Read the Contract of Sale Before You Buy | Real Estate

Considering the importance of a legally binding document like a real estate contract, it is somewhat surprising that so many prospective buying homeowners and selling homeowners sign them without fully reading through the contract of sale and understanding what it means.

Legal language can be confusing; so for many it’s simpler to trust the real estate agent or the lawyer or both to look out for their best interests.  They have heeded the advice of those who claim that “a lawyer who represents himself has a fool for a client” and have paid for professional help.  Why not just rely on the professionals to read the contract?

There are a few problems with that assumption about looking out for your best interests.  First, while you would think hiring a lawyer to represent you should be ample protection, not all lawyers are created equal.  For some reason, when it comes to real estate transactions, many homeowners think any lawyer will do, regardless of the fields of law in which they have expertise.  Real estate law can be complex and hiring a corporate or tax attorney you found through a friend or relative might yield less than the best results.

While good professional real estate agents are generally competent to evaluate a sales contract, you should remember that it is in their best interests to close a sale as soon as possible, regardless of whether or not it’s the best deal for you.  Real estate agents only make money when a contract is closed and ownership legally changes hands, not when a contract is signed.

Painful as it may be, you need to read each line of the contract and ask your lawyer or real estate agent for a full explanation of anything you don’t fully understand.

First, pay particular attention to the dates in the contract.  Some sellers have been caught by surprise because they didn’t plan ahead to be out of their home by the closing date.  Buyers need to know if there are cutoff dates for home inspections.  Are there approval dates to allow for contract modifications if the home fails inspection?

The last question gets us into the most critical part of reading the contract:  the contingencies.  Simply put, a contingency is anything on which the sale “depends.”  Buyers like to add contingencies making the sale “depend” on the sale of their existing home.  This is critical protection as it keeps the buyer from potentially being responsible for two mortgages simultaneously.  Sellers, on the other hand, hate such contingencies as a deal they thought they had in hand could easily fall through.

Some contingencies are not so obvious, so make sure you ask your real estate agent or lawyer to point out to you any contingencies in the contract.  The contract should spell out some kind of negotiation process for handling needed home repairs the home inspection report might uncover.

Finally, make sure you ask what might not be in the contract when it comes to additional closing fees.  You may have heard horror stories from friends who complained of signing one check after another at the closing of their new home;  paying for title fees, transfer stamps, and assorted other costs of which they were totally unaware!