I created a 2 page PSA to be used when wholesaling deals, but my attorney was concerned there was so much missing from it that's in the standard form. But really, does it even matter if a lot of the specifics are missing?
The fact is (and this has been said on other threads) that the purchase contract really is worthless until the time of closing. As the buyer, I could blow the contract off and I would only lose my $10 EMD. As the seller, they could blow the contract off and I couldn't really do anything about it because I am not going to take expensive legal action- I would rather just move on. Also written into the contract is that the earnest money is the sole remedy for buyer's default, so I'm protected from specific performance.
So, in the event that a murky issue arises that is not directly addressed in my short contract, such as the house burning down the day before closing, or the condition of the home being different than originally agreed on, then I can just back out of the deal! Let them keep the $10 bucks if they won't give it back claiming there was nothing in the contract saying I get it back if something happens to the house.
If the homeowner remains intent on selling, and I remain intent on buying, then there should be no problem with the short contract.
What do you guys think about this? Does anyone have a 1 or 2 page contract that they CURRENTLY USE to do deals? If anyone could share, that would be invaluable to me.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
16y
As usual, let me reiterate that I'm not an attorney or a legal professional of any kind. But, again, I do have some knowledge of contract law.
There are a couple things here that should be understood:
- The definition of a "valid" contract is one that is legally binding because it conforms to all legal requirements for the contract.
- The definition of an "enforceable" contract is one where there is legal remedy if the contract is breached.
- A contract can be valid or invalid. If a contract is valid, it can be either enforceable or unenforceable.
Now, at the very least, you are going to WANT/NEED your real estate contract to be valid. In order for a real estate contract to be valid, it must:
1. Be in writing;
2. Be between two competent parties of legal age (18);
3. Have names and signatures of both parties;
4. Must have a legal description of the property.
5. Have consideration on both sides (which may be the property from the seller and the purchase price from the buyer -- earnest money is not required);
If it has those things, I believe it's safe to say it's a valid contract.
Now, without additional language that discusses the roles and responsibilities of each parties, you may not have an enforceable contract. There's nothing saying you need to have an enforceable contract, but as Bill pointed out, it's generally a good idea. This is where Mr. Attorney comes in.
As for a legal description of the property, it certainly needs to be more than just the address, but if the standard state contract calls for a "Permanent Index Number," then that's probably how it's done in your state.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
16y
First, I'm not a lawyer or legal expert of any kind...though I'm am somewhat familiar with real estate contract law based on my own investing...
Other than a legal description of the property (which should NOT just be the address), the agreed upon purchase price, the consideration (which may be the purchase price itself), the expiration date of the contract and the signatures, there is nothing else that is legally required in the P&S.
If you're comfortable with that, and the seller is comfortable with that, that's all that matters...
(Btw, I'm not saying I'd do it that way, and you may change your mind down the road, but legally, there's nothing wrong with it)
Great thanks. I will of course include some protections, but I will make it far more concise and easier to understand.
As for the legal description, what do you recommend using? Would address & county PIN number work? I don't want to mess this up since I know that could invalidate the deal
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
16y
Originally posted by E J:
As for the legal description, what do you recommend using? Would address & county PIN number work? I don't want to mess this up since I know that could invalidate the deal
I don't know which state you're in, but in my state (Georgia), for a real estate contract to be considered enforceable, the legal description needs to be one of two things:
1. A Metes and Bounds Description. This is essentially a survey that maps out the property from corner to corner via either monuments (natural or man-made) or longitudinal and latitudinal descriptors;
2. Recorded Plat Survey. When a builder or developer builds a house, they record the description of the land (perhaps a big tract of land encompassing a lot of smaller tracts of land) with the local recording office. Large tracts of land (Subdivisions) contain Blocks of land, which contain Lots of land. The legal description of a particular house would involve specifying (at a minimum) the Subdivision, the Block, and the Lot. By specifying where the Plat is recorded and these specific parameters of the property, you have defined a unique property that is considered a legal description.
Talk to your attorney and find out what your county generally uses, and include a legal description based on that information...
