Prudent steps protect buyers, sellers in transactions

The parties may use a standard contract, which is often a form generated by the local board of Realtors. The buyer and seller each have different concerns and should be aware of possible issues that may arise during the transaction.

Buyers beware

Issues for buyers include:

• Contingencies. Buyers will generally want to make the purchase contingent upon financing, unless they know it is not an issue. Buyers also will want to make sure the property is worth their offering price by making the contract contingent on the property not appraising for less than the purchase price.

• Personal property. Be clear about any personal property that is being purchased along with the real estate.

• Default provision. While the seller wants buyers to be obligated to close, buyers want to minimize their risk if they must walk away from the deal. It is not recommended buyers agree to pay, for example, 10 percent of the purchase price as liquidated damages. Buyers should make a reasonable default figure that will compensate the seller if the buyers are at fault in not closing.

• Home inspection. Always hire a competent home inspector to look at the property. It should be stated that buyers can get out of the contract if repairs exceed a certain dollar amount or if they are not satisfied with the inspection results.

• Covenants. Buyers should obtain a copy of any existing restrictive covenants from the owner or from their Realtor. Also review any well-water agreements or easements that are binding upon the property owner. Review these before making an offer.

• Closing date. Set a reasonable closing date. Inspections, loan applications and preparations for moving often take more time than anticipated.

Sellers beware

Issues for sellers include:

• Loan qualification. Sellers will want to know that the buyer will be able to borrow funds to purchase the property. Put a provision in the contract that requires the buyer to provide a qualifying letter from a lender within a certain number of days.

• Default provision. Sellers want it to be expensive for the buyer to breach the agreement. If liquidated damages are only the amount of the earnest money, it may not cost the buyer much to walk away in the event they do not purchase.

• Contingencies. Any contingency is an avenue the buyer may use to avoid purchasing the seller’s property. If the purchase is contingent on the sale of the buyer’s home, the mere fact that it is under agreement may discourage others from making offers.

• Repairs. Sellers may wish to sell property without putting a lot of money into repairs recommended by a home inspector. Limit how much money you are required to pay for repairs. If the house is being sold “as is,” the contract should state that fact.

• Closing and possession. Agree on the closing date and time of possession. Buyers usually get possession only on the date of closing. If you allow the buyer to take occupancy before closing, which is not a recommended practice, do so only with a written agreement.

• Disclosure. As a seller, disclose any material fact a typical buyer would want to know. No adverse conditions should be concealed from the buyer.

Stephen F. Aton is an attorney practicing corporate law and estate planning and real estate. He owns Aton Title Co. LLC and can be reached at steve@atonlaw.com.