But the agreement that has come alive usually carries with it contingencies that can kill or alter the basic understanding of the parties. So the signed purchase offer represents what might be called a first-step meeting of the minds.

If no contingencies are attached to a legal contract, it should be performed, that is, the deal closed by the parties on the terms established in the agreement.

There are, typically, two ways for a contract to become void: the first involves some flaw in the making of the contract, and the second involves aborting the contract as a matter of right within its language.

A contract becomes void when it fails to include all the required elements that make for a legal contract, such as, it lacks a required signature, or one party is not legally qualified to enter the agreement, or the contract is for some illegal purpose, or it does not reflect a meeting of the minds between the parties.

A contract also becomes void when one party with the right to cancel the agreement by way of a contingency declares the contract void and takes the required steps to inform the other party of the changed status. This should be done in writing, whether or not written notification is required in the contract. A contract that has become void is not enforceable.

In most contracts, the buyer will have inserted at least one contingency that raises an issue the buyer wants researched, inspected, provided or resolved to his satisfaction.

If a contingency fails to include words to the effect that “results are subject to review and approval of the buyer; where results are deemed unacceptable, the buyer may void the contract without penalty and receive all deposits back in a timely fashion”—it is not a contingency with a right to void the contract and the seller may enforce performance.

Where research within the contingency raises an issue that the buyer wants to be resolved, the buyer has activated a process that will either lead to a second-step meeting of the minds or voiding the contract. A contract that is on the verge of being voided provides incentive to both parties to come to a meeting of the minds in the second step.

A properly worded contingency inserts permission into the contract by mutual consent that allows the buyer to blow up the contract if there is no second round of agreement.

A voided contract is one that has been legally terminated. A voidable contract is one that can be voided within the contingency language included.

Now all of this may seem simple and obvious. But it is not, at least in my experience.

I have seen buyers get into contracts with contingencies that merely allow them to research financing, or boundaries, or timber volumes without reserving the right to void if results are not acceptable. They were forced to perform on the contract.

I have also seen buyers fail to properly void a contract that they have a right to void.

And finally I have seen both buyers and sellers assume that a contract has been voided (because it was voidable) when it wasn’t.

Remember: a valid contract can be voided within contingency language; an invalid contract binds no one; a voided contract is dead; and a voidable contract may or may not go through.

My wife — who is a certifiable her and a dirt lawyer to boot — still, occasionally, gets asked to do up papers, for which she was once paid in homemade horseradish and day-old Krispy Kremes. Those days are fading. I encourage her to work for cash.

The simplest property transaction now involves much paperwork to comply with local, state and federal regulations. Buyers need to understand these matters. Mortgage documents, which buyers rarely see prior to closing, are usually long, impenetrable and one-sided; their boilerplate is rarely subject to negotiation between borrower and lender.

The purchase offer is typically a pre-printed form supplied to a buyer by either an agent representing the seller or the FSBO seller.  I’ve seen FSBOs hand “contracts” to buyers that the seller himself had drafted. The seller and his agent may delete, amend or add language to the standard contract before handing it to the buyer.

I encourage buyers to become familiar with all of the documents involved in a purchase before submitting an offer to anyone for anything. These include the documents arising from regulations, financing, deed, title search/certificate, title insurance, survey, inspections and so on. Becoming familiar with these complicated documents should involve going through them with an experienced real-estate lawyer.

One type of “paper” — the buyer’s contract offer — can be made subject to a contingency that allows the buyer’s lawyer to approve it before it binds the buyer. In addition to protecting a buyer against adverse language, a lawyer’s review can guard a buyer against making an offer that a seller’s agent unduly shapes.

The job and responsibility of the seller’s agent is to work to get the best deal for his client—the seller. Buyers have complained about (and sued) real-estate agents, because they believed they sustained harm from a lack of clarity and/or understanding of agency obligations in the buy-sell process. The buyers said they were not informed or did not understand that the agent working with them represented the seller, and, for that reason, one or more terms were included in the contract offer that worked against the buyer’s best interests.

