Real estate has many standard practices that are traditionally used for a reason. We think it is important to review them once in awhile as to why we use them so their purpose is understood by the public as well as the novitiate practitioners that may not have their roteness established in their practice. Some are legal requirements, others good policy for the protection of the participants. In a residential purchase agreement where a loan is involved the buyer puts a cap on the interest rate they are willing to pay for their loan in a simple line that says “Interest rate not to exceed ___%.” The amount should be a bit over the current rate for a cushion of rate movement, but provide a cap from it exceeding what they are willing to pay even if they qualify. This came from the 1980 time frame when interest rates soared to 18% and 9 points for a VA loan and some folks still qualified for their loan. They were exposed to forfeiting their deposit and/or being sued for specific performance. To be clear, this isn’t establishing their loan interest rate, simply putting a cap on it if the rates run. In addition to protecting the buyer from an excessive rate, it protects them from a market shift. If the interest rates soar for some reason the equal reaction is for the market prices to drop. Sellers should expect this clause but be sure that the filled in rate is reasonable for the market they are in. Another clause capping expenses is the repair clause. It is there to protect the seller from unlimited repairs in the event inspections/investigations reveal an unexpected large repair requirement. Commonly roofs bring this clause into light when a new roof is required after inspection and the cost exceeds the repair limit of the contract. This is usually negotiated to a resolve to keep the deal alive, but either party has the right to rescind if it isn’t. Such negotiation can come into play in an AS-IS transaction where there are no repairs if the unknown problem is substantial enough to be a deal breaker. Contract agreements must have an end date. The contract itself must have an expiration date or it is not valid. It is best to put performance time lines in the agreement for things that are to be done along the way rather than hope everything will be done at the end when you are supposed to be closing. If you leave everything to the end and something isn’t completed you may have a hard time closing in a timely or successful manner. This should be thought out and addressed when the contract is conceived and memorialized. All parties to the transaction must sign the documents. If a listing is missing a signature then the listing agent can’t guarantee the participation of all ownership interests. In real estate, unlike corporate stock, any interest has the same power as the majority interest and can prevent a sale. If you only have one spouse signing as a buyer then you might find yourself in difficulty if the other spouse’s income or sign off is needed for loan qualifying. Everyone must cooperate. Exceptions are managing member of a LLC, or if the family trust provides for only one signature required. Make sure you understand what you are signing and why. Your agent should be able to tell you the background to the action you are wondering about and why you must include or exclude it. Everything in a real estate transaction is subject to negotiation, but to successfully negotiate it you must understand its meaning and relevance to the overall. Ask if you don’t understand. It’s OK if your agent doesn’t have an answer for something as long as they get the answer for you in a timely manner so you don’t miss out on an opportunity in this dynamic market. Sometimes such understanding allows you to skip a step that will separate you from the rest of the “pack” in a bidding situation. When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless! Jim Valentine, RE/MAX Realty Affiliates, 775-781-3704 or dpwtigers@hotmail.com
