Buying Land

Buyers may need to include a lawyer-review contingency

Buying property used to involve a buyer, a seller and a couple of pieces of paper. In the country, purchases were worked out orally and then the seller and the buyer went to a lawyer and asked him (there weren’t any “hers” back then; well, there were plenty of hers, but they weren’t lawyers) to “do us up a paper.”

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.

This content may not be used or reproduced in any manner whatsoever, in part or in whole, without written permission of LANDTHINK. Use of this content without permission is a violation of federal copyright law. The articles, posts, comments, opinions and information provided by LANDTHINK are for informational and research purposes only and DOES NOT substitute or coincide with the advice of an attorney, accountant, real estate broker or any other licensed real estate professional. LANDTHINK strongly advises visitors and readers to seek their own professional guidance and advice related to buying, investing in or selling real estate.

About the author

Curtis Seltzer

Curtis Seltzer is a land consultant, columnist and author of How To Be a DIRT-SMART Buyer of Country Property, available at Curtis-Seltzer.com where his columns are posted. He also does commentary for Virginia public radio. His new book, Land Matters: The “Country Real Estate” Columns, 2007-2009, which includes 14 commentaries on CD.

6 Comments

Click here to post a comment

  • In rurual areas you will find that “your” attorney may also be representing the seller, the sellers agent, your agent and the Title Company, all without disclosing any of this. You sometimes discover this after they alter paperwork to better suit another party after you’ve asked for specific terms to be set down.

  • This happened to me when we bought our farm in 1983. The lawyer I had hired never told me that he was also representing the seller. I learned it when I walked into closing. I was not pleased.
    I think the way to prevent this from occurring is to insist that the lawyer disclose whether he’s already representing another party in the deal and to insist that he not represent the other party if he chooses to represent you, unless you agree ahead of time.
    There are some circumstances where a lawyer can adequately and fairly represent both sides, as long as both sides agree and understand the circumstances.

    Curtis

  • Ms. Johnston is right. As an attorney, former residential broker and, now, commercial broker-in-charge, let me say Curtis’ advice is right up there, No. 1 in my book. At Congressional hearings re: changes to the HUD statement, etc., to protect consumers and to make closing more cost-competitive, not the NAR, not the ABA, nor any other agency (that I could find), brought up that the BUYER’S ATTORNEY (vs. “closer”) is where the “Buck Stops” and where the buyer is most protected from errors before, during and after the closing. For the buyer not to get one that is her/his advocate, and hers/his advocate only, before entering the sales contract, is “Penny Wise and Pound Foolish” — and may not cost you a farthing more.

  • Hi Curtis,

    I hope you don’t mind my sending in this question. Your original entry and responses have been quite helpful, and so I thought you might have some insight here. I’ve used a nom de plume since the question relates to an active transaction.

    In a nutshell, in looking to purchase a home, we asked the seller’s agent about permits for the existing add-ons to the house (there are many). The impression was that there were no problems, but nothing definitive. As a result, we also raised it with our lawyer, who asked that a representation regarding permits, code compliance, etc., be included in the purchase agreement. (Permits are particularly important to us since, as the seller knows, we plan to add 2 new rooms to the house, and so expect to be inspected.)

    The seller flatly refused to provide assurance, and so I checked with the local building office to see what permits were actually on file. It turns out that most of the additions were not permitted or inspected, including a new basement bathroom. It also turns out that the basement bedroom violated local code and cannot be used as such — making the listing specifications, for a 3-bedroom home, inaccurate. Finally, we learned that the seller’s agent initially told the seller that the house should be listed as only 2 bedrooms, but that the seller had “insisted” that the house could be sold as a 3-bedroom property and so listed it as such.

    We conveyed our concern through our lawyer, who asked the seller’s lawyer what they could do to make us comfortable. We did not ask for a price adjustment, nor do we intend to do so. In response, the seller insisted that the property was now being sold “as is,” that this change in terms was a condition to the seller’s lawyer’s sign-off, and we could take it or leave it. It’s clear from the seller’s lawyer’s email that he recognizes this is a deliberate change in the substantive terms, not simply a concern over language.

    On principle, this is troubling. As a practical matter, however, I’d be interested in your views on the above. Is permitting such a big deal? Code violations? Our realtor suggested that many of the buyers in this neighborhood (we are newcomers) simply focus on buying the property, and take care of permitting, code compliance, etc., down the road.

    With apologies for the length, I would appreciate your thoughts.

    Thank you.

  • I’m working one now where the buyer refused to sign the seller’s mortgage and note because they were so unreasonable. The seller has refused to use the standard Freddie Mac / Fannie Mae forms. So now we are in a situation where the buyer’s attorney is talking to the seller’s attorney. If I had added a lawyer’s review contingency in with the standard clause for the owner carry I would have saved my buyer and lot of grief and embarrassment on my part.

The Pulse

What effect will CoStar’s acquisition of LandWatch have on land brokers?

ANSWER NOW

THE PULSE SPONSORED BY:

LANDFLIP NETWORK