Don’t think Realtors have a tough job? Try understanding real estate law! Better yet, just try completing the real estate purchase contract correctly every time. Of course, every property, buyer, and seller is different which complicates things even more. With lawsuits, regulations, and complicated properties, real estate contracts can easily be 20 pages or more. Plus, that does not even count the countless disclosures for lead paint, buyer agency representation, dual agency, homeowners association, and more. So, do not be surprised when an email comes over from your Realtor with 100+ pages.
Since so many areas depend on the purchase contract, it is key to get everything right and fully complete right up-front. High quality Realtors understand this and follow this process we will discuss below. Trust me, it will save a lot of time and headaches between signing the contract and closing day.
Actually, let’s take this to another level. Now, imagine you try to sell as a for sale by owner. Yikes! If you do, please read this article in its entirety and the following article on how to avoid law suits as a FSBO. You will be glad you did and may change your mind about Realtor representation.
Real Estate Purchase Contract Addendum
One of the most popular issues on a purchase contract deals with missing contract addenda. Basically, the standard purchase contract covers most areas. But like we said before, each property is different. Therefore, many contracts require an addendum or possibly more. Of course, buyers need to see and acknowledge an addendum because it is there for a reason. Key information is lying in these extra forms. Additionally, mortgage lenders, appraisers, and other real estate professionals depend on accurate contracts. A missing addendum could cause several issues.
Imagine finding out later that a homeowners association addendum was not attached. At the end, $150 per month HOA dues could kill a debt to income ratio for a buyer.
10 Common Examples of a Purchase Contract Addendum
- Lead based paint addendum
- Contingent sale addendum
- Additional provisions
- Back-up contract addendum
- FHA/VA financing addendum
- New construction addendum
- Short sale addendum
- Vacation rental addendum
- Seller financing addendum
- Plenty of other addenda could apply
Whether a listing or buyer’s agent, ensure that all real estate purchase contract addenda are included, explained, and signed up-front.
Illegible Purchase Contract
First of all, everyone signing, explaining, or relying on a contract needs to know what the darn thing says. Scanning or faxing a contract over and over creates a mess. Then, people start assuming things which is never good. Chances of errors down the road increase. Examples include reading a wrong closing date, seller paid closing costs, purchase price, or even the property address.
So, when sending a real estate purchase contract all over the world to be signed, look at it real good. If this was uploaded to another system, would everything be crystal clear? Fortunately, Realtors who use esign contracts make this problem go away. The contract is an online form with online signatures. So, the document quality always stays the same.
Incorrect Property Address on the Contract
Do not take the address lightly! Just think, if the property address is off then the appraisal, title work, underwriting, mortgage disclosures, and more will be wrong. Little things such as transposed numbers, a direction missing (like South or East), or street type (Road, Trail, Street), could really mess up a lot. Of course, the Realtors and the sellers know the property well, so it may not seem like a big deal. But, when so many other steps and professionals depend on a specific address, it pays to be correct.
Not sure of the address? Ask the lender to do a USPS search! For really complicated properties that may even show multiple addresses, ask the closing attorney for help!
Too Much Seller Paid Closing Costs for Buyer
When a mortgage and seller paid costs for the buyer are involved, it is key to understand the limits of each program. The reason is that each home loan has its own caveats and limitations. Imagine putting 6% seller paid closing costs when the maximum for the loan program is 3%. Sorry, that is not going to go well. Either the buyer is going to leave a lot of money on the table by paying too high of a price or the contract needs to be fixed.
Thus, the best thing to do is know where to find the maximum allowed seller paid closing costs. Luckily, we have the resource for you right here.
Wrong Buyers and Sellers Names
You would be surprised how many times this happens. Because of several variables, the seller names could be more than represented. For instance, there could be a POA involved, divorce, remarry scenario, inherited property, and definitely property owned by an entity. Preventing this issue means reviewing the deed, asking the seller questions, and maybe involving the closing attorney.
For mortgage loans, the deed, appraisal, real estate purchase contract, and mortgage paperwork needs to match exactly. For buyers, go by their driver’s license unless one just got married and changed their name.
Contract Changes Not Initialed
Any time there is written change to a real estate purchase contract, it must be initialed by all parties to the contract.
Realtor Information Not Completed
On every real estate purchase contract, the Realtor’s contact information and license must be on the contract. All parties to the transaction may need to know who to contact, so always make sure the Realtor section is fully completed.
Missing Signatures or Initials
As mentioned, a real estate purchase contract includes a lot of information. Typically, each page in a contract requires an initial or signature. In the beginning, make sure nothing has missing signatures or initials. You can guarantee that a mortgage underwriter will catch it later and no one wants to chase everyone down for signatures again.
Including Personal Property in a Real Estate Purchase Contract
Almost no lender wants personal property to be included in a purchase contract. Even though there may be no value counted for the personal property, there could be perceived value. Many purchase contracts state “Personal property conveyed at no appraisal value given” or similar. But, do not be surprised if lenders still want the personal property removed. Many Realtors choose to have a separate personal property contract that is totally separate from the purchase transaction as a solution to this issue. The main point is don’t load up a contract with a golf cart, furniture, and such.
Buyers and Borrowers Not Matching
Just like a listing agent should ensure the correct sellers are on the contract, buyer’s agents should make sure the correct buyers are on the loan. First of all, ask the buyers who will be on the contract. Sometimes a spouse is not included, maybe a friend will be a buyer, and sometimes just a random person is added. Yes, that happens! In addition to asking the buyers, talk to the mortgage lender. If someone is a borrower on the loan, they are going to be a buyer. Some lenders get picky on having extra buyers on a contract and it may depend on the loan program. So, always coordinate with the lender in this and other areas.
In summary, it is not fun going back to everyone to make corrections to a real estate purchase contract. Plus, it can make a Realtor look bad. So, whether you are a Realtor or a for sale by owner, follow these directions to cut down on errors. You will experience less errors, aggravation, and lost time. If you have questions, just ask.