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July 29, 2020

7 Crucial Real Estate Contract Clauses

By William Bronchick Real Estate Investing Coach

 

The following is a seven-point checklist for items that should look for when you are buying for your real estate investing business. Some of these clauses may be found in some form or another in the “standard” real estate contract which is used in your area.

1. “And/or assigns” or “and/or Nominees.” As the buyer, you want to have the right to assign your contract. By placing your name with the words, “and/or assigns,” you don’t automatically give yourself that right; you also must find anything in the contract that says you CAN’T assign and cross that out. The words, “and/or nominees” is not as broad, but it has been interpreted as giving the buyer the right to place title in the name of a trust or corporate entity.

2. Inclusions and Exclusions. Most real estate investing contracts have a clause that specifies what personal property is included in or excluded from the sale. Sellers and buyers often forget to specify certain items, which leads to arguments at closing. As the buyer, you would prefer the clause, “anything not specifically excluded will be included, whether or not affixed to the property or structures.”

3. Earnest Money. As the buyer, your preference is, “to be held in escrow by an escrow agent or title company of buyer’s choice.” NEVER let the seller hold the escrow himself.

4. Closing. As the buyer, insist on the right to choose the title or escrow company so that you remain in control. Also, you want the ability to have as much time as necessary to close. Most contracts call for a date certain for closing. If the buyer is not ready to close, the seller can hold him in default. Here are some tips for buying time:

• Make the closing date “on or about” June 1st. What does “on or about” mean? I’m not sure, but it certainly means LATER than June 1st!

• Have the right to extend the closing date if it is not your fault: “Said date may be extended an additional fifteen (15) days if the lender requires additional documentation, paperwork or actions from the buyer and said delay is not due to the fault of the buyer.

• Have the right to extend for thirty days by paying the seller the equivalent of one month’s mortgage payment.

• Have the right to choose the title company. A friendly title company (friendly to you, that is) can create an “unexpected” scheduling conflict if you need it.

5. Possession. As the buyer, you want possession of the property concurrent with closing. If the sellers are living there, make sure that you have the right to charge them a hefty per diem rent. Also, the contract should state that the property is left “broom clean and free from all debris.

6. Warranties. As the buyer, you may want the seller to warrant some of the items included in the sale, such as, “seller warrants that the appliances, roof, plumbing, heating, and ventilation systems are in good and working order at the time of closing. This clause shall survive the closing of title.”

7. “Weasel” Clauses. A buyer wants as many contingencies or “weasel” clauses as possible. If the buyer can get out of a contract without breaching, he gets his earnest money back. My philosophy is that the less earnest money you put up, the less you need a weasel clause. If you do need a few, here are my favorites:

“This agreement is subject to inspection and approval of the property by the buyer in writing prior to _________.”

“This agreement is subject to attorney approval within 72 hours”

            • “This agreement is subject to satisfactory appraisal by buyer or buyer’s agent”

An added note that having a real estate attorney, real estate coach, or real estate mentor on your team can pay dividends!

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Attorney William Bronchick


Attorney William ("Bill") Bronchick, the host of Legalwiz.com, has authored six best-selling books and is sought nationwide for his 30+ years of real estate and legal knowledge. He has been interviewed by numerous media outlets, such as CNBC, TIME Magazine, USA Today, Investor Business Daily, Forbes, and the LA Times, to name a few. William Bronchick is the co-founder and past President of the Colorado Association of Real Estate Investors and the President of the Colorado Landlords Association. Click on the "About" link above for more information on William Bronchick.

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