Contingencies are often called weasel clauses because some individuals tend to use them to escape or weasel out of what appears to be a well-written and binding agreement. Let’s look at some of the more common contingencies that are often standard (boiler plate) language in many pre-printed contracts and some language that we just don’t want as well. Then we will insert our own language to seal the deal.
Contingencies:• Buyer shall apply for a loan in the amount of $______ at __% and if said loan cannot be obtained buyer(s) shall be released from further obligation. If you have a pre-qualified/pre-approved buyer with a letter, then this contingency no longer applies.
• This offer is contingent upon physical inspection of the property along with a satisfactory report. You should have arranged your own home inspection followed by the appraisal to find and correct any defects that could become barriers to the sale.
• This offer is contingent upon a satisfactory appraisal. If you had your own appraisal done then you have solid proof that this will not be a major concern. Often you will see additional language here that says: Buyers are willing to pay “X” amount equal to the offered price or which ever is less. That means if the appraisal is less than what they offered they are entitled to buy it at that price! No, no Fiz! You change that to read: If appraised value is lower, sellers may agree to renegotiate! Now you have a choice to say no or maybe offer a compromise.
• This offer is contingent upon owners’ ability to provide clear title. Your attorney should have researched this and provided a letter of proof attesting to your ability to provide clear title at closing.
Those are what can be considered to be standard contingencies in the majority of cases.Now we have some additional common contingencies that can, if not dealt with properly, allow the other party to walk away from the deal and also receive their earnest money back!
• This offer is contingent upon buyers satisfactory inspection of all records and documentation related to the property. This is open-ended Fiz; this allows the buyers to nit-pick minor details and walk away. (Remember those nitpickers we spoke about?). Your remedy or defense is to write” sellers agree to give buyers 48 hrs or whatever you decide Fiz, to inspect all records and documentation related to the property. If at that time buyers are satisfied, they will initial this paragraph indicating their approval; otherwise they will be released from further negotiations.
• This offer is contingent upon my partners and or attorney’s approval. 48 hours, Fiz. You may say, Buyers have 48 hours to obtain any and all approvals required in furthering this agreement; by signing and dating this agreement all participants acknowledge and grant their full approval. Sellers reserve the right to continue to show and retain backup offers in the event written approvals cannot be obtained.
• This offer is contingent upon the sale of another specified property. This is the Holy Grail of Buyers, Fiz! You really should not allow it! Put the burden on the buyer to solve this problem long before they attempt to deal with you! If you choose to allow it, then you may consider increasing the earnest money deposit substantially to, say, 10% of the sale price, if legal, to insure that buyers will in fact sell and be able to qualify by your scheduled closing date or another agreed upon time.
• This offer is contingent upon the remaining terms and conditions set forth and agreed to by the contracting parties. This will cover all other matters that you and the buyers jointly agree must happen. You may agree to pay some of the buyers closing costs, agree to paint, repair or include certain items, agree to give up possession upon the closing and official title transfer event being recorded and so forth.
You as the seller would be wise to insert the following statement after your buyers have inserted the contingencies above, in this way you put the buyers on notice that they will be putting themselves at risk by not taking the prudent actions which are agreed must occur in order to satisfy the terms and conditions stipulated in the agreed upon contract.
” Buyers agree that earnest money in the amount of $______ will be forfeited by buyers to sellers in consideration of the failure of buyers to fully execute this agreement by date specified here: Date: __________________ Buyers also agree that sellers are relieved from all further obligation to buyers or their agents regarding this agreement as a result of buyers default.
Signed: _____________________________ Date: __________________ Signed: _____________________________ Date: __________________ Witnessed by: ________________________ Date: __________________
That’s an example of what you could call a kick-out clause or contract cancellation clause with teeth!I’m NOT your attorney Fiz; this is exactly why you hired an attorney. They are legally authorized to practice law! You as a seller can write this language on your own behalf, but if you screw it up, the buyers’ attorney could make you pay
For all the reasons stated above Fiz, starting with that curly cue