While the real estate market is experiencing significant upheaval at the moment with decreased inventory and more tentative buyers, we believe there will be a reasonably quick return to status quo in the real estate market. Potentially, there will be an increase in inventory, as properties previously used for short term rentals are placed on the market. However, in the near term, and in times of limited inventory, buyers need to take a cautious approach and pause before rushing into a contract, external forces notwithstanding. Some real estate agents encourage a sense of urgency and dismiss potential issues, telling the buyers that the property will not be available if they wait. Even though many sales contracts are standard forms, opportunities are available to tailor the transaction to the individual buyer’s needs.
There are many common issues that can arise when a sales contract is not tailored to the individual needs of the parties. Often, the purchase of a new property is contingent on the sale of the buyer’s current property. If this clause is not memorialized in the contract, a purchaser can be forced to give up his deposit if the sales transaction cancels and he is unable to proceed with the purchase. This can be a costly oversight, as deposits are often up to ten percent of the purchase price.
In times of market volatility, it can be harder to procure a mortgage or liquidate assets for a cash purchase. In all cases where there is any concern about making a cash purchase, a financing contingency should be included. It is a terrible, and all too common, scenario where the market dips during the time period of the closing, and a buyer is forced to cash out while market values are depressed. If the mortgage contingency was included in the sales contract, the buyer cannot be forced to proceed to an all-cash closing. On a related note, it is also crucial to include a force majeure clause. A force majeure clause operates to excuse performance where the failure to perform results from unforeseen circumstances. A common force majeure event in Florida is a hurricane, however, the scope of inclusion under a force majeure clause is flexible and subject to the agreement of the parties.
Often sellers strive to limit the inspection period for the purchase. A buyer should ensure there is sufficient time to conduct the home inspection and receive and review the resulting reports. With the current situation regarding COVID-19, it may be harder to schedule inspections, so buyers should check with their inspectors before committing to an inspection timeframe.
In addition, buyers may wish to ensure the “right to assign” contingency is included. As failure to include the contingency could result in remedial action to title the property correctly post-closing. A common scenario arises where the contract is signed in an individual capacity, the right to assign contingency is not included, and the buyer realizes that the property should be owned by his trust. A reasonable seller would probably allow the assignment, but would not necessarily be required to do so. In all cases, it is best to make sure the property ownership is established in a way that is consistent with the buyer’s objectives and estate planning.
If you would like further information and assistance regarding a real estate contract, please contact PLDO Attorney Leah A. Foertsch at 561-362-2030 or email email@example.com. Attorney Foertsch has been helping clients manage their real estate contracts and transactions as part of her estate and trust practice for over a decade.
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