Okay I'll give my attorney a call and see what he says. Our Realtor's standard contract here in Illinois leaves space for an address and "Permanent Index Number" which is a unique number that each property is assigned around here and used by the county for record keeping. I'm guessing my attorney will say to just use what's on the standard form
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
EJ, I'm puzzeled! On one hand you said if both of you were intent on getting to closing that's all that matters, then you voiced concern over getting things right so that the contract is invalidated. There are many issues in a contract than can arise at closing, that if not spelled out, can cause problems.
The best way to ensure your deal is not invalidated is to follow the advice of your attroney and use a standard contract and make an addendum to matter that need to be addressed.
Who ever said the contract is worthless until closing is not correct at all. If you're under contract and you don't get to close, the contract is the basis to settle any dispute. If it does close, it becomes ineffective as the closing has occured as agreed. If something pops up later, like fraud, the contract can become evidence of the intent of the parties.
I think your studies have brought you to a level of being a danger to yourself and others. FOllow your attorney's advice, isn't that why you have one, why do you call him if you don't listen?
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
16y
As usual, let me reiterate that I'm not an attorney or a legal professional of any kind. But, again, I do have some knowledge of contract law.
There are a couple things here that should be understood:
- The definition of a "valid" contract is one that is legally binding because it conforms to all legal requirements for the contract.
- The definition of an "enforceable" contract is one where there is legal remedy if the contract is breached.
- A contract can be valid or invalid. If a contract is valid, it can be either enforceable or unenforceable.
Now, at the very least, you are going to WANT/NEED your real estate contract to be valid. In order for a real estate contract to be valid, it must:
1. Be in writing;
2. Be between two competent parties of legal age (18);
3. Have names and signatures of both parties;
4. Must have a legal description of the property.
5. Have consideration on both sides (which may be the property from the seller and the purchase price from the buyer -- earnest money is not required);
If it has those things, I believe it's safe to say it's a valid contract.
Now, without additional language that discusses the roles and responsibilities of each parties, you may not have an enforceable contract. There's nothing saying you need to have an enforceable contract, but as Bill pointed out, it's generally a good idea. This is where Mr. Attorney comes in.
As for a legal description of the property, it certainly needs to be more than just the address, but if the standard state contract calls for a "Permanent Index Number," then that's probably how it's done in your state.
I think J Scott's response really explains my thinking. I do want the contract to be valid in that it will fulfill the necessary requirements for a closing to take place. Therefore, based on criteria #4 listed by J Scott, it would still make sense to care about correctly entering the legal description of the property even if I do not care about other clauses which would serve to protect my $10 earnest money deposit.
And the contract still seems worthless to me. Yes it is the basis to settle a dispute, but if that contract stipulates that in the worst case scenario, I lose an immaterial earnest deposit for breach, then I really don't feel too obligated in a legal sense. If the seller breaches, I really would not take legal action against them. I would rather move on to the next deal than go through a long and expensive legal process to possibly claim an assignment fee. Therefore, it appears that either party can back out of the deal at any time prior to closing without incurring any real repercussions. In my area, the seller customarily pays for title insurance and survey.
Morally, I would only intend to tie up the property if I thought I had a legitimate chance of finding someone to close on it. Otherwise, I would end up making no money and I'd have wasted my and the seller's time while hurting my reputation. But let's not forget- it's the seller's free choice to accept a contract with such minimal earnest money that the buyer wouldn't have a shred of skin in the deal. Unfortunately, the seller's alternatives often look so bleak that they don't have much say in the matter. Also, I'm not sure where you get the idea of fraud from...
But back to the contract itself, it seems like if I include all of the requirements for a VALID contract, and then add on to that any clauses from the standard contract which I feel are important or will offer me protections, I should be fine. My attorney is old and traditional. I would not disagree in any way that using the standard contract is the safest way to go. But if I can accomplish the same thing with a short contract that a seller can understand without seeking outside guidance, that can be signed on the spot, and is sufficient enough to carry out the transfer of real estate, then why should I not use it? I DO want to avoid legal issues, but it is going to be clearly written in the contract that the seller agrees in the event of breach of contract by the buyer, the seller's liquidated damages are limited to the earnest money deposit.
