Overcome the 3 worst fears of writing contracts in real estate investment
Posted On June 3, 2021
Contract writing is a paralyzing fear in real estate investing for investors who are buying or selling property. The common idea is that if the investor misses something very important, the deal will be lost, they may be liable for huge sums of money if the contract does not work, or they will be doing something illegal and not even know it.
Overcoming these fears is easy to achieve but you have to work in their order of importance to the investor, which can be done in minutes or hours. The result will be a long and rewarding career in real estate investing. The following are ways to help real estate investors overcome these nagging fears.
1. The fear of omitting something very important in the contract.
Real estate contracting is as old as deed and each state has established some standards or the real estate agents in that state have established contract standards that they use to write purchase and sale agreements.
An investor can get contracts online, at a local office, or even with a real estate investment guru. It is strongly recommended that you only use contracts approved by your state BAR (Bar Association) or your local BOR (Board of Realtors). Generally, using store bought contracts or guru contracts won’t expose you to too much responsibility, but they can have major issues that aren’t obvious until you lose a lot.
In particular, guru contracts are sold as investor protection and often have separate buy and sell contracts. If these contracts are sent to the seller’s attorney for review, they could lose their deal because they are too expensive. It is better that you control the contract that is standard in your state using clauses or annexes that favor your position.
2. The fear of great liability if the contract is performed incorrectly.
Unless otherwise stated in the contract, when you are a buyer, your liability is limited to the amount of your deposit. If you haven’t made a deposit yet, your contract may not be valid in the first place, so always give the minimum deposit that the seller will accept. While it’s impressive for other investors to give $ 1 or $ 10, if you compete with another investor offering $ 100, you could lose the deal.
Always put a clause that your security deposit is not due until your inspection period is over and request an inspection period as long as possible; With homeowners, I ask for and receive 20-30 days. This longer inspection period allows me more time to sell the property. You may not be able to use your buyers’ funds to close if you are taking out a conventional loan to buy the property; this is an illegal investment if the closing is not done properly. There are several ways to close the transaction using a buyer’s cash funds.
If you are selling a property, your liability is broader because you may face a lawsuit called “Breach of Contract.” This lawsuit states that the buyer had a valid contract with you and for any reason; you decided not to sell it to him. The easiest way to overcome this potential problem is to have a lawyer review your contract and have clauses that protect the closing date, for example, the buyer will have to close on or before a specific date. “Having a breach of contract by part from the buyer but your cure is up to the limit of your deposit, unless you incurred an additional financial loss on the transaction that did not close. Always get the largest possible deposit from a buyer, usually at least 3% at 5% or a minimum of $ 2,000.
3. The fear of doing something illegal and not knowing it.
This can be a well-founded fear for newbies. It is best resolved if an attorney, not another investor, reviews what you are doing. The benefit to the attorney is that it will put you as the closing agent. He will likely draw up the contract for you, but this can be a burden if you are meeting with a buyer or seller and want to close the deal. Always use an attorney who does real estate closings as your primary business, not a primary care physician. You will find that while each deal varies slightly, the actual number of contractual clauses that vary from contract to contract is very small.
In short, your ability to write buy and sell agreements is very powerful and must be mastered. This first requires you to read and understand a standard contract for your state and local municipalities if they are also required. You do not need a real estate agent to write a contract and it is not illegal for you to write a contract despite what many real estate agents tell you. Always ask an attorney to review what you are doing and pay as the settlement agent doing it, if possible. If the party opposing the contract chooses the closing agent, ask them to follow the deal and explain that they will use it in the next contract where you control the choice of the closing agent.