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


  • You agree to waive the inspection


  • 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” other representations ..of any kind whatsoever

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


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):
  1. If reports satisfactory, give to seller and agree to release
  2. If “unsatisfactory”, give to seller and terminate or give to seller with a written corrective proposal listing corrections or credits
  3. Following the end of the contingency period, 5 day negotiation period (no one can terminate); seller can agree or negotiate
  4. 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 3rd 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


  • Clause 2- 2 options
  1. Appraisal is ok or appraisal isn’t and notify seller and negotiate..better for buyer
  2. Better for seller- buyer will complete sale