Contract Caveats

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:

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.
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