Contracts are powerful legal tools. A failure by either party to meet the obligations outlined in the contract can result in the cancelation of the deal. But contracts are not all bad. In addition to the possibility of losing the deal, there are also provisions that offer protection.
How can I reduce the risk of surprises during negotiations and after closing?
By understanding the contract and making sure it is drafted in a way that works for your interests. Common provisions found within a real estate contract generally include:
- Title contingency. Having a title search and getting title insurance is wise. This part of due diligence involves searching the property’s history to see if there are any liens or claims out on the property. If so, you could negotiate with the seller to resolve the issue or back out of the deal.
- Funding clause. It is not uncommon for a real estate contract to include a funding provision. This can benefit the buyer, as it may be written to state that the buyer can back out of the deal unless they can get a mortgage at a certain interest rate or otherwise fund the deal.
- Inspection provision. An inspection prior to the closing can help uncover any concerning issues that could result in additional cost. Prospective buyers are wise to include a provision within the contract stating they can use the findings of an inspection to renegotiate the contract.
- Closing details. It is also beneficial to include the details about closing within the contract. This should include everything from the date to which party will cover which costs like the escrow fees, the bill for the title search and the various taxes that go with these sales.
These are just a few of the provisions to look for in a real estate contract before completing a deal. It is important to note that these contracts are not set in stone. You can negotiate the contract and have it drafted to meet your needs.