If you are a real estate agent, you’ve been there. After months of searching, you finally find a home for your clients that checks all the boxes. You put in an offer and hold your breath, knowing that several other buyers are interested. Next thing you know, your offer is accepted and the parties sign the contract to purchase the house. What could go wrong? Answer: a lot. The typical home-buying process is fraught with a myriad of opportunities for a deal to fall through, or worse, for your clients to end up having to hire lawyers like us to clean up a disaster.
As real estate litigators, we understand the plight of real estate agents when deals blow up. Life happens and you don’t always have control over the circumstances or your client. Your universe of control may feel small, but it is still greater than you think from a preventative standpoint. In fact, many of the claims that we litigate could have been prevented by a real estate agent. Here are three “best practices” to make sure your clients end up in the home of their dreams and out of the courtroom:
1. Explain each provision of the contract to your clients (even if their eyes glaze over).
95% of residential buyers and sellers don’t read the binding contract that will govern the entire home buying or selling process. Why? Because they trust you to protect their interests and most people find contracts to be incredibly boring. This is all fine and well until your clients fail to communicate with you or drop the ball on one of their contractual obligations that they were never aware of in the first place. Remember: the smoothest path towards closing is the one that is paved by a mutual understanding of the terms of the contract.
As a starting point, make sure you discuss key deadlines, mandatory versus discretionary seller repairs, non-fixture items included in the sale, inspection rights of the buyer, and required seller disclosures with your clients.
2. Treat every contingency clause like it matters, because it does.
A contingency clause is a provision in a real estate contract that requires a specific event or action to take place (or to not take place) in order to trigger closing obligations. In other words, if the party that’s required to satisfy the contingency clause is unable to do so, the other party is released from its obligations.
Contingency clauses are not party-neutral: they either favor the buyer or the seller. Therefore, every contingency clause that is not in your client’s interest is a concession, whether you treat it that way or not.
If you represent the seller, limit contingencies that make it easy for the other side to back out. The riskiest (and coincidentally the most common) contingencies for a seller are appraisal, mortgage, insurance, and sale of another home contingencies. From a negotiation standpoint, the seller should not have to bear the risk of contingent events over which the seller has absolutely no control.
If you represent the buyer, ask for any contingencies that you think prevent your client’s forfeiture of the earnest money. Does the house have a wooden foundation or deck? If so, negotiate for the right to walk away with the earnest money if the property doesn’t pass an inspection by a qualified pest control operator. Any pushback from the seller on this point could raise a red flag, particularly if the seller has not paid for ongoing termite prevention.
One more word about contingency clauses. Don’t be afraid to ask for mirror or counter-contingency provisions. If the seller is willing to accept the risk of a lower purchase price per the appraisal, then the buyer should be willing to accept the risk of paying a higher purchase price if the appraisal comes back higher than the agreed-upon purchase price.
In any case, make sure you discuss with your client and the other side any and all contingencies that could potentially impact closing, required notices to the other party, and the rights of each party if and when a contingent event does or does not occur. If at all possible, don’t wait until something happens to iron these details out.
3. Scrupulously follow the repair procedure outlined in the contract.
The repair section of the standard South Carolina Real Estate Contract (Section 8 of SCAR Form 310) spawns more litigation than any other section of the contract. These disputes typically arise because the buyer failed to clearly communicate repair requests and/or the seller failed to accept or reject buyer’s request according to the exact notice procedures outlined in the contract.
Our number one word of advice: follow the procedure outlined in the contract to a “T.” From a seller’s perspective, if the buyer delivers a repair request that is unclear or that your client cannot accept, communicate this to the buyer’s agent ASAP and ask for a revised request well before the applicable deadline. From a buyer’s perspective, if the seller does not explicitly agree to make mandatory seller-paid repairs, ask the seller to clarify and/or send in written notice of termination of the contract before the applicable deadline (note that repair requests do not extend the due diligence time period, so you may need to negotiate for an extension if the inspection reveals issues).