Real Estate Contracts Can Be Tricky

A lot of people sign preprinted forms without even reading them. Why read the contract? If it’s a preprinted form, it must be okay… right? The standard local preprinted contract forms prepared by the Naples Area Board of Realtors (NABOR) used for residential real estate sales are generally very good contract forms. But there can be many aspects that might not be understood by a buyer or seller. That means both parties to a real estate sale contract may need help understanding what he or she is signing.

Perhaps one of the most confusing real estate contracts is the “as is” contract form. Sellers think the contract means that the buyer is accepting the property in its current condition. The contract actually provides the buyer has a certain period of time within which to inspect the property and think about whether the buyer actually wants to buy it. If the buyer decides not to buy, even with no reason, the buyer can terminate the contract during the inspection period.

More surprising to a seller is when the buyer asks for a credit or repairs. The buyer usually makes the request before the end of the inspection period, so the seller knows the buyer might terminate the contract and get back the buyer’s deposit. A seller using this contract has often accepted a lower price in the belief that the buyer was buying the property “as is.” Some sellers are upset when the buyer requests credits or repairs because the seller thought the sale was a done deal. If the seller carefully read the contract and understood “as is” included right for the buyer to terminate if the buyer changes the buyer’s mind, the seller wouldn’t be so upset and might not have accepted the lower price.

Finance contingencies can be worrisome. The NABOR sales contract provides a financing contingency that continues to closing unless waived by the buyer. Sometimes a credit worthy buyer will waive the financing contingency, only to find that for some reason the lender failed to timely process the loan application. That is a danger for the buyer.

A contract form prepared by Florida Realtors and Florida attorneys, known as the FR/BAR contract, has an even more dangerous financing contingency for the buyer. Under that contract, if the buyer does not terminate the contract because the buyer was unable to obtain loan approval within the time set by contract, the contract effectively becomes a cash purchase. If anything goes wrong with financing, the buyer could lose the buyer’s deposit. A buyer requiring lender assistance to purchase real estate should carefully review any financing contingency.

Whether a deadline is really a deadline is another potential problem. Time of the essence is a legal term that means something must be performed within the allotted time or by the deadline set by contract. The NABOR contract only provides time is of the essence for the closing date. That does not mean the parties can ignore any other deadline, as circumstances and surrounding language can make deadlines firm. But it does mean that a missed deadline might not equal breach of contract. What makes this worse is that facts and circumstances can change. This is one area where a good attorney is critical.

The FR/BAR contract provides time is of the essence for everything. If the buyer is late making a deposit, the seller can declare the buyer in default. If there is a deadline in the contract to apply for a mortgage or complete inspections, the deadline is inviolate. Time of the essence can be a trap for the unwary.

Both NABOR and FR/BAR contracts make it clear that the buyer is not buying a new house and is not entitled to demand the seller make everything like new. Each contract defines what is considered a defective item and the buyer’s right to inspect and request repair or even a credit. The contracts exclude cosmetic and smaller items as defects. The NABOR contract includes toxic or pathogenic mold as a defective condition while the FR/BAR contract does not even address it.

A lot of buyers and even some Realtors do not bother to understand the real estate sale contract defines defective items. Different forms define defects differently. Many buyers do not care. They will still ask the seller to fix everything that shows upon in an inspection report as questionable. That often includes many items that are not defects under the contract, such as dirty air filters, minor cracks, or appliances near the end of useful life. These requests often mean the buyer has unreasonable expectations of what the seller will do.

The NABOR contract provides that if a buyer requests repair of an item defined as defective under the contract and the seller refuses, the buyer could terminate the contract and get back the deposit. But if the requested item is not a defect under the contract, the seller can refuse and the buyer has no right to terminate. When a buyer asks for repair or credit for items that are not contractually defined defects, and the seller refuses, the buyer often gets quite upset and tries to back out of the sale. Alternatively, the buyer may demand the Realtor pay for the repair. Knowing what the contract provides would have avoided the problem altogether.

Southwest Florida residential property often includes furniture. When contract blanks are filled in, it is not unusual to see such terms as “fully furnished” or “turnkey furnished.” Sometimes the contract says that everything stays except for seller’s personal items. Those terms have no legal definition and often lead to later arguments, even litigation.

Preprinted contracts are no guarantee of smooth sailing. Before a buyer or seller sign anything, they should make sure they understand all terms. Discussion with an experienced attorney can be a big help in that regard.