When it comes to real estate contracts, I always suggest that people involved in the transaction do three things: read and understand the contract, make sure the contract accurately reflects their intentions, and be sure they can abide by its terms. This applies to buyers and sellers, but it is usually buyers who change their minds about a sales agreement.
The reasons vary. Sometimes buyers get in over their heads financially. Before they sign a contract, they should ask themselves: how much can I afford to pay, both up front and every month? Which inspections do I need? How much will those inspections cost? Are there contingencies in the contract that allow me to walk away if the inspections show the need for a lot of expensive repairs?
Buyers who get prequalified or preapproved for a mortgage loan are usually glad they did. While this process cannot prepare them for unpleasant surprises resulting from inspections, it does give them a realistic idea of how much house they can afford.
On the sellers’ side, several decisions should be considered before entering into a sales agreement. The seller must figure out whether the property is selling at the correct price. This issue has two dimensions: is the price fair (does it reflect the market for this type and size of house in its neighborhood), and just as importantly, do the sellers want to sell the property at this price? If the sellers are not truly committed to selling for any reason, whether it’s strong emotional ties or a fear of moving, they need to be honest with themselves, because once they sign the purchase agreement, they are committed—no ifs, ands, or buts.
Unlike the buyer who likely has contingencies built into the agreement, it is rare for a seller to have contingencies. Once in a great while, a seller will include a contingency requiring approval from a tax or legal advisor before the contract can be executed, or they will make the sale contingent on finding a replacement property, but these are unusual and can generally be dealt with before the property is listed for sale. Sellers with contingencies typically have a much more difficult time selling their home, which translates into a lower sales price.
So, whether you are a buyer or seller, before you sign a contract make sure you’ve read, understand and can live with the commitment to which you are agreeing. A few Realtors in my office have recently dealt with sellers who simply changed their minds after they signed sales contracts. This did not work out well for those sellers. They went to court to try to stop the sales, but were unsuccessful: the properties closed escrow and the sellers were required to pay the buyers’ attorneys’ fees. They lost the court battle and ownership of the property.
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If you have questions about real estate or property management, please contact me at firstname.lastname@example.org or visit www.realtyworldselzer.com. If I use your suggestion in a column, I’ll send you’re a $5.00 gift card to Schat’s Bakery. If you’d like to read previous articles, visit my blog at www.richardselzer.com. Dick Selzer is a real estate broker who has been in the business for more than 35 years.