Can a Contract Smell Fishy?

By
Real Estate Agent with Crye-Leike REALTORS® 165062

When you are the listing agent and receive a faxed contract along with a letter from a lender it is normal to read the contract and try to read in between the lines. On the first go around it is for terms, price closing dates, seller contributions, special stips. The review of the contract is to double check the offer, making sure you get all the facts straight.  It is then a customary practice to touch base with the agent over the phone, again making sure you have all the pertinent details correct, and then call the lender before you contact the seller.  So far so good?

Then I like to read the contract for red flags...just to make sure what is the intent of the contract.  A short closing date with a low price is OK, because it shows a motivated buyer has the ability to get the seller out of a home quick!  So it is an important term.  Then there is the contract that that says they do not have real estate to sell in order to buy this current home, but the buyer does not want to close for 4 months!  A scary scenario for any seller to take the home off the market for that long a time. Why?  More risk!  To compound that the earnest money amount is not filled in.  No amount means I do not even contact the seller.  I preferably would like to see a copy of the earnest money check, and in fact it is required by my office.  But now the next item...$500 on a 600K home?  I don't think so!  More like several thousand dollars would be a better idea.  Another item that may make you suspicious in a pre-occupancy agreement, or a contingency offer on a home that when you question the other agent then you find out the home is not even listed, and there isn't even an offer on it! 

What do you look for in a contract?  What signs do you see that make you ask more questions because something smells fishy or does not appear to be right?

 

Posted by

James Crawford ABR, Broker Associate

 

 

 

 

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listing agents
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Rainer
54,833
Beth Young
PropertyInfo Corp. - SureClose - Houston, TX

Jim,

One of the things I always look for are rediculously high NRCC credits that I know will NEVER fly with the lender.  Along those same lines, when the buyer's agent writes in the request for a credit "in lieu" of termite work or other repairs.  Either they have no idea how the lenders work or they just plain don't know how to effectively write a contract.  Either way, you are sure to be in for a bumpy road.

May 28, 2007 10:34 AM #3
Rainmaker
325,871
Esko Kiuru
Bethesda, MD

Jim,

It's a breeze to read contracts put together by experienced Realtors because usually they're pretty clear and make sense. Now, then we get contracts from some new agents who are still learning and those can have a few red flags. Many of them call right away to check if everything is still on track and help solve any issues. 

May 28, 2007 10:55 AM #4
Rainmaker
284,761
Gene Allen
Fathom Realty - Cary, NC
Realty Consultant for Cary Real Estate

You need to be careful of experienced Realtors as they know how to write contracts with red flags that don't look like red flags.  All of you have great ideas.  Fortunately our contracts here are pretty cut and dry and when you start seeing written in items the red flags start going up.

May 28, 2007 11:44 AM #5
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Jim Crawford
Crye-Leike REALTORS® - Atlanta, GA
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Jim Little "basic craftsmanship" I love the term!  Professionalism, experience come to mind also!

Neal we really have to look at every point.  Most will be benign, but a good look is still worth it!

Beth  You reminded me... almost litle the don't ask don't tell policy..."buyer's agent writes in the request.." When you ask what is this?  And they say "You don't really need to know!"

Esko Most agents will work wiht you, and if they do not... let them go!

May 28, 2007 11:49 AM #6
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Jim Crawford
Crye-Leike REALTORS® - Atlanta, GA
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Gene  Most Realtors are easy to work with, hard working and very ethical.  A whole bunch of writing in makes me nervous!
May 28, 2007 11:51 AM #7
Rainmaker
193,804
Mary Strang
Viroqua, WI

In Wisconsin a counter offer has to fully restate in writing everything that is to be changed from the original offer, on each consecutive counter.

Real Fishy is having a contract that gets too lengthy with several counters which restate everything and then if the buyers agent adds in new complicated terms to consider within each new counter it can take your focus off what has already been agreed to.  Then around the 4th or 5th counter offer the most important items, like the price or closing date, are not restated on purpose or by accident. Of course this takes you back to the original offer terms. A Fishy deal if you get buried & swept up in the new details and don't detect immediately what is missing. I watch for this anytime I have offers that are excessively demanding or over counter.

