In real estate, a contract is a written agreement between two or more parties to convey an interest in real property for consideration. A contract may be either a contract for sale or a Memo to Lease, Lease or Listing Agreement. All are “contracts”:
- Legality of purpose
- Competent parties
- Consideration
- Offer and Acceptance– For our purposes, acceptance will be considered the effective date. The effective date is the date when the last party signs the contract and delivers it to all parties, making it legally binding. Make sure you deliver the executed contract to all parties (typically your customer and the cooperating agent).
- In real estate must be in writing to be enforceable
Note: A listing agreement is a “personal services” contract.
- Must be written.
- Must outline all terms in sufficient detail to result in closing, not dispute.
- Cannot be “verbally modified” or “agreed to” or “understood”
- Does not become a contract simply through the passage of time.
- Includes sales contracts, leases, memo-to-lease
What are some common problems with contracts?
1. Not completely filled in:
- Items that require a choice to be made must be filled in.
- The entire contract is voidable if even the smallest item is not agreed to and initialed by both parties
2. Changes and “understandings” not reduced to writing and properly initialed by both parties.
- Lack of follow up when non-executed contract is sent out to other agent for final initials etc. An “almost” fully executed deal is not a deal!
- Cross outs and deletions require initials exactly as additions and modifications. If part of a contract is struck out by the other party and returned to you without initials you must treat it just like a change, meaning get both initials or refuse to go forward until the text is reinserted.
3. Missing disclosures or legally required addenda such as:
- condominium rider
- lead-based paint
It’s no excuse that other agent prepared contract. Many of these items will not void the sale but will expose you and the company to legal sanctions and fines.
If you draw an addendum:
be aware that an addendum should reference the specific contract it modifies and, if possible, the contract should reference the existence of the addendum.
e.g.:
“This addendum modifies the contract for sale and purchase of the property located at ______________, between John Doe, “Seller” and Richard Roe, “Buyer.”
Addenda must be signed and dated by both parties.
4. Agent doesn’t know “effective date”
The “effective date” is the date on which the last counteroffer was accepted. That is, when the last change or initial was put on the contract to make it fully executed and a copy delivered to all parties. It is important to note that date. Much depends on it. A transaction timeline is recommended, and should be shared with all parties to confirm all parties are on the same page.
5. Financing expressed as a dollar amount.
Try wherever possible to use percentage so that every penny doesn’t need recalculation as the offer and counteroffer process continues.
6. Leases and Memos, special problems:
Florida Supreme Court lease has many places where choices must be made. If you prepare the lease and fail to fill in those choices, the other agent may well complete them in ways that are detrimental to your customer’s interests. This can force a difficult negotiation that could be avoided by filling in the entire form correctly as you understand it. Then if something is unacceptable to the other party in the transaction, let them negotiate it to a mutual settlement.
7. Unreadable documents are unenforceable invitations to lawsuits:
You are responsible to see that a readable document emerges from negotiations.
9. Vague language is unacceptable:
You may not use phrases like “Tenant requests…” or “Owner would like…” If you receive an offer worded like that, you are responsible to rephrase the language to be clear and unambiguous. Drafting a contract is not an exercise in politeness, it is a statement of duties and responsibilities.
10. You must review all counter-offers completely:
Be sure that the other party hasn’t altered anything. Do not assume that if the price is changed, that everything else remains the same as you left it. If there are alterations, you are responsible to determine whether or not they are acceptable to your party and, if so, to obtain his/her initials. If something has been altered you must also see that the other party’s initials have been obtained as well.
This also means you must keep a complete record of the various versions of a contract as it is being negotiated. Moreover, you are under orders to see that Office Manager has a copy of each successive version as you receive or create it so that the company can function if something happens to you or your files.
11. Counter-offer all proprietary contracts on our own forms. Acceptable forms are:
Offers presented on proprietary forms such as Coldwell Banker, Prudential Florida, C-21 etc., can contain some sneaky language requiring special fees, unusual restrictions, etc. Rather than require you to study these individual contracts to smoke out the tricky stuff, it’s simpler to retype the deal on our form and resubmit it as a counter-offer. You are required to present the original offer to the Seller but you are in no way obligated to counter-offer on that particular contract form.
Excuses and responses: (All of the following are unacceptable)
I didn’t have time…the customer was in a hurry (had to catch a plane, had a bar-mitzvah etc.)
“Do you want the other guy’s lawyer to cancel the contract two days before closing because he got a better offer from someone else and he found a loophole in your paperwork?”
I had another appointment…I had to run out.
This is not an excuse for sloppy performance. Finish correctly when you get back from your appointment, meet with the customer if you need to re-sign or initial changes, then submit it. If you’ve got to drive to Kendall to get it signed…drive to Kendall.
Contract Review and Documentation:
Offers and Counteroffers: All offers and counter-offers must be copied to Office Manager immediately for archiving in company files. If you are not in the office to leave a copy then email them.
See Escrow Deposit Rules for details on handling escrow deposits.
Executed Contracts:
- See that all the parties receive a clean, readable copy of the contract.
- When other agents fail to do their job you must fill in the gap.
Do I have a Contract?
This sounds like a simple question, but it can be a complicated answer. The best way to ensure that you have a fully executed and enforceable contract is to make sure that you have all signatures and initials from all parties where required on the form and next to all changes.
You may wonder, if an initial is missing, does that mean I don’t have a contract? Maybe, maybe not. This is for the lawyers to determine, but can be avoided if you take the time to double check. Generally, if all modified material terms have been agreed upon with initials and an immaterial initial is missing, most lawyers will consider it to be an effective contract.
What about a verbal meeting of the minds or the seller verbally said he was going to accept? You don’t have a contract until it is in writing, properly executed and communicated to all parties by the last party that signed.