A just-released, free publication from the American Homeowners Foundation, Home Buyers’ Guide to Real Estate Representation, explains agency from a buyer’s perspective. (www.americanhomeowners.org; AHF@AmericanHomeowners.org.) Possible confusion over buyer’s agency, dual agency, exclusive buyer’s agency and seller’s agency is one reason why more buyers are using a lawyer-review contingency in their proposals.

Earlier columns have discussed the need for a buyer to understand the boilerplate in the pre-printed offer form, which turns into a binding contract between buyer and seller, upon the last required signature.

But sometimes a buyer has to move quickly and for whatever reason doesn’t have the opportunity to read through the standard contract with his local lawyer’s help before having to sign an offer.

In those circumstances, a buyer can add a contingency that reads something like one of these two options:

1.  This offer is contingent on the review, possible modification and approval of this offer by the buyer’s attorney to take place within 7 business days of its submission to the seller.

2.  This offer is contingent on its review and approval by the buyer’s attorney to take place within 7 business days of the last required signature being affixed to this proposed contract.

The first option allows a lawyer’s review and alteration prior to submitting a final version to the seller. This is, in my opinion, a more straight-forward approach for a buyer to take, because it involves his lawyer as part of the offer-drafting process.

The second option allows a buyer to void an accepted offer if his lawyer objects to some provision (or, to be honest about it, if the buyer gets cold feet). Negotiation can take place to try to resolve the objections before the deal dies. But I think a seller would be miffed at a buyer taking a second bite out of his apple this far along in the process. If a buyer uses the second option, he should take care to explain his intentions and concerns to the seller just in case his lawyer finds a deal-killing problem.

Contingencies can be used either in good faith or as tactics to recast an offer’s terms once the seller is invested in a deal. A lawyer-review contingency can function in both ways, but it ought to be limited to protecting a buyer’s interests rather than advancing them at the last minute.

The tasks of the seller’s lawyer can be divided into two stages—before the contract is signed and after.

Before a contract is in place, many sellers rely on their lawyer for help in drafting the terms of their sale and reviewing a listing agreement, if one is involved. The attorney may offer advice on many issues, such as whether or not to divide the property, impose a development-limiting covenant, keep a right of first refusal on a future sale or reserve one or more interests (such as minerals, the right to timber within 10 years to certain specifications, the right to hunt or carve out an access easement to property the seller is not selling).

The seller should review contract language with his lawyer before authorizing his agent to use the agent’s standard contract and its boilerplate with interested buyers. Most lawyers have worked up their own “standard” real-estate contract over the years, and this may be the document a seller prefers to use. The agent’s contract may be fine “as is,” but the prudent seller should talk over its provisions with his lawyer in advance of using it with any buyer.

If you find yourself in circumstances where you have to sign a contract before reviewing it with your lawyer, add the following seller contingency: This contract is contingent on review and approval by the seller’s attorney to occur within seven business days of the last dated signature on this contract.

If you are a FSBO, it’s advisable to collaborate on a contract with your lawyer rather than draft one on your own, pull one off the Internet or lift one out of a legal forms book. Internet sites and forms books can get you started, but I would always have a local real-estate lawyer review the final contract before using it with a buyer.

The seller should consult his lawyer as offers come in and counter-offers are made. Certain proposals will have adverse or beneficial tax implications, which an experienced real-estate lawyer will be able to flag for his seller.

The second stage of legal work for a seller begins once a signed contract is in hand. The buyer’s lawyer will search the title to make sure it is free of defect. The seller’s lawyer takes the lead in resolving the problem.

Once the buyer’s lawyer gives a green light on the title, the seller’s lawyer drafts the deed that conveys the property to the buyer. This is usually a simple job of reusing the language from the deed into the seller and updating it with whatever changes might be required.

Where the seller’s property has improvements (residence, structures), the seller’s lawyer will typically get the seller to sign a mechanic’s lien waiver, which states that either no one who has done work on the property for a certain period of time prior to closing remains unpaid or that the seller promises to pay any such bill prior to closing.

The provisions of this type of waiver vary from state to state.

