Keep It Legal
Many states prohibit real estate brokers and salespeople from preparing contracts and addenda; only an attorney can do so. Others authorize brokers to prepare simple instruments that entail filling in names, dates, and pricing terms. But some states view the preparation of a sales contract as incidental to the real estate brokerage business and allow brokers and their salespeople to assist in the contracting process. Check with your state association to ensure that you don't overstep your authority.
Although brokers and salespeople shouldn't personally make changes to contract provisions, they can provide a good check and balance to detect possible contract errors that could sabotage a transaction. Some problem areas that might warrant extra scrutiny include:
Keep It Ethical
Don’t step over the bounds and engage in the practice of law. —Article 13
For the Broker
Never include the commission rate in a preprinted form; it might be perceived as a violation of antitrust laws on price fixing. Also consider including an affirmative statement that all commissions and splits are independently established.
- Contingencies. Encourage principals to negotiate contingencies during the offer-counteroffer stage. Issues that can't be resolved in advance, such as the buyer's ability to obtain financing, end up in the purchase contract as contingencies.
- Timeliness. “Time is of the essence” is not just boilerplate language. Unless the contract specifically states that time is of the essence, one party's failure to perform within the time set forth in the agreement won't be seen as a breach of the agreement as long as that party performs within a "reasonable time."
- Contract modifications. All principals must have a mutual understanding of any changes and should initial them.
- Disclosure statements. Are the statements made by the seller called "warranties?" Most sellers don't have the expertise to make warranties regarding the structural or mechanical condition of their home. They can only reveal what they have learned from living in the home. The listing salesperson must advise the seller of the potential liability for making warranties, but should also suggest that the seller consult an attorney if there are questions concerning disclosure.
- Vague language. Keep an eye out for broad statements that could be open to misinterpretation. For example, instead of making the sale contingent on buyer obtaining financing “at the lowest possible rate,” state specific rates in line with the median of interest rates currently being offered in your area.
- Addendums. Be careful when either party adds addendums to a contract. In many states, handwritten additions take precedence over printed components of a form, even if the handwritten addition is in error.
Notice: The information on this page may not be current. The archive is a collection of content previously published on one or more NAR web properties. Archive pages are not updated and may no longer be accurate. Users must independently verify the accuracy and currency of the information found here. The National Association of REALTORS® disclaims all liability for any loss or injury resulting from the use of the information or data found on this page.