May 28, 2007 02:12 PM #8
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Jim Crawford
Crye-Leike REALTORS® - Atlanta, GA
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Mary!  Great  point! I forgot about this..... Many times in the offer counteroffer stage there are loads of strike-outs n price and terms, initials then faxed all over the place.  Sometimes...when the other agent types out the new original the verbiage changes just so slightly that a new interpretation or new terms really appear!  That is fishy!
May 28, 2007 02:40 PM #9
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Celeste "SALLY" Cheeseman
Liberty Homes - Mililani, HI
(RA) AHWD CRS ePRO OAHU HAWAII REAL ESTATE
Hey...I like what Mary said...when you get to a third or fourth counter I think I HAVE to look really close...and even by then I ask them to submit a clean redone contract. Gets to weird at that point...you either want it or you don't... yup....that's some smelly fish to look for.
May 28, 2007 03:07 PM #10
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Jim Crawford
Crye-Leike REALTORS® - Atlanta, GA
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Hey Celeste! I agree!
May 28, 2007 03:13 PM #11
Rainmaker
138,991
Ana Connell
G & C Properties - Burbank, CA
Burbank Real Estate Agent
Great post Jim!  Loved Mary's comment about the  subsequent counters and what to look out for.  I'm still trying to digest the idea of a 4 month escrow!
May 28, 2007 03:40 PM #12
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Jim Crawford
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Ana!  LOL!  There is a lot of neat stuff to know in real estate! I 'm never too old to learn!
May 28, 2007 03:56 PM #13
Rainer
123,025
Julie Neerings~Lifting Hearts ♥ Building Dreams~
Agent Referral - Salt Lake City, UT
I've just been in the business 1 year and boy I was one of those very thorough beginning agents that almost messed up the deal.  I thought for integrity reasons I needed to list every single item after the inspection.  Thankfully the agent on the other end was very experienced and patient.  Right away I went on a venture to take every class possible offered by the board and wow, did I learn a lot.  One of the most beneficial classes I've attended yet is the forms class and GRI.  Every new agent should be required to complete both of these classes.  Thank you for this great post!
May 28, 2007 05:34 PM #14
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Frank Rubi
Frank Rubi Real Estate, LLC - Metairie, LA
FrankRubiRealEstate.com
Jim, I always ask for a new contract when the contract has been worked out. I don't care for all the strike outs. A chance for a loophole. First of all, any contract with more than a 30 day window for closing throws my flag up. The second, down here in southeast La. is the cost of insurance. Many buyers asking in stips, for insurance cost deem reasonable. I throw this one out due to reasonable insurance cost is an opinion. the buyer should have done their due diligence's and understand that insurance in not cheap. Since Hurricane Katrina our market is a little different. Things we didn't worry about pre Katrina have become major issues. Great Post.
May 28, 2007 08:16 PM #15
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Jim Crawford
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Julie We all start out new in real estate and we all make learning errors.  You mentioned the key...learning while earning.  When you work with another seasoned agent even if you are on the other side of the deal you can learn an awful lot.  Your second item was take education courses, form courses.  You have to feel comfortable to move forward.

Frank  Long time no see!  "due to reasonable insurance cost is an opinion"  I fully agree, opinions are vague and subject to too many interpretations!  Strike them!

May 29, 2007 01:03 AM #16
Rainmaker
114,248
Chris Lengquist
Ad Astra Realty - Olathe, KS
Kansas City Real Estate Investing

For the investment properties I work with I can tell by the contract if either the agent or the buyer has any exerience.  If they are contracting for income property and don't ask for rent rolls, or deposits, or expenses, or personal property lists I let me seller know that they are his to keep so long as the other side doesn't figure it out. 

But sometimes, often in fact, the seller will instruct me to show them how to write the thing so that they get what is coming to them.  Aside from what most people think, there are a lot of people out there that want things done the right way. 

May 29, 2007 03:12 PM #17
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Jim Crawford
Crye-Leike REALTORS® - Atlanta, GA
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Thank you for sharing Chris!  That is correct you can also read in a contract the level of expereince you are dealing with!
May 29, 2007 03:26 PM #18
Rainmaker
336,965
Paul David Hiebing
Grampp Realty: Real Estate in the Quad-Cities - Bettendorf, IA
Quad-City REALTOR®, @ Grampp, Realty of The Q.C.

Jim,

We have been seeing a large number of contracts to purchase that are written up with an offer price of anywhere from $2,000 to $10,000 ABOVE the listing price..... All with the stipulation that the purchaser is to receive a check from the seller at close for the amount above listing price (Can you say mortgage fraud?).

Some have actually suggested that we have TWO purchase contracts.... The real one with the illegal kick backs, and a fake one for the appraiser to use on the appraisal....  no kidding!!!

I'm always very leery about any contract that asks for concessions above and beyond the norm...(i.e. a carpet allowance of $5,000 on an 850 square foot home, more than 3% to 4 % of purchase price for pre-paids and closing costs, or anything that involves a sales price that is above the listing price)...

I am not as concerned with the amount of Earnest Money, because, whether its $300 or $30,000--- both parties must sign a release for either party to get the funds, or else file litigation to determine the rightful owner... a very expensive process...

May 29, 2007 03:31 PM #19
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Jim Crawford
Crye-Leike REALTORS® - Atlanta, GA
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Paul it gets scary! I hear all about it!  8K in closing costs for a 150K home.  Atlanta has seen this for years, it is just now coming to a head.
May 29, 2007 11:36 PM #20
Rainer
68,941
Paul Anyanwu
RE/MAX SOLUTIONS - West Orange, NJ
CRS, SFR, Broker-Salesperson, Sales West Orange,NJ
I have seen lousy contracts like the one you have described i wonder how an agent who wants to get paid at the end of the day wastes their time putting an offer that gets no where. Thanks for sharing your experiences with us.
May 30, 2007 03:12 AM #21
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Jim Crawford
Crye-Leike REALTORS® - Atlanta, GA
Jim Crawford Atlanta Best Listing Agents & REALTOR
Thank you Paul.
May 30, 2007 03:52 AM #22
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