Prior to closing, the seller’s lawyer will review the proposed settlement statement that the buyer’s lawyer has prepared. Debits and credits will be reviewed, and the math checked.

The seller’s lawyer should get the pay-off number from any lender holding a note secured by the property and give this information to the seller and the buyer’s lawyer.

The seller’s lawyer should prepare a certificate of satisfaction that shows the seller had paid off any such lender. This certificate is recorded after closing.

The seller’s lawyer represents the seller during closing.

Sellers should look for a lawyer who has negotiating and problem-solving skills. Many of these tasks are routine, but the seller’s lawyer is needed when a problem has to be solved quickly to save the deal.

Typically, the buyer signs the contract and then asks his lawyer to check into the seller’s deed and chain of title, and be present at closing. Other tasks may arise.

Title work is fairly routine and easy, except when it is not. When title problems are serious – lack of a deeded right of way, mismatch between the calls in the deed and the boundaries established on the ground, a break in the title chain, or disputed ownership issues – the buyer needs a competent lawyer.

A quick look at the seller’s deed and title chain prior to placing a contract on the seller’s property can often alert buyer, lawyer and seller to deed and title issues in advance of signing an offer. The issues, when known in advance, can modify the offer and give the seller a heads up.

A routine title check looks into documents that are recorded in the local office where deeds are kept. Most lawyers do not make inquiries into the possible presence of unrecorded encumbrances on the seller’s property, such as an oral life estate or an agreement that allows a third party to hunt the land. I’ve even once had a lawyer who I had to tell to for mineral ownership, which he did not routinely do on his own.

I encourage clients to use their lawyer for other matters, principally advice.

Rather than patch in a lawyer after a contract is signed, I encourage buyers to find — and get comfortable with — a lawyer as one of their first steps in looking for property in a particular county. Here are some ways a lawyer can help a buyer before a contract is signed:

1. Reasonableness of asking price: Don’t expect a lawyer to do a comp analysis or an appraisal. But local lawyers who have been doing real-estate work for a number of years should have an accurate feel for prices, price trends, volatility and current market conditions. Buyers often get a better bead on the reasonableness of a seller’s asking price from their lawyer than from an agent representing the seller who may be their first and only source of local market information.

2. Local insight into seller’s motivations: Lawyers know their communities, and usually know personally, or know of, individual sellers. Buyers are enormously advantaged when they can learn why a buyer is selling and how intense the motivation is.

3. Problems and issues with particular properties: An experienced local lawyer is likely to know first-hand, or have acquaintance with, many properties in a county, particularly those that have been sold during his years of practice. The more years of practice, the more likely it is that he will know about problems and issues that may or may not be of a strictly legal nature.

4. Lenders and vendors. The buyer’s lawyer will also have opinions about local lenders, brokers, agents, title companies, surveyors, excavators, local officials (building inspector, zoning office), appraisers and contractors. If this advice is sound, it’s worth

a small fortune to a buyer who will be directed to the best local options for each service.

It can save a buyer money, time, aggravation and mistakes.

5. Contract terms. Most buyers are shown property by an agent representing the seller and given a standard purchase-offer contract that, in my opinion, is skewed in favor of sellers. A buyer’s lawyer should be asked to go over either the standard agent’s contract or one the lawyer uses well in advance of a buyer having to read and understand contract terms under pressure. Previous columns have discussed many of these boiler-plate terms and their implications.

6. Local idiosyncrasies: The buyer’s lawyer should know something about local politics; local folks and neighborhoods to avoid; and local ground conditions (such as, which areas of the county have dirt that rarely passes a perc test, routinely flood, get lightning strikes, are situated over karst, go dry in August and so on).

I have used the masculine gender to refer to both male and females. I do this because I am old and hate the use of neutral plurals to refer to singular, gender-specific subjects in order to be gender free. I actually prefer working with female lawyers. There, I’ve now offended everybody, including myself.

These six issues can be covered in an hour or two of face time with a lawyer. It is the best money a buyer will spend when buying real estate.

