Jim Valentine: Contract nuances

The typical residential real estate contract has a lot of components to it. Most are “boilerplate,” fixed clauses that cover the basic elements of the offer.

These can be modified by a clause in the “Additional Terms and Conditions” section or in an addendum attached to the contract. It is important that you understand what the clauses say, and especially what the modified, or added in, clauses commit you to.

One area that has become prevalent in recent times is the “seller contribution.” During the 2008 recession market when there were so many short sales, seller contributions became quite popular to make things work.

Sellers were paying 3-6% of the sales price toward buyers’ recurring and nonrecurring closing costs. Doing that helped buyers buy in a difficult economic time and sellers, many of them financial institutions, were pleased to be able to get the property out of their portfolio.

In the last year or so seller contribution has become popular again as it is used to assist buyers in buying their interest rate down on their loan. Sellers offer $10,000 to 12,000 to buyers which can get their loan rate bought down to a percentage more acceptable to them. With rates dropping the amount is adjusting downward.

Be cautious when using seller contribution for now it can also be a means for sellers to provide compensation to a selling agent, the buyer’s broker in the transaction. As of Aug. 17, compensation being paid to a cooperating agent is not allowed to be in the Multiple Listing System.

It can, however, be given via a seller contribution, if the buyer decides to utilize the contribution in that manner. Be careful that you don’t end up giving both a percentage compensation as written in the offer and a seller contribution that goes towards benefits of the buyer.

Buyers will have a buyer’s broker agreement with their broker as is the new practice so it could be construed to be a benefit from that perspective. Dates in the contract must interact correctly. You can’t have a 21-day due diligence period with a 15-day escrow. Some “days” provisions are the number of days after a trigger event, i.e. - acceptance of the offer, or receipt of information, etc., while others are dates certain, a given calendar date. Sometimes several days go by before the contract is finalized which can render some of the dates useless depending on how they are written.

Be careful with the timing of each component of the transaction. Your agent can prepare a checklist of dates at the beginning of the transaction so you know what must be done when, and you can track it.

Look for the subtleties of who pays what in the transaction. Every area has its traditional cost splits, but every so often someone gets the idea to try to put a “hook” in the transaction, write something different than the customary split so their side can have a little benefit if it doesn’t get noticed.

This is different than one side negotiating for all closing costs to be paid by a party instead of being split. That is usually done in conjunction with other negotiated factors and not on a singular item basis.

Read the contract thoroughly and make sure you and your agent understand it. Your agent can prepare an estimated closing statement for you so you can see the costs to you, or benefits for you from the presented offer.

You might have them make two statements if the offer is not at asking price, one at list price and the other for what has been offered so you can compare. That, with the timeline of the transaction, will help you better understand what you are dealing with in a given offer situation.

Take the time to read the details. Like a famous man once said, “Trust, but verify!” Make sure any offer you are dealing with works for your wants and needs.

When it comes to choosing professionals to assist you with your Real Estate needs… Experience is Priceless! Jim Valentine, License No. BS-03481, RE/MAX Gold Carson Valley 775-781-3704. dpwtigers@hotmail.com.