Get a Contract Review
So many people buy real estate without having their contract reviewed; taking a risk on the most expensive purchase of a person’s life. Contractual terms can impact resale value and even limit use…In this episode, Art shares some stories on how a simple contract review saved money and time.
The question is really is, how do you get an attorney to only do one thing. So what you want to do is look for a situation where an attorney could review a contract, give you feedback, and that’s it.
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Good afternoon. Art Macomber here, again, talking about contracts. And this particular thing just keeps coming up. And it’s that people do not get contracts reviewed before they sign them. This is a hallmark of American independence, which is to say, I can make up my own mind, I can read the English language, I don’t need anybody telling me what I can sign and what I can’t sign. And in some ways, we just need to applaud the American spirit. On the other hand, applauding the American spirit shouldn’t end up in tears and people draining their bank accounts, fighting about contracts that they could have avoided in the first place with an adequate review.
And the question is really, how do you get an attorney to only do one thing? So what you want to do is look for a situation where an attorney could review a contract, give you feedback, and that’s it. They’re not going to redraft it, you’re not going to ask him to contact the other parties, you’re not going to ask him to do really anything, except to review what they plan to sign. And here’s why. in Idaho, and in most states, but more so in Idaho, also Montana, if you sign a contract, you are bound. And short of having a heart attack and having some third party action happen, acts of God, union strikes, railway accidents in your front yard, something that you have absolutely no control over, a court, just like an opposing party in the contract, is going to expect you to keep your promises to perform.
Part of the question is, what are those promises? And it’s not usually one promise. For example, in the contract, I could agree to pay you money to paint my house. Okay, fine. But is that really the only term in the contract? And how does that promise get remedied if you don’t paint my house? Or maybe you paint the house, but oh, gosh, it’s the wrong color. Or maybe you paint my house, and it’s just not done very well. You know, you didn’t paint under the eaves and you got the front door color wrong. And oh, man, those window shutters look terrible the way you finished them, that’s just not gonna fly. So, you know, we talked about vague deeds in an earlier contract, and you’ve run into the same thing with vague contracts. How specific is the performance that’s required by each party to fulfill the contract terms? And how do you know that? I have read a lot of contracts. I will not say thousands, but I will say hundreds. And more often than not, there are terms that are difficult to figure out what they mean. What is a party supposed to do to fulfill their terms? Because you see, if there’s a term in a contract that says one party is supposed to do something, and if they don’t do it, then that’s a breach of contract. And if the breach of contract causes damages to somebody else, then there has to be a cause of action for breach of contract, and you can be sued. And if they make their case, they’ll win. And if they can’t, they’ll lose.
But in any case, it all starts with what duties do you undertake when you sign a contract. My theory is, be smart, get a review. Because there are too many people, let’s put it that way, who come into our office and say, Art, I signed this contract. How do I get out? And I read it and I say, you can’t get out. And they say, well, what do I do? I say well, most contracts can be modified. Why don’t we see if there are provisions in the contract that allow modification. Now, there are essentially three types of contracts that I’ve run into over the years. And the first type is the kitchen table contract. This is the one that’s drawn up by a couple of people who, you know, basically the terms are on a napkin. There’s a single piece of paper, there’s a bid for work to be done. And it may look like a very formal bid, but it’s basically one page with a number on it and a couple of signatures. There are no remedies, there are no conditions of performance, there is no allowance for more time or modification or termination of the contract, or, or really anything. It’s just something we made up. And you know, I’ve known Bill for years. So it was okay, I thought we were in good shape. But then here’s the problem. You don’t know what’s gonna happen in the future. That’s why you have a written contract. So at least you can tell what you did. When you signed it, what you meant was, you know, the judges always gonna to say, well, what do these people have in mind?
The second type of contract we’ve run into is a contract that’s drawn up by professionals. It’s not a template or a form. It’s a professional contract that’s drawn up. Usually, if attorneys are involved, and I hate to say this but it’s true, it’s too long and complicated for regular people to figure out. Okay, that’s just not very functional. In a world where the purpose of a contract is to encourage the parties to communicate about the promises they’ve made with each other. But if the contract is 30, 40, 50, 60 pages for something that should be relatively simple, then there’s a real question about why I have to live with my attorney 24-7, just so we can figure out what we signed. It’s not functional. But that’s number two.
Number three is a form of contract. Here’s a contract that’s used, for example, by well real estate’s the best example. For example, in Idaho, we have this thing that is approved by the realtors. It meets the statutes but essentially, it’s usually in favor of the seller. The terms lean towards the seller, and the form is an RE-21. That’s the contract number. And it’s a real estate purchase and sale agreement, and it has standard terms. Many people feel like, well, if I use a kitchen table contract with my Uncle Joe that I’ve known for 20 years, and we see each other at church every Sunday, then I should be fine. That’s not usually true. Because life happens, you know. Uncle Joe’s daughter is suddenly diagnosed with cancer, and he can’t meet the terms of the contract for some reason or another. It’s not that he’s operating in bad faith. It’s not that he’s a bad person, or that he wants to, you know, take advantage of you or anything like that. It’s just that life’s circumstances have changed. And how do you deal with that? Now, maybe if the parties are reasonable, and it’s not a big deal, like painting a house, hey, I can get somebody else. Because nobody knows what happens when life happens.