This Contract, including any attached exhibits and addenda, signed by the parties, constitutes the entire agreement between Seller and Buyer. This Contract supersedes any other written or oral agreement between the parties.

All of us should know by now that real-estate contracts should be in writing for them to bind the parties. Some states, however, have carved out special circumstances  where an oral contract will bind buyer and seller on real-estate matters. The merger clause may not rule out all oral agreements all the time in all places.

An example is an oral contract where one party performs and the other party does not. Parents who have promised to deed their farm to a child who agrees to and completely fulfills his promise to work the farm and split the profits with his parents for 10 years are not likely to be allowed to back out of their promise. The child will have to prove the existence of the oral contract with his parents and demonstrate his full performance for the oral promise to bind them.

A written contract can be either partially or completely integrated.

A partially integrated written contract includes some but not all of the agreed terms. The written contract between the parties, in other words, contains a final agreement between them on those terms that are in writing, but not the other agreed terms that are still out there in oral land. Circumstances will determine how the merger clause is applied. If the oral terms were never agreed to, they will not bind the parties.

A merger clause between the parties should mean that both parties agree that the written contract between them is completely integrated—all terms of agreement are written and no other agreements of any kind are present between them. But situations arise when buyer and seller disagree as to whether their written agreement with a merger clause is partially or completely integrated.

Where a court determines that a partially integrated written contract exists, it appears that outside terms, such as an oral agreement that adds to the contract but doesn’t contradict it, will generally be enforced even when a merger clause exists.

Courts have also held that a merger clause in some situations is to be taken as a rebuttable presumption, not an iron-clad, universal exclusion of other terms being agreed to and affecting the contract.

Evidence outside a partially integrated contract, including oral agreements, may be admitted to help in interpreting the written terms, resolve an ambiguity or prove a mistake or fraud, among other reasons. In those situations where an oral agreement is incorporated into a written agreement, the oral contract must have been agreed to either before or contemporaneous with the written one.

Having said all that, the party holding a completely integrated written contract with a merger clause is in a far stronger position than the party claiming an oral agreement that modifies a written contract.

Both buyer and seller benefit from a merger clause, which forces them to work out all the sale details in writing when everyone is on best behavior. And both parties should understand before signing a contract what the merger clause means.

It’s not uncommon for a new owner to be informed after closing that the seller had agreed to give or sell some item — timber, machinery, fixtures, hunting rights — to a third party when the third party shows up seeking to cut some trees, take home the machinery and fixtures or hunt rabbits.

When the third party appears claiming a right in your newly purchased property that is not in the written contract, show him your purchase contract with the merger clause and insist that he refrain until the matter is worked out legally. Call the sheriff if necessary and report a theft in progress when no other choice is available. At the very least, you, the new owner, have tried to establish and enforce the legal principle that usually prevails. But your contract also needs a survivor clause, which allows agreed terms in the contract to stay in effect beyond closing.

For that reason, it’s important for both parties to be in agreement that their written contract is the entire (complete integration) agreement between them and to state that explicitly in writing. I would add a sentence like this to the boilerplate:

The Parties agree that no other term, understanding or agreement exists between them regarding the purchase and sale of the real property described above, and no other Party holds a right in this property except those of record.

It will say something like this: Buyer and Seller grant permission [to Brokers] to advise the public of this sale upon execution of this Contract, and Brokers may disclose price and terms herein after close of escrow.

This language benefits brokers representing both buyer and seller in as much as they can advertise a sale they’ve finished and reveal selling price and terms if it’s advantageous. This information is also useful in acquiring back-up contracts. Brokers may want this information for any private data base they develop on market conditions.

Here’s the rub. “Execute a contract” can mean either when a contract comes into force with the last required signature or when it is fully carried out (that is, after the sale is closed). In real-estate contracts, it’s often taken to mean the first, not the second. Buyer or seller may not want this information disclosed before closing.

Not permitted under Permission is disclosure of the buyer’s offer PRIOR TO its acceptance. Here’s an example.

