How low can a real estate contract go?

Pretty low. The only thing remaining to be taken from the buyer was a kidney.

Having reviewed hundreds, if not thousands of contract over the last 10 years. It is pretty hard to get a rise out of us us. But a recent contract that came across our desk, really irked us to the point that our Attorney Martyn Verster took on the buyer’s case in his legal practice.

Her are some relevant facts about the transaction:

$529,000 cash transaction
$106,000 escrow deposit
Commercial property
Buyers were savvy business people, but did not speak English.

Here is what was fatally wrong with this contract that good legal representation would have immediately vetoed:

Too much money on deposit! The skin in this game is too much at $106,000 or 20% of sales price. The accepted standard is an average of 10% depending on market circumstances. Sellers needs an “earnest” money deposit to show just that, that you are “earnest” and serious. In addition, this money was held by seller’s attorney, not the ideal place for this sort of money to sit in the event of a dispute.

Too much earnest money deposit can jeopardize a buyer's position — Too much earnest money deposit can jeopardize a buyer’s position

Too short a closing! This deal was scheduled to close in 5 days. A commercial title search takes 5-7 business day. Code/open permit search can take up to 14 days. Paperwork for two corporations selling takes a week or two to prepare and organize. Plenty of time is of the essence.

A properly, well done commercial closing takes a minimum of 14 days to process

No title insurance! This contract waived the buyers right to title insurance. This means no title search, no financial fixing of things (mortgages, payoffs, liens) before closing.

Waives seller of all responsibility on this contract! Basically, buyer agrees to no recourse even if the property is about to be demolished ..which it actually was! this property had over $30,000 in liens and county code violations and had a demolition order in place by the City of Miami!

Demolition order city of miami — Actual demolition order from the title work on this file

Don’t get caught under the bulldozer. Have a licensed Attorney review your contract. The extra expense will be worth every penny. The real world example used here is a bit more “ambitious” in its’ evil leanings, but even the best written contracts and well intentioned contracts contain information that a buyer may not notice but is very pertinent to them.

For a complimentary contract review, please contact 305-271-0100×701 or info@theclosingcompany.net

Disclaimer: The Closing Company is not a law firm and is not providing legal or tax advice. For legal advice, please consult with a licensed Attorney. Please consult with a CPA for tax planning and tax advice.