale the purchaser cannot finance, the sale should be contingent on the purchaser’s
acquisition of a suitable letter of commitment from a lending institution for the final loan. This is
one of the most important real estate contract provisions and prevents the transaction from being
bogged in a contractual quagmire when the purchaser is simply unable to obtain the financing
necessary to close. Also, a purchaser should try to avoid surprises in connection with the letter of
commitment and consider other pitfalls a commitment letter may present such as commitment
letters that require the purchaser to settle a previous debt or sell a property. Sometimes an
extension of the commitment letter period may be required for these events and should be
prepared for as much as possible in advance.

Contract Tip 3: Be Prepared for a Holdover Seller that Cannot Deliver the Premises at
Closing or the Condition of the Premises has Changed

Although the parties often have the best intentions, sellers often cannot vacate the premises by the
delivery date and require additional time to do so. In that event, purchasers might tender the
balance of the purchase price to seller without gaining possession of the property. The real estate
contract should contain provisions that ensure the seller will move out promptly after the title is
closed and deliver possession of the property to the purchaser. In addition, the real estate contract should provide for compensation to the purchaser if the condition of the property is not as described in the real estate contract upon closing.

Contract Tip 4: Know the Real Estate Taxes, Special Assessments, or Maintenance Fees in Advance

A purchaser should not assume anything about the maintenance, taxes, or whether there
is an ongoing or pending special assessment. Surprisingly, sellers often don't know these
figures off the top of their heads. A purchaser should determine what the real numbers
are and have them reflected in the real estate contract. Ideally, the contract should also
provide for remedies, in the event that such figures were inaccurately provided by seller.
For example, contracts of sale often state what the approximate monthly maintenance is
for a co-op.

Contract Tip 5: Other Remedies and Contingencies that Should Be Considered

Other contingencies and remedies should be considered for inclusion in the real estate contract.
These can provide greater predictability and address those unfortunate instances where the sale
potentially falls through. In the case of the purchaser, items to consider include: 1) What if the
Seller can not deliver good title?; 2) What grounds are sufficient to cancel the contract or get a
refund of the down payment?; and 3) What if the seller is missing the necessary certificates of
occupancy? In the case of the seller, items to consider include: What remedies are there for
unjust or unnecessary delay on the part of the purchaser?

• Although there will be some variance based on the location of your residence, most Real
  Estate contracts contain most or all of the following items:
• A legal description of the property as well as the street address.
  The selling price.
• A mortgage contingency which provides that the contract may be canceled and
  the deposit returned to the purchaser in the event that purchaser is unable to obtain
  financing according to the terms necessary to purchase the property.
• Deposit: how much money accompanies the contract and the person who holds it
  (usually the purchaser’s attorney in escrow).
• Closing: when and where.
• Inclusions and exclusions: what is and is not included in the sale of the property.
  Home inspection: contingency for and to be done in a given number of days.
• Condominium: If the property is a condo other provisions will apply.
• Well and septic: if applicable, they must be tested.
• Termite and pest inspection: who will pay and if there is infestation or damage,
  who will repair.
• Possession and date: when the buyer takes possession of the house – before or
  after closing.
• Acceptance: how long the seller has to respond to the offer with either an
  acceptance or counteroffer.
• Arbitration: any provisions for arbitration of disputes rather than court resolution
  of disputes.
• Insurance: who covers the property up until the closing date.
• Property disclosure: notice of any disclosures concerning the property.

The exact wording of the sales contract will vary from locality to locality (and sometimes
even within localities), but by being prepared to see at least the items listed above, you
will be in a better position when it comes time for the Agent to ask for your signatures!

© 2004 Kaiser Wahab, Esq.