A client of mine put a full-price offer on about 500 acres in West Virginia several years ago. The buyer was a developer, following up on land that I had looked into. He included a 30-day study contingency and a pro-forma financing contingency. The seller was given a three-day window to respond. I did not see the contract he submitted.

What did the listing broker do the minute he received my client’s offer? He shopped it around to another buyer who had expressed interest. The buyer in the wings came in immediately with a full-price offer and no contingencies. The broker did not come back to my client and give him an opportunity to better his offer, which I think he would have done. The arrangement between the broker and the successful buyer smelled fishy.

This broker’s behavior in “backdooring” my client is not allowed under the standard Permission language, which authorizes disclosure of price and terms AFTER the contract is executed, that is, signed by both parties. This broker revealed price and terms BEFORE  my client’s offer was executed under either interpretation of “execute.”

My client could not, of course, prove that the broker had backdoored him in this manner. The second full-price offer could have been just a coincidence. That’s what the broker and new owner would have claimed in court.

To prevent future coincidences, buyers might include offer-confidentiality language in their contracts.  In one form or another, this section would state that the price and terms of the buyer’s offer shall not be disclosed by the broker, seller, or associates of either one, at any time, starting from the moment the offer is received by the broker or seller, except as required by recordation. If broker or seller breaches this requirement and the buyer suffers harm, the buyer can choose to pursue either remedy in the law or a fixed amount as liquidated damages.

This language would void the standard Permission as well. If the buyer and seller want to allow disclosure under Permission, they can adapt and limit the language I’ve included above.

My client in this affair did not include the full-Monty offer-confidentiality language. For lack of that language, he probably lost two or three million dollars in net profit.

The boilerplate Permission language allows disclosure after the contract is signed or, at the very least, after the purchase contract has been satisfied. However, either buyer or seller may have reasons to object to disclosure at either point in the timeline.

As a buyer coming into a new community, I might object to having my new neighbors readily know what I paid or my financing details. Selling price can usually be found in the deed itself or by calculations based on the tax (stamps) levied on the sale. But to dig that out of the recorded documents takes some investigative motivation.

Sellers may be embarrassed by the price they accepted, either for being too low or too high. Or they may want to conceal sale terms from heirs, relations and those to whom they are in debt.

If you — buyer or seller — object to Permission boilerplate, cross it out and write in your initials and date.

If you don’t want to be “backdoored,” include offer-confidentiality language in your contract. It’s hard for a backdoored buyer to prove that he has been backdoored, but language of this sort provides at least a shot across the bow of both seller and broker.

Proration refers to an agreement between buyer and seller to divide a cost or expense involved in the purchase of property. Generally speaking, proration is calculated from the closing date, according to the number of days each party owns the property figured on a 360-day year, 30-day month.

Proration incorporates the idea of a fair division, usually based on days owned. The parties can agree to other division formulas as part of their overall negotiation.

States differ on how prorations are handled. In some places, state law governs; in others, custom prevails. Both buyer and seller should ask their respective real-estate lawyers to provide information as to which expenses can be prorated and which cannot or should not.

A typical set of pre-printed prorations includes: taxes (which may or may not specify the taxes being referred to); homeowner association fees, maintenance and upkeep fees (may or may not be specific); insurance premiums (usually unspecified, but generally referring to a homeowner’s policy if it’s being assumed); interest on assessments and mortgage interest when interest is paid in arrears.

Buyers should be wary of items included in prorations that need not be prorated. The broad category of “taxes” may be too broad for a buyer.

Other items that can be subject to proration include whatever costs the seller and buyer might agree to divide, such as taxes other than property taxes, which could include trash pick-up charges and special levies; fuel bills or fuel in a tank prepaid by the seller; utility charges that cover both pre- and post-closing time; and rent.

Accrued items are those that the seller owes, but will later be paid by the buyer. The seller gives the buyer credit for these items at closing. Prepaid items are those that the seller has already paid for, which benefit the buyer. They are credits to the seller.

Transfer tax stamps, or deed stamps, are a state tax levied on real-estate transactions. This tax is not usually prorated. A one-percent tax figured on the gross sales price is typical.

