What Should You Look For in a Sales Agreement?
At the onset it’s important to understand that the making of a real estate deal does not occur on the sales agreement document. It occurs in the understanding between buyer and seller. The sales agreement should only reflect that understanding. However, the document itself is important because it is the legal record of what the parties had in mind.
As covered by the Statute of Frauds, all sales agreements for real estate are intended to be legally binding documents and must be in writing.
The key to negotiating a more favorable sales agreement usually lies not in the boilerplate that comes preprinted with the standard form, but in the clauses you add—in other words, the specific terms and conditions (the contingencies) of the sale. Depending on these you can have a better or worse deal and sales agreement.
In this post, we’re going to consider six negotiable areas:
- Price versus terms
- The deposit
- Financing contingency
- Other contingencies
- Buyer’s final approval or walk-through
Our emphasis here will be to help you to understand the consequences of various actions—to gain knowledge so that you’ll be better equipped to negotiate the deal that you really want.
A contingency (or “subject to” statement) is an action that must be performed before the sale can go through. For example, “This sale is subject to my Aunt Hilda’s written approval of this property within three days” is a contingency.
Thirty years ago, when I began in real estate, the sales agreement (then called the “Deposit Receipt”) was a single-page document with maybe a dozen preprinted lines (referring to such things as “time is the essence of the agreement”). Everything was filled in by the agent, buyer, or seller.
Litigation, however, has made the days of the handwritten sales agreement almost a thing of the past. Too many of the old documents simply didn’t stand up in court because of vague or improper language. Today’s agreement is quite different, often nearly a dozen pages long, all filled with legal “boilerplate.” In some sales agreements there is only room to write in the address, the price, the down payment, and the loan amount. Everything else is preprinted and written by lawyers, including a long list of contingency clauses. If you want one of the clauses to apply, you simply check the box and all parties initial! (Unfortunately, no agreement can anticipate every possible contingency a buyer/seller may want.)
The point, however, is that although buyer and seller may agree to contingencies (or unusual terms and conditions), in order to add these to a modern sales agreement, you may need the services of a lawyer or a very competent real estate agent. Unless you are extremely well versed in real estate, don’t attempt to add to or change a real estate sales agreement yourself.