BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIP
TOP TEN CONTRACT WRITING TIPS
10. SIGNATURES: Make sure you have all signatures of ALL parties, with dates for the signatures, before proceeding to the next step.
9. COUNTER-OFFERS: Do not use stand-alone Addendum forms when negotiating the creation of a Purchase Agreement. Always use Counter-Offer forms for this purpose. You can attach an Addendum form to a Purchase Agreement, or to a Counter-Offer, but don’t substitute an Addendum form for a Counter-Offer form when negotiating the contract. It creates too many problems.
8. ADDENDUM: An Addendum amends or changes the document to which it refers or to which it is attached. Prior to contract acceptance, an Addendum can be attached to an Offer, Counter Offer or other documents used in creating a contract, such as a CAR COP form (contingency for sale of buyer’s property) or Seller or Buyer Exchange Supplement (forms SES and BES). Also, an Addendum should be used after contract acceptance to modify or change the Purchase Agreement.
7. LOAN CONTINGENCY: Fill in the interest rate and other information on the loan for which the buyer will be applying. If you leave the loan paragraph blank, buyer will have to take ANY loan in the amount shown – even with a very high interest rate or high points – or risk being in default.
6. LIQUIDATED DAMAGES AND ARBITRATION: LISTING AGENTS: ALWAYS PAY ATTENTION: If the buyer has initialed Liquidated Damages and/or Arbitration, have your seller:
A. Initial the paragraph(s) in the Offer form if seller agrees to do so; or
B. Issue a Counter-Offer, which has pre-printed language that those paragraphs, which require both parties’ initials, are deleted by virtue of delivering the Counter-Offer form to the buyer unless otherwise agreed to in the Offer, Counter-Offer or elsewhere.
PRACTICE TIP: With a Counter-Offer, always return the signed Offer form back to the buyer’s agent. That way, the buyer can see whether the seller initialed either or both of those paragraphs in the Offer.
5. INITIAL DEPOSIT: As a listing agent, it is good practice to require a fairly good sized initial deposit. With a small initial deposit, if buyer removes all contingencies and then defaults without increasing the deposit — and liquidated damages has been agreed to — seller will be stuck with the small deposit “actually paid” into escrow by buyer.
4. PERSONAL PROPERTY: Be sure that all items of personal property to be included or excluded from the sale are spelled out in the contract. If there is any doubt as to whether an item is a fixture or is a built-in appliance, spell out in detail in the contract whether the item is included or excluded.
NOTE: All purchase agreement forms specify that items identified in the MLS and marketing materials are NOT included in the sale unless specified in the contract. Be sure that the contract reflects the intent of the seller and buyer regarding which items of personal property stay, or will go with the seller.
3. DOES IT MAKE SENSE? It is the language written by agents in Addenda and Counter-Offers that often creates disputes between the parties. Before you do the final-final signature to create the contract, read through all of the Addenda and Counter-Offers to make sure there is no ambiguity:
A. Make sure all boxes are checked that your client wants checked, and no others.
B. Check to see if all required Addenda are attached, signed and dated.
C. Can you track from the Offer to the first Counter-Offer, and to the next Counter-Offer, etc., to see if you can determine what has been agreed to, deleted, or modified. If not, clarify the language in the next Counter-Offer by referring to the ambiguous language: e.g., “Regarding paragraph 3 of Seller’s Counter-Offer 2, that paragraph is deleted.” Or “…that paragraph has been modified as follows…..”
D. Ask yourself: Could someone who was not involved in the negotiations clearly understand who has to do what. If it is not clear, work with your manager to make it clear.
2. CONTINGENCY OR OBLIGATION: Ask yourself: Do I want this clause to be a contingency (for which a party can cancel without penalty) or should it be an obligation (for which a party will be in default if they don’t do it)?
A. If it is to be a contingency, start the sentence with, “This contract is contingent upon…” or “Subject to….”
B. If it is to be a promise or obligation, start the sentence with “Seller will…” or “Buyer shall…”
PRACTICE TIP: Avoid starting paragraphs with the words “Seller to…” or “Buyer to…” do something, as it is often difficult to determine if such a paragraph is a contingency or an obligation.
1. READ THE CONTRACT FORM: Read and understand all of the provisions of the Purchase Agreement form you are using. Don’t assume something is in the contract. Many agents are operating on old information from prior versions of the contract only to be surprised by the actual language of their contract. If confronted with a contract form you have not used before, you must read it thoroughly. If you have read and understand the Purchase Agreement form, you can properly advise your client and knowledgeably negotiate changes in the counter-offers prior to ratification.
This Weekly Practice Tip is attorney-client privileged and for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.