I have seen buyers get sticky with sellers on pre-paid items. I once saw a buyer refuse to pay for fuel oil in the tank, which forced the seller to give the oil to the buyer because the supplier would not drain it. The buyer’s argument was that he was shifting to a different heating system and had no use for the oil. I think the buyer should have paid the $100 in return for goodwill that he could tap on other issues.

And then there was the lead seller who signed a purchase contract agreeing to prorate property taxes with me. The conventional number-of-days formula was used.

At closing, the seller’s lawyer, who was a relative and also a beneficiary of this estate sale, announced that the seller would not pay his share of the property tax, amounting to about $150. I helpfully pointed out the sections in the contract where the sellers, including him, had signed, where he had initialed the proration of tax, where I could declare a breach of contract over this issue. The lawyer shrugged.

I was furious. It was so petty and transparent. I considered walking out of the room. I considered filing a complaint against the lawyer who, I should add, was also the broker representing the 18 sellers. I considered filing a complaint against him as a broker.

And then I thought: Maybe, they have a back-up contract at a higher price. Don’t be a sucker. So I paid the $150 and did nothing else, except thank my stars that I was buying 450 acres for about half what they were worth.

Time is of the essence (TIOTE) is a requirement with penalties that binds both parties. It means that both buyer and seller must comply exactly with each and every reference in their contract to specific dates and times of day. TIOTE would, for example, apply to time deadlines for a financing contingency, inspection, timber evaluation and closing.

What happens when the parties have agreed that the buyer must have completed a percolation test by August 1st at 5 p.m., and he hasn’t? The seller can insist that the perc test is no longer a part of their contract, because of the buyer’s failure.

If the percolation test is worded as a results-must-be-acceptable-to-the-buyer contingency — and not just a provision that allows the buyer to do the test — the buyer who’s missed the specific deadline will have forfeited his right to void his offer without penalty in the event the percolation results are unfavorable. Miss the deadline, in other words, and the buyer’s contingency vanishes.

That means, in turn, the buyer must either perform on the contract (that is, buy the property at the agreed price) or default and lose, in most cases, his deposit as liquidated damages. If the contract lacks a liquidated-damages clause, the seller could sue for performance and win without much trouble.

TIOTE cuts both ways. A seller who is expected to finish a repair, secure a rezoning, settle a lien or clear up a defect — and fails to complete the task on time — can lose his sale if the buyer wants to enforce TIOTE. The buyer who terminates the contract for a seller breach may also be able to win some measure of compensation if he can show monetary harm and/or poor-faith on the seller’s part.

It’s often advisable for the parties to agree to moderate TIOTE language with the phrase, “unless an extension is agreed to by mutual consent,” or words of that type.

Weather, credit volatility and unforeseen events can monkey wrench a deadline through no fault of anyone. It makes no sense for TIOTE handcuffs to blow up a sale for such reasons. The easiest solution is sometimes the best: If a perc test couldn’t be performed in wet ground conditions, the seller should voluntarily extend the deadline to protect his own interest in the sale he’s agreed to.

Conventional wisdom has it that sellers benefit from TIOTE, because it forces the buyer to do what’s he’s permitted and expected to do within the established time frame. This prevents a seller from being stretched out for months. If the buyer fails to meet a deadline, the seller gets the deposit, at the very least. Every standard broker contract I’ve ever seen includes a straight TIOTE sentence. Conventional wisdom is right, a painful admission.

My experience is that TIOTE can benefit or penalize both buyer and seller, depending on what their contract provides. Like many things, it depends on the particulars of their agreement. If a buyer is submitting an offer with contingencies and no seller deadlines, TIOTE will clearly benefit the seller at the buyer’s peril. TIOTE generally functions to make a contract asymmetrical in terms of risk; the risk falls disproportionately on the buyer. Many argue that’s where the majority of risk belongs.

My sense is that courts tend to interpret TIOTE strictly. When the words establish a date within an agreement and no exceptions are included that can adjust the deadline, the buyer and seller are bound by their own words.

