When you are the listing agent and receive a faxed contract along with a letter from a lender it is normal to read the contract and try to read in between the lines. On the first go around it is for terms, price closing dates, seller contributions, special stips. The review of the contract is to double check the offer, making sure you get all the facts straight. It is then a customary practice to touch base with the agent over the phone, again making sure you have all the pertinent details correct, and then call the lender before you contact the seller. So far so good?
Then I like to read the contract for red flags...just to make sure what is the intent of the contract. A short closing date with a low price is OK, because it shows a motivated buyer has the ability to get the seller out of a home quick! So it is an important term. Then there is the contract that that says they do not have real estate to sell in order to buy this current home, but the buyer does not want to close for 4 months! A scary scenario for any seller to take the home off the market for that long a time. Why? More risk! To compound that the earnest money amount is not filled in. No amount means I do not even contact the seller. I preferably would like to see a copy of the earnest money check, and in fact it is required by my office. But now the next item...$500 on a 600K home? I don't think so! More like several thousand dollars would be a better idea. Another item that may make you suspicious in a pre-occupancy agreement, or a contingency offer on a home that when you question the other agent then you find out the home is not even listed, and there isn't even an offer on it!
What do you look for in a contract? What signs do you see that make you ask more questions because something smells fishy or does not appear to be right?
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The first thing I look for is the basic craftsmanship. If the wording is awkward, I am immediately going to pay special attention.
The next biggest thing is for open-ended committments. An example from a recent contract. "seller to pay buyer's home warranty" For how long, forever?
I also look for impossibilities. 25 day escrow, contract modified to result in 30 days for inspections and responses. Impossible.
Jim,
Funny... I wonder if my post gave you some ideas....I look at everything and point out the red flags..the only problem is some of those flags are not red until it is too late. Did you see the new FAR 9 though Remax real fast forms? It looks as if it helps protect the seller more than the buyer...and it is about time.
Not that i have a problem protecting the buyer but if the seller is ready to close and has done everything g to conform to the contract and the buyers side had not well which contract would you want to use for the seller? If the closing date is short I'll even call the LO to see if it is ok or without stepping on the toes of the buyers agent to tell them find out..never seems to be on the same page at the end.
Jim,
One of the things I always look for are rediculously high NRCC credits that I know will NEVER fly with the lender. Along those same lines, when the buyer's agent writes in the request for a credit "in lieu" of termite work or other repairs. Either they have no idea how the lenders work or they just plain don't know how to effectively write a contract. Either way, you are sure to be in for a bumpy road.
Jim,
It's a breeze to read contracts put together by experienced Realtors because usually they're pretty clear and make sense. Now, then we get contracts from some new agents who are still learning and those can have a few red flags. Many of them call right away to check if everything is still on track and help solve any issues.
You need to be careful of experienced Realtors as they know how to write contracts with red flags that don't look like red flags. All of you have great ideas. Fortunately our contracts here are pretty cut and dry and when you start seeing written in items the red flags start going up.
Jim Little "basic craftsmanship" I love the term! Professionalism, experience come to mind also!
Neal we really have to look at every point. Most will be benign, but a good look is still worth it!
Beth You reminded me... almost litle the don't ask don't tell policy..."buyer's agent writes in the request.." When you ask what is this? And they say "You don't really need to know!"
Esko Most agents will work wiht you, and if they do not... let them go!
In Wisconsin a counter offer has to fully restate in writing everything that is to be changed from the original offer, on each consecutive counter.
Real Fishy is having a contract that gets too lengthy with several counters which restate everything and then if the buyers agent adds in new complicated terms to consider within each new counter it can take your focus off what has already been agreed to. Then around the 4th or 5th counter offer the most important items, like the price or closing date, are not restated on purpose or by accident. Of course this takes you back to the original offer terms. A Fishy deal if you get buried & swept up in the new details and don't detect immediately what is missing. I watch for this anytime I have offers that are excessively demanding or over counter.
Julie We all start out new in real estate and we all make learning errors. You mentioned the key...learning while earning. When you work with another seasoned agent even if you are on the other side of the deal you can learn an awful lot. Your second item was take education courses, form courses. You have to feel comfortable to move forward.
Frank Long time no see! "due to reasonable insurance cost is an opinion" I fully agree, opinions are vague and subject to too many interpretations! Strike them!
For the investment properties I work with I can tell by the contract if either the agent or the buyer has any exerience. If they are contracting for income property and don't ask for rent rolls, or deposits, or expenses, or personal property lists I let me seller know that they are his to keep so long as the other side doesn't figure it out.
But sometimes, often in fact, the seller will instruct me to show them how to write the thing so that they get what is coming to them. Aside from what most people think, there are a lot of people out there that want things done the right way.
Jim,
We have been seeing a large number of contracts to purchase that are written up with an offer price of anywhere from $2,000 to $10,000 ABOVE the listing price..... All with the stipulation that the purchaser is to receive a check from the seller at close for the amount above listing price (Can you say mortgage fraud?).
Some have actually suggested that we have TWO purchase contracts.... The real one with the illegal kick backs, and a fake one for the appraiser to use on the appraisal.... no kidding!!!
I'm always very leery about any contract that asks for concessions above and beyond the norm...(i.e. a carpet allowance of $5,000 on an 850 square foot home, more than 3% to 4 % of purchase price for pre-paids and closing costs, or anything that involves a sales price that is above the listing price)...
I am not as concerned with the amount of Earnest Money, because, whether its $300 or $30,000--- both parties must sign a release for either party to get the funds, or else file litigation to determine the rightful owner... a very expensive process...