Do you know what selling real estate is really about in it’s basic core? Real estate is the transfer of tangible property and its rights from one party to another. There is an exchange of one asset for another. In most cases, it’s the exchange of monetary assets (money!) for property.
The most common method used to execute that exchange is with a real estate contract.
In Florida, we use a “Residential Contract for Sale and Purchase”. Most brokerages and agents use the form that is supplied by the Florida Association of Realtors and is approved by the Florida Realtors and the Florida Bar.
There are two main types of residential contracts in use in Florida:
- The Residential Contract For Sale and Purchase
- The AS-IS Residential Contract For Sale and Purchase
An Explanation of the differences between these two is best served in a later discussion. For now, we want to focus this topic on the 30,000 foot view- an overview- of the contract; what it contains, its interpretations, its sections, and some general advice to help you write better offers and present cleaner contracts.
Class is in session. Let’s begin.
Overview of the contract, #1: It’s only an offer at first
When an agent prepares the Residential Contract for Sale and Purchase for a buyer, and the buyer signs the agreement, it is still only considered an offer. It is presented with other necessary documentation to the seller and/or the selling agent.
Until all the terms of the offer are agreed upon AND only AFTER the seller signs it and delivers it to the buyer, it is considered executed.
At this point it is considered a “Contract” between the buyer and seller.
And this contract is designed to protect the interests of both the buyer and the seller. It’s an agreement. A written handshake. And it’s very specific. So don’t be afraid of it. Read it. It’s your friend throughout the process from contract to close.
Overview of the contract, #2: What is it?
It is EXPLICIT. It clearly defines what is being exchanged, How much is being exchanged, who the parties are, what must be done, by whom, and when.
It has CONTINGENCIES. These are the things that each party says they will do to progress towards the close of escrow. Some are done for the benefit of one party or the other, some for the benefit of both. A contract is is a series of contingencies that must be agreed upon and then removed in order to close escrow.
It is ENFORCEABLE. All parties must act according to the contract. The contract clearly states what will occur if one or the other party fails to act, doesn’t act, or acts but not in the manner agreed. The contract can be brought to court and one party has the right to sue the other for failure to act or a breach of the terms.
It has TIME DEADLINES. The contract either clearly states when things must be done, presented, or compelled by each party. The terms of a contract include many date and time sensitive contingencies. There are also several of the clauses of the contract that survive even the closing of the escrow.
It allows for OTHER TERMS. There is a specific section of the contract that allows the buyer, the seller, or both to add additional terms and contingencies that can be added to the contract and become enforceable under the terms of the contract.
It is AMENDABLE. Any term of the contract can be changed at any time up to close of escrow if BOTH parties agree to amend the terms, and it is in written format and executed by both parties.
Overview of the contract, #3: The Sections of a contract
The contract itself is quite lengthy and has many terms, descriptions, disclosures, and other information that is very vital to the survivability of the contract.
It is a good idea to understand the 11 sections that the contract is broken into:
- The property description
- The purchase price and Closing terms
- Closing costs, fees, and charges
- Property Maintenance, Condition, Inspections, and Examinations
- Escrow Agent and Broker
- Default and Dispute Resolution
- Standards for Real Estate Transactions
- Addenda and Additional Terms
- Acceptance, Counter-Offer, and Rejection
Overview of the contract, #4: Interpreting the contract
Let’s start with a simple answer: DON’T!
Now, let’s explain that.
It is important that you advise (this is the only time you can do that!) the buyer and seller to read AND understood the documents they are signing and the contract they are entering into. It is highly suggested that this is done PRIOR TO execution.
It is also very important that the sales agent representing the buyer and/or seller also read AND understand the contract, its terms, its contingencies, and its deadlines. The client will be expecting that you know and understand the ins and outs of the contract better than they will.
BEFORE execution and agent can explain the contract and can give a general synopsis or overview of the contract, but they CANNOT give advise on how to complete it and how to interpret it.
AFTER execution, for any questions about specific situations or a breach of terms, the agent needs to defer the buyer or sellers concerns or questions to an attorney.
Overview of the contract, #5: Some helpful hints
- In today’s digital world, typed contracts are not only preferred, but expected. They show a sign of professionalism and an embrace of technology. Typed contracts are easier to read, and less likely for misunderstanding or misinterpretation.
- Digital signatures are also becoming more and more common. Find a program you like and practice signing with it many times before you hand it to a customer to sign.
- A clean copy of a contract is best. This mean no line throughs, cross outs, or scratches. If the original terms of the offer are changed during negotiations, then prepare an updated offer with the new terms and then execute. It’s just good practice.
- Don’t leave any spaces blank. If you have no information to fill in, then write “n/a” on the line or space. If the contract says “or X days if left blank” Don’t leave it blank! Put a number in that line. It helps avoid confusion.
- Always ensure that you give your clients a copy of everything they sign. They may have questions or need to review the document when an offer or counter-offer is presented to them. And give them another copy when the contract gets executed
- When speaking with your clients about the contract, ALWAYS reference the section and subsection of the contract, and if possible the line number as well.
- NEVER ASSUME. Never summarize. Never infer. Read the contract AS WRITTEN and if you or your client doesn’t understand something or has a question about the contract, seek legal counsel. And don’t let the agent on the other side of the deal assume, summarize, or infer either.
- Speak the language of the contract, not the jargon of the industry.
- Always get the buyers and sellers address and make sure to write it in where requested on the last page. This is an important step in case there is a dispute or a suit brought against one or the other parties. And also ensure that the agents names and the brokerages they belong to are on the contract as well!