Common Real Estate Contract Mistakes
Here are ten of the more common mistakes I see when reviewing real estate contracts.
(1) Leaving Blanks In The Contract. Failing to fill in the required blanks in a form is really sloppy work and, in my opinion, unforgivable. Take the time to review the final contract before it is submitted and fill in the blanks. If you do not, it can have a number of results. In some instances, it could mean that you do not have an enforceable contract. In other instances, it may be up to a court, if there is litigation over the contract, to “fill in the blank” for you. Neither of those results is particularly desirable and could result in malpractice claims against you.
(2) Failure To Date The Contract. Often the times for performance in the contract are calculated from the “effective date” of the contract. If there is no effective date, it can be difficult to compute, with certainty, the time for performance. For instance, the termination option time in the TREC contract is calculated from the effective date. Failure to specify the effective date could result in a buyer missing the opportunity to terminate the contract under that provision.
(3) Failure To Complete Required Check Boxes. Both the TREC and TAR forms have extensive check boxes which must be checked in order to make the provisions of a paragraph part of the contract. If the applicable check box is not checked, the provisions are not part of the contract. It is not uncommon to see blanks completed in a paragraph with no check in the box making the paragraph with filled in blanks a part of the contract. That can result in entire applicable provisions not being legally enforceable as part of the contract.
(4) No Address For Notice. If the address for notice is not completed for a buyer or seller, it makes it very difficult to give proper notice to a party. For instance, if a buyer desires to terminate the contract under the Termination Option and there is no address for notice, the buyer cannot be certain of the address for sending notice of termination. This can be especially egregious if the buyer is operating under very short time periods and needs to give notice by email. Without an email address specified, I would be very hesitant to attempt notice by email.
(5) Times For Performance Too Short. This is one of my favorite gripes. You should allow a reasonable time for performance of the various due diligence matters in the contract. Unrealistic time periods are unlikely to make the contract close sooner and may cause enforcement of the contract to be jeopardized. For instance, requiring a loan to be obtained in an unrealistic time period or negotiating an unrealistic inspection period can increase the probability that the buyer will terminate the contract. If there is inadequate time to obtain a loan or inspect, the buyer is faced with losing the right to terminate and may choose to terminate rather than lose the option to terminate.
(6) Inadequate Legal Description. This is most often a problem on un-subdivided, rural property. The legal description in the contract must be sufficient to identify the subject property as distinct from all other property. A description such as “10 acres out of the Jones Survey in Hays County, Texas” is not sufficient to do that. If the legal description is inadequate, the contract is not enforceable. The best practice for un-subdivided property is to always attach the full legal description obtained from the seller’s deed as an exhibit to the contract.
(7) Contracting To Provide An Existing Survey. Contracting to provide an existing survey which the seller does not have or cannot find can result in the seller being required to pay for a new survey. Simply informing the buyer that the seller cannot comply with the agreement to provide a survey does not absolve the seller of the responsibility for providing a survey. Always make sure the seller has a survey before contracting to provide a copy.
(8) Improper Use Of Special Provisions Section. Be careful of the provisions inserted in Special Provisions. It is easy to over-step the boundary and slip into the unauthorized practice of law. The only provisions which a TREC licensee can insert in Section 11 of the TREC contract are factual statements and business details applicable to the sale. A licensee is specifically prohibited from using this section for any provisions for which TREC has promulgated a specific form.
(9) Failure To Include All Required Parties. Failing to require all sellers or buyers to sign the contract can be fatal to enforcement. A seller or buyer who is not listed as a party and who does not sign the contract cannot be required to buy or sell. The problem with not having all sellers sign is obvious. There can also be problems with omitting a buyer from the contract. If a buyer is married and is buying a primary residence and the spouse does not sign the contract, the spouse will not be required to cooperate in obtaining a loan to purchase the property. Without the signatures of both spouses, at least on the mortgaging instrument, the buyer cannot obtain a loan and may be able to terminate the contract.
(10) Failure To Enforce Time Limitations. The only provision in the TREC contract for which time is of the essence is the Termination Option section. For all other sections, time is not of the essence. If a party fails to enforce the time limitations specified in the contract, they can be waived and no longer enforceable.