If closing is set for September 1st at 9 a.m. at the lawyer’s office and the buyer fails to appear, the seller can declare the buyer to have breached the contract and then seek whatever remedy is available—liquidated damages in the form of a deposit forfeiture, or reasonable out-of-pocket expenses arising from the breach plus costs from delay of sale, or suit against the buyer to force performance.

Courts, however, have carved out exceptions to enforcing TIOTE. A court might ask whether the seller was harmed by the buyer’s breach. Or extenuating circumstances might raise their ever-present heads. A court might use a “reasonableness” standard to determine whether the remedy sought by the seller is reasonably proportional to the harm experienced by the seller from the buyer’s failure. With judges, you never know.

The best path I think is for the parties to give themselves a chance to amend the contract or invoke an extension clause when both are motivated to do the deal. The parties should make an effort to keep themselves out of court.

Sellers have been known to hammer buyers with TIOTE when the opportunity presents itself, especially when they have another buyer waiting in the wings. A small breach can bring down a very large hammer. Buyers, in particular, should understand what TIOTE means, or, alternatively, have very hard heads and very thick wallets.

Most of us understand the difference between knowing a fact and believing in our opinions. Belief can be based on facts or simply based on itself—and often belief combines the two.  Facts, we think, are more reliable than belief because they are established through analytical reasoning, physical observation, testing and the like.

One of the first things I learned in epistemology is that I could not always trust the conventional ways to establish facts, hence knowledge. If I said, I saw it, the professor would introduce the idea of mirage; then the imperfect reliability of eyewitness testimony in murder cases, even from the victim; and, finally, sub-atomic physics where we can’t see the specks that we know/believe are there.  If I said, I measured it, the professor would talk about the inherent inaccuracies of measuring, particularly the smallest somethings and the largest—like the universe. If I said, I know it because I used any of my other senses to verify it, additional contrary examples would be introduced that questioned my ability to rely on any information available to me. Belief was dismissed as unreliable, but so too was “fact-based” knowledge. So how did I know anything? Maybe, the answer is that I don’t, but just have to make certain assumptions to function every day.

In real estate, buyers can ask sellers in their purchase-offer contract to provide information about their property to “the best of the seller’s knowledge and belief,” or words to that effect. It’s better to say knowledge and belief, because as epistemologists argue, knowledge is so iffy. Adding in belief can’t hurt.

Such a buyer is simply trying to find out what the seller knows (used in the broadest sense) about a particular item, or the property itself.  A buyer may, of course, push this search for information into the realm of asking that the seller warranty an item or condition to the buyer.  That puts an epistemological monkey on the seller’s back: How does the seller know what he thinks he knows?

Sellers may either tell the truth as they understand it to a buyer, or not, when asked for information. When a buyer insists that a seller provide a warranty, the seller may refuse, in which case the buyer is suspicious, or agree, in which case the seller has an incentive to tell the truth because he has agreed to be on the hook.

State disclosure statements are not warranties from seller to buyer about anything included on the disclosure form, unless there is specific language providing for it. A seller who completes the required disclosure document is simply putting in writing what he understands conditions or facts to be to the “best of the Seller’s current actual knowledge” on the contract date. Some states specifically exclude disclosure documents from the contract between buyer and seller.

Disclosure requirements vary from state to state, but many require a seller to disclose matters “of which he has knowledge” related to any dangerous condition or material defect (defined broadly as something important and bad) or material latent defects (important, but not readily visible or understandable). Brokers are also subject to disclosure requirements about similar matters of which they have knowledge.

A “defect” is generally taken to mean a condition that would: 1) negatively and significantly impact the value of a property, or 2) limit the buyer’s possession or use of it, or 3) impair the health or safety of future occupants, or 4) if not repaired, removed or replaced would adversely affect the normal life or functioning of the item or the property itself.

So how does law define knowledge when philosophy questions the idea of knowing anything? What is current actual knowledge?

Actual knowledge in the law means that the seller has direct and clear awareness of a fact or condition. It is also interpreted to mean that a seller has awareness of such information as would cause a reasonable person to make further inquiry about a fact or condition. A seller has actual knowledge of a hole in the dining room floor, because he stepped through it. If the seller suspects there is a hole in the floor under a piece of loose plywood that’s covered by a rug, most courts would find that he still had actual knowledge even if he never investigated.

