In real estate, almost every conversation centers around price.
And although the price of a property does carry significant weight, remember that it is only one piece of the pie when making a good deal. There are numerous other factors that can turn a good deal into a really great one.
Deciding Between Price or Terms
There are two things that make up a real estate contract: the price of the property and terms to which both sides must adhere. Even though price tends to create all of the buzz, the terms can have a substantial impact on the value of the contract.
Think about it – how much space in the contract is dedicated to each component?
In the Central Virginia Association of Realtors Residential Purchase Agreement, you will find the following language discussing price:
“The purchase price of the property is __________, which shall be paid to the seller at settlement, subject to the prorations described herein…
The standard contract then goes on for eight more pages to cover the additional items that go along with the purchasing a property!
Just to be clear – the purchase price is covered in one sentence while the rest of the contract is eight pages long. And just so you understand, the contract is eight pages before adding the required disclosures or any addenda.
What does that tell you?
The ‘Standard Provisions’ alone run from A through K. Did you know that Section #21 is labelled ‘Other Terms’ and is completely blank? And did you know we can include as many addenda in the contract as necessary?
Contracts cover a number of bases:
- Numerous Disclosures
While people typically do not negotiate each of these individual points in a standard residential contract, there is some flexibility to either create leeway or close some ‘outs’ (depending on which side you are on). When you begin to look at other types of real estate contracts (land, new homes) then you introduce components that fall outside of the generally accepted norms.
At Bay Properties, we pride ourselves on having a great deal of exposure to contract structures and practices due to our extensive experience in not just real estate sales, but in contract negotiations relating to commercial properties, development transactions, and commercial lending.
Here are a few things to think about.
Have an Exit Plan
Knowing how you can get out before you get in is important. And although you should never enter into a contract with someone if you’re planning to get out later, we know circumstances can change. If this happens and a seller is not in a giving mood, you may have to exercise on of the legal ‘outs’ provided in most contracts.
In any contract, there are some points that are more likely to “blow up” the contract than other points. In addition, the closer you get to the settlement date the harder (and more expensive) negotiating becomes. It is important to recognize the potential points in a contract where you can extricate yourself without penalty (or even lawsuit) before signing on the dotted line.
Recognize What Both Parties Want
Everyone values things differently and this is no different when it comes to buying and selling homes.
For someone who is trying to both sell a home and purchase another, time and flexibility are of the utmost importance. Allowing a seller not only the time, but the ability to go out and find their next home is absolutely vital to them. The use of a ‘Rent Back’ agreement is appropriate.
If the house you are looking to buy was already a second home, much of the personal property including furniture may be included with the deal. If it can save the seller time and money when moving, it will often all be very negotiable and for a very reasonable price. The ‘Bill of Sale’ is the correct tool in these instances.
Being able to offer a currency that is more valuable to them than you is always a good idea.
Get a Grasp on Contract Structures
A contract is a flexible and adaptable document that can do a lot of different things. Having been exposed to the common practices in the residential market, ranging from the Middle Peninsula through the Northern Neck, has given us insight into a wide range of techniques.
In some spring markets, multiple offers can be common. Securing the winning offer in a bidding war is difficult. When 3 or more people are bidding at once, offers will often include escalation clauses. Writing an escalation clause that secures the property while also paying as little as possible is no easy task.
Thinking about the number of times a bid was lost or a price was unnecessarily escalated makes me shudder. This can happen due to a number of reasons, from faulty structure to simply not understanding contract options.
When it comes down to it, swap price for terms and you will gain far more than you lose.
This post only scratches the surface.
Because each set of circumstances is unique, it’s difficult to give a complete roadmap to contract writing in blog form. The structure of a contract should vary by the parties involved, marketplace conditions and each individual’s goals.
At Bay Properties, we know how to use a contract to our client’s advantage.