If you haven’t already hired your real estate attorney, you’ll need to do so once you have an accepted offer. Your attorney will draft your real estate contract, negotiate terms with the buyer attorney, and guide you through to the closing.
Now it’s time to hire an attorney and get your contract drafted. In our area, of course, real estate attorneys generally handle the drafting and reviewing of real estate contracts, perhaps because the practice of real estate in New York and New Jersey is particularly complex.
Because of that complexity, we strongly recommend that you hire an experienced real estate practitioner familiar with the local customs. Although any licensed attorney is legally competent to assist you in the sale of your home, we have seen time and again attorneys who are not experienced at real estate undermine a seller’s transaction or cost the seller money at the closing table.
You may save a little money hiring a friend or family member who is a non-real estate attorney, but it can ultimately cost you. You can get a list of experienced, well-regarded real estate attorneys from your agent.
Common Contractual Issues
Most real estate contracts are common form contracts that go through small changes in the negotiation between the attorneys. The main material terms – price, down payment, closing date – are all negotiated, of course, but the standard protections given to buyers and sellers in the transaction are fairly common in most real estate contract forms. Thus, you are likely to see your attorney make small changes to a form contact, and then receive what’s called a “rider”from the buyer’s attorney that supplements the main provisions. We defer to the judgment of your attorney on contractual issues.
Although we are not representing you as legal counsel, we did want to highlight three common transactional issues that you should understand about your real estate contract.
1. Closing Dates
Closing dates in standard real estate contracts are not deadlines, they’re aspirational. If the contract states that the closing is to take place “on or about” September 1, all that means is that the parties are aiming in good faith for a closing on that date. The closing date itself will be set by the attorneys on a mutually convenient date once the title report is generated and the bank has made a mortgage commitment to fund the loan for the buyer.
So what happens if one side is ready to close on September 1, and the other side is not? Usually, nothing. If the parties are working in good faith for a closing, usually the attorneys will simply set a new date for the closing, which will also be aspirational. But if, say, you are ready to close and the buyer is not, and you and your attorney suspect the buyer may be acting in bad faith to delay, your attorney can issue a demand for a closing within 30 days. If the buyer does not close within the 30 days, it can give you ground to terminate the contract and keep the deposit. Usually, that’s not necessary.
Occasionally, contracts of sale will have what’s called a “time of the essence” provision that requires both sides to be ready to close as of the date in the contract. In that case, failure to be ready to close could render the unprepared party in default. A “time of the essence” clause is very rare in residential transactions, simply because neither party want penalties attached to the obligation to close on a particular date.
Sales contracts often have contingencies that can allow one side or the other to void the contract without any repercussions. You may think that the deal is final, but a contingency in the contract, if properly exercised, can undo the deal. The most common contingency, of course, is the mortgage contingency, which buyers getting financing usually demand to protect themselves against the possibility of losing their down payment if they are unable to get financing. In most cases, a mortgage contingency is not an unreasonable request for the buyer to make, but obviously you should check with your attorney.
Other relatively common contingencies are “sale” contingencies, in which, for example, the buyer retains the right to terminate the contract without repercussions if the buyer is unable to sell her current home. This has become a little more common in a slower market, because buyers want to be able to protect themselves if they cannot sell their home. These types of contingencies are rare, because most attorneys disfavor them. Again, this is something you should discuss with your attorney.
It is very important that you discuss fixtures with your attorney. Fixtures are pieces of personal property that are attached to your real estate property, such as light fixtures, appliances, window treatments, and the like. Generally speaking, the buyer has the right to acquire all fixtures upon purchase of the property. The buyer doesn’t have the right to your personal property (i.e., your clothes, books, pictures hanging on a wall, etc.), but she does have the right to anything semi permanently attached to the real estate.
Accordingly, you should absolutely tell your attorney if there is anything in the house that you intend to remove and take with you when you sell. This issue comes up more than you think, often involving very expensive light fixtures that the seller never intended to include in the deal, but which were not specifically excluded in the sales contract.