Constructive knowledge takes this idea of what a seller is reasonably expected to know a step further. Most courts, I think, would say that the law presumes a seller has constructive knowledge of a condition if he can be reasonably expected to know of it or such knowledge is obtainable by the seller using reasonable means, or that the seller would possess such knowledge using reasonable diligence and ordinary care. In other words, the seller doesn’t need to know factually about the hole in the floor as long as the presumption exists that in the circumstances it’s fair to have expected him to know about it.

The third concept pertaining to knowledge is willful blindness. This covers a seller who engages in a deliberate failure to make a reasonable inquiry into a condition despite suspicion or an awareness that there’s a high probability of the hole in the floor. A seller won’t be free of liability if he never steps on the plywood so that he won’t know for sure that it covers a hole.

Both buyers and sellers should understand that the law treads where philosophers dare not go. The law believes that sellers can and should have knowledge of defects in their properties. I always hope that I will hear of a material-latent-defect case where the seller argues that he is innocent, because epistemology shows that no one is capable of knowing anything for sure.

Now you know, or don’t.

When brokers list property for a seller, they provide potential buyers with a purchase-offer contract that was created for members of their local or state Realtors group. The contract reflects the laws governing real-estate sales in each state.

This “standard contract” is not drafted by the buyer, the buyer’s counsel or a broker/agent representing the buyer. It’s a product of brokers, usually given to a purchaser by an agent of the seller. Often, the buyer fills in his contract in the presence of, and with the help of, the seller’s agent. This process usually advantages a seller. The standard broker contract rightly protects the brokers’ financial interest in any sale.

A buyer dealing with a FSBO can submit whatever legal contract he wants.

With large land and farm transactions, buyers typically will ask their lawyer to draft a contract offer, which they usually complete without the presence of a seller’s agent.

The standard contract usually has a boilerplate section called Representations and Releases, with a sentence something like the following:

By signing this Contract, Buyer represents that he has, or will have prior to close of escrow, conducted all independent investigations desired by Buyer of any and all matters concerning this purchase, and by closing accepts the Premises.

This sentence may or may not be followed by one that provides that the buyer explicitly releases the seller from all responsibility and liability regarding the condition of the property and its improvements, acreage, square footage of the residence, boundary lines, representations made to buyer from seller, material defects, environmental issues and compliance with building codes and other regulations.

In many cases, a buyer can agree to a blanket release of this sort and never have reason to think about it again. But circumstances do exist where a narrow release — rather than a broad Get-Out-Of-Jail-Free release — is the more prudent approach for a buyer.

The release language quoted above forces the buyer to agree in advance that the “premises” will be completely acceptable at closing, subject only to those contingencies he writes into his contract when he’s making the offer and before he’s done his due diligence. Is there something wrong with this picture?

The first problem is that the buyer often has not done enough research at the time that he submits his contract to know what he doesn’t know about the seller’s property. If he doesn’t put in a contingency at the moment of contract conception, he cannot create another contingency on an unforeseen issue that comes up during escrow. The release requires the buyer to accept a problem that he discovers during escrow when it’s not covered by a contingency.

The second problem comes about when a seller has not disclosed all material defects, which has been known to happen…just between us. This release language traps a buyer who has been dealing with such a seller, because it sets forth that the buyer has completed all the research he wants to do when, in fact, he doesn’t have a fair shot at knowing what contingency research he might need to do with a hide-the-ball seller.

Finally, the release language sets up buyer acceptance of the premises with a presumption of “as is,” which may or may not be justified.

Better language in my opinion would be that the buyer accepts the premises after he has either voided all contingencies or after he and the seller have resolved to their mutual satisfaction any issues raised during escrow.

“Boilerplate” is not meaningless language as the term implies.

Buyers should have no objection to signing both a seller release and a broker release. But the wording should protect everyone—seller, broker and buyer.