So the second one is the difficult one where nobody really knows what they’re supposed to do. So you need to go back to your attorney every time something happens. You need to go back to your attorney to figure out how you’re supposed to address the situation. That’s not functional. But it’s still a situation where you would want to get the contract reviewed before you sign it. And if your attorney drafted the contract, of course, they’re going to tell you it’s a great contract. Maybe, maybe not. You might want to get a second opinion.
Let’s say the third type of contract, the real estate purchase and sale agreement. Here’s a form contract. I’m buying my home, I buy how many homes in my lifetime? Two, maybe three. Some people buy five homes during their lifetime. But that’s really rare. It’s usually years between the transactions, the laws have changed, the forms are changed, they move jurisdictions. This year, they’re in Florida. They get transferred to San Diego, then they get a job in Seattle. They’re all over the place. They have no idea what’s going on. But hey, they have a form contract from the local realtor and they feel safe. Here’s the problem. If you’re putting hundreds of thousands of dollars, millions of dollars, into a purchase of a home, why would you not have that contract reviewed to make sure that the template fits your specific circumstances?
And here’s where the problems come in. The templates are awesome. They’re a good start. But for this home in this location for this seller and this buyer, there may be tweaks that you want to make and not just additions like leave the rose bushes in the front yard as a condition of sale, maybe not fix the back steps because they’re a hazard as a condition of sale, it may be something more dramatic. There may be seller financing involved, maybe the person owns the home outright, and they’re willing to carry paper for you and, in essence, play Wells Fargo as the bank so that you can buy it. There are various situations where the templates, the template forms, should be reviewed. So because the courts are so harsh with contract matters, holding the parties to their agreement, a contract review prior to signing is very prudent.
And it’s usually pretty inexpensive. If for three, four, or 500 dollars, I can get a contract reviewed, I would take that as opposed to a come-back later and have to pay Macomber Law 5, 10, 20,000 dollars to even get the person’s attention. So, they want to think less think about having a lawsuit so that some objective party, like a judge, can come in and try to help the parties figure out how to get out of the mess that life has led them into. In the contract review, what we would do is, say you have an RE-21 purchase and sale agreement. And it’s a template. And it looks very good for most purposes. Thousands of these contracts are done without contract reviews. And some of them, most of them probably, go through just fine. But too many of them, a lot frankly, run into avoidable problems. Some problems are not avoidable, but avoidable problems are why you want the review. And what happens during the review? During the review, we take a contract and we compare it to the person who is contemplating signing it. And we say, what are you trying to do here? What are you looking to get out of this transaction? What are the the attributes of the home that you’re planning to buy? Or the farm or the business that you’re planning to buy? That are getting you to the point where you’re thinking about I need to have this contract reviewed before I sign it? You’re obviously interested in the property, what is your plan? And so in review of the plan, you you look at the individual circumstances and then you look at the template contract and you say, what about this contract needs to be changed to accord with my individual clients individual plan? And if you take a 30-day close on a cash-only offer or if you take a 45-day close with a regular lender, that’s not a VA lender, or you take maybe, you know, a 60- or 120-day close or something if the property purchase is contingent on the sale of a home you currently have. Those individual circumstances are going to be weighing on the contract as it occurs. That is to say something, you know, you should just assume life is going to have its way with you.
Now if you’re old enough to buy a house, you already know this. People have car accidents, people lose their jobs for no reason. There are earthquakes that shake their hometown, forest fires that sweep in. You know, we just don’t know what might happen. You could be killed going to the grocery store. And suddenly your estate is saddled with a real estate purchase and sale agreement that never got performed on because life happened. So, you know, the prudent thing is to plan for it. Look ahead. When you decide what you want to do, and you’re taking a look at a property, you bring the contract in and have Macomber Law review it. If you take a look at our Timely Contract products, or something that allows such a review, you don’t have to hire us to handle all of your legal matters, you can just hire us for a specific purpose. And so that specific purpose should be, in my view, to review a contract before you sign it.
Because once you sign it, you’re in, you’re you’re done. And you know if you sign it, and then you need to modify it later. And the other party says no, I’m going to hold you to the terms. What are you going to do then? I’ll tell you what you’re going to do. You’re going to walk into my office, and you’re going to sit at the table and you’re going to tell me a giant sob story that could have been avoided. So let’s not do that. Let’s just be prudent. You know, most of our clients are planners, they just plan everything. Some plan too much. Although I’ve never seen that yet. You can almost never plan too much. So plan ahea,d get the contract reviewed, and don’t get locked into something that you can’t get out of or that doesn’t really fit the circumstances of the purchase that you’re planning to make.
Thanks for listening.
This episode is sponsored by Timely Contract. Buying real estate is the most complex and important financial transaction most people’s lives. It’s estimated that over 60% of American wealth resides in the family home. For small- to medium-sized businesses, a commercial building may be the biggest asset on the company balance sheet. With so much on the line, don’t make a mistake on the buy. Know what you’re buying before you sign. If you have signed, find out exactly what you’ve signed and what your options are.
At Timely Contract, our primary legal services include: real estate contract review, real estate contract drafting, legal opinions for title insurance exceptions, and research, due diligence, and legal opinions for properties.