Critical Clauses In The Agreement Of Sale

Pulling Back The Curtain Series

Critical Clauses and Addendums to Understand When Negotiating Your Agreement Of Sale

Keith Eliou Real Estate Services & Advocate Mortgage Services Inc

Member of the west penn multi-list over 22 years
Over 3 decades of legal experience
Owner of advocate mortgage services inc. Closing hundreds of millions of dollars in mortgages over decades
Conducted hundreds of closing and issued thousands of title insurance policies
Certified financial planner and registered investment adviser
Truly your one stop shop in one person

Read the contract early

Whether you are buying or selling you want to read the contract early and anticipate the ideal contract for you.

Many clauses acknowledge the occurrence of actions such as receipt of the seller disclosure and other information

Clauses for today

Paragraphs 11, 12 and 13 regarding home inspections
Paragraph 25 representations
Paragraph 26 default and termination
Paragraph 27 mediation
Paragraph 28 release

Paragraph 11: waiver of contingencies

Very short

If you are a buyer and elect to do an inspection but fail exercise the option within the time period provided for in the agreement

Then

You agree to waive the inspection

And

Agree to the release in paragraph 28

Paragraph 28: release

Buyer releases……………………………………….. everyone!
Favorable to seller
Release any and all claims, losses, demands…or any defects or conditions on the property
But, if seller in default or in violation of seller disclosure law can pursue remedies at law or equity
Survives settlement
But see paragraph 25, representations

Paragraph 25: representations

Seller ( and broker) friendly

All representations ..made by seller…are not part of agreement unless expressly incorporated

“This agreement contains whole agreement” ..no other representations ..of any kind whatsoever

2^nd part says buyer inspected property before signing the contract or waived right and agrees to purchase in present condition, except for inspections elected

And

Buyer acknowledges brokers haven’t inspected condition or determination of permitted uses

repairs in workmanlike manner and broker can help unrepresented parties, Why here?

How square 28 and 25?

Can buyer bring a lawsuit for failure to disclose or not?

Buyer should insert a clause to be clear that relying on the seller disclosure to protect rights after closing

The seller disclosure law and the seller disclosure

Requires sellers ( of certain properties) to disclose any material defects[ hurt property value or cause injury]
Prior to signing agreement
Can go to buyer or agent
No duty to invesitgate
Duty to update
Can not “willfully or negligently” fail to perform duty
Dute to not “make ..representation..knows or has reason to know are false, deceptive or .and not fail to disclose material defect

Seller disclosure law and disclosure continued

Seller liable for actual damages
2 year statute of limitation
Seller can still be liable under other laws like fraud
The form itself:
Disclose material defects
Not a warranty of seller, buyer encouraged to address concerns about the conditon of the property- buyer buying in its present condition

Paragraph 12: buyer’s due diligence/inspections

Buyer friendly

Seller provides access to certain professionals and to the parties, not family members ( unless otherwise agree in writing)
Buyer gets 2 pre-settlement walk throughs, only to determine condition of property is as agreed to ( not for measuring)
Seller is to have utilities on for .highlighted?
Seller gets free copy of inspection report on request, not appraisal
Home inspection is inspection of more than one system
Home inspector member of national association or certained licenses indivduals………..not uncle bob…if you do..breach?
Options to conduct 9 listed inspections and option to insert more
Has one maximum time period to complete all inspections, …….look at the seller disclosure as a heads up in advance on potential inspections you might want
Must do inspection,get report-terminate-accept –submit proposal in the time frame stated
Home inspection in .not uncle bob
Termite report
Easement and use .verify current use is permitted- but see paragraph 14
.may need to be tested over time, install vent, lung cancer
Seller responsible for on lot water and sewage access and restoration…can be expensive and hard to do in winter
Insurance and flood insurance ( must order flood 14 days prior to settlement). Revised flood maps can make it expensive
Property bondaries, boundary line vs alta Quantum of land. Fences and hedges not boundary
Lead based paint , built before 1978
“the inspections elected do not apply to the following existing conditions”…can list
Warnings .wetlands, mold, asbestos- buyer beware

Paragraph 13: inspection contingency

Contingency is for a period from the execution date [ full acceptance paragraph 5c, not counting execution date]. Initial and date.
Within the period ( except for on lot sewage system):

If reports satisfactory, give to seller and agree to release
If “unsatisfactory”, give to seller and terminate or give to seller with a written corrective proposal listing corrections or credits
Following the end of the contingency period, 5 day negotiation period (no one can terminate); seller can agree or negotiate
After the 5 day period, if no agreement, within 2 days buyer will accept or If buyer does nothing , acceptance of agreement. Ongoing negotiations do no extend the time

Paragraph 26 (g), default, termination…

Liquidated damage provision, limits seller’s remedies

Often routinely checked but sellers should either require it not be checked or that buyers are limited to the same extent

Meant to provide measure of damages experienced by the seller but that isn’t always the case

Theoretically, buyer could walk at settlement date and that is all the seller would get

Paragraph 27: mediation

If you do not strike this clause, you cannot file a lawsuit in court until this paragraph is satisfied [ except for limited actions]
Limits the forum of choice, typically to local association of realtors- fees divided and paid before the conference
If unreasonably breach or act in bad faith can be liable for attorneys fees
Clause survives settlement
Mediation meant to be voluntary-only legal proceeding where parties determine the outcome-can strike but agree to mediate later

Paragraph 7: fixtures and personal property

Starts with a warning to be specific on what is included or excluded
Lists many items
Does not list refrigerator, washer or dryer
Points out some things may be leased, solar panels,satellite dishes
Has a provision for excluded items….suggest anything sellers want to take, remove and replace with something ok to leave

Paragraph 10 (h): seller representations internet of things devices

Devices may transmit data to 3^rd parties out of control of owner
Before settlement, seller will clear all data stored on property and included in the sale and clear and disconnect personal devices having connectivity to the devices and wont try to access devices after closing
Buyer after closing will clear devices so seller can’t access
Paragraph survives settlement

Price escalation addendum

Not a clause in the standard contract

Being used more frequently now because of sellers market and bidding battles

For a net purchase price higher than offer submitted- doesn’t consider other factors in the offer

Buyer agrees to offer “x” amount more , up to a certain “maximum”

Mortgage contingency

The mortgage contingency can be waived or
The mortgage amount is changed so the loan to value is the same
The first difference in the purchase price and new price will be paid in cash-difference added to loan amount
Buyer will provide updated pre-approval letter
Appraisal contingency may be attached
Seller will give buyer a copy of the competing offer less the name of the buyer
Buyer agrees to sign or initial changes if requested, by seller, lender or real estate agents ….(curious doesn’t mention title company)
Suggestion, add an addendum to make the mortgage amount clear

Appraisal contingency addendum

Should not use with fha or va….buyer doesn’t have to buy
Clause 1- purchase price or lower…within

Days

Clause 2- 2 options

Appraisal is ok or appraisal isn’t and notify seller and negotiate..better for buyer
Better for seller- buyer will complete sale