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
16y
There are good reasons for many of the sections in a standard contract. There is also absolutely no reason that you can't simplify the contract. How you do business is very much up to you.
Personally I have known of situations were people lost a property because of contingencies that were not addressed. You'll probably be fine most of the time, but in time you will run across a situation that quite likely you will wish you had covered.
Personally I would rather try to cover all the bases than use a loose contract.
True that may happen but you also need to consider how many offers were accepted because of the simple contract where the deal may have been lost if the seller requested time for their attorney to review a complex contract, allowing other investors time to come make a better offer.
If you do know which specific contingencies have caused the problems you know of, I would be interested in hearing them so I can include simplified versions of them in my contract
Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
16y
A couple of situations that I can remember. One where items were removed from the property that most would have thought would go with the property. Sometimes it is important to note this.
I'm not aware of all of the details in another case, but essentially the property is tied up and the buyer can not do anything with the property while a clause is arbitrated that essentially allowed the seller to consider other buyers.
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
16y
Originally posted by Charles Perkins:
I'm not aware of all of the details in another case, but essentially the property is tied up and the buyer can not do anything with the property while a clause is arbitrated that essentially allowed the seller to consider other buyers.
That would be my biggest concern...that the seller just hand you back your $10 and find another buyer, and not necessarily be in violation of the contract based on how it's written (or if it's not enforceable)...
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
Ok, I can go through a seven page contract with a novice homeowner in about 20 minutes and about 45 if there are alot of questions. I see what the problem is now, rather the motivation.
It appears EJ you want a simple contract because you lack the knowledge in the subject matter of the more in-depth contracts and opting for simplicity is more of a marketing advantage than an operational one.
Your comment concerning time to revirew and taking other offers does not wash at all for a logical justification, what are others using for a contract? Chances are everyone is using similar contracts, so you're what you're looking for a quickie way to tie the deal up if you want it.
I suggest you go over the long form and intimately understand every word and how it is used and why. Then translate that into your own words that are easily understood and memorize it, so that you can explain a half page paragraph in a couple of sentences, and move on.
Depending on who I was dealing with, I would ask at each paragraph if they had any questions. By doing that and answering questions in that manner instills confidence in the other party, IMO, as they begin to see that you are not trying to slip something by them. That might make you contract appointment last an hour and a half, but you're buying real estate and they are selling, so at that time what is more valuable use of your time in this business?
It is when sellers or buyers sense that something is wrong when you stammer, stutter, pause when asked a question or can't answer a question without alot of himhawing around. Know your subject matter inside and out, anticipate questions that can arise and have your response so that it is instant, without hesitation.
I know I'm rambling but stick with me here, body laungage and facial expressions are improtant too. Practice you contract closings, sale pitch, etc. in front of a mirror and talk it out watching voice inflextions and the rythem of your delivery. Sounds silly, but that practice will get you past the ummms, ahhhs and hmmmms!
When you can deliver your contract with confidence, you won't have a problem with a seven or ten page contract.
The reason for a short contract is the lack of confidence in your presentation. Follow what you attorney tells you to use and ask him to explain it to you and follow his lead in that process. Study and pratice EJ, don't look for short cuts to the effort you need to put into your business. Good luck, Bill
Excuse me but before I respond to the rest of what's been said, I must first firmly reject Bill's statement that the reason I want a simple contract is because I lack the knowledge in the subject matter. I have absolutely no problem understanding this contract or legal terminology in general. I have taken several law courses, some entirely dedicated to real estate. We have gone through several court decisions which interpreting was far more difficult than the language of a standard contract. I have also completed the majority of our state pre-licensing class in addition to several other college real estate courses. Therefore, topics such as forms of ownership, easements, landowner rights, liens, tenancy, mortgages, escrow, brokerage, appraisal, etc. are nothing new to me. I'm not sure where I come off as stupid to you, but I can assure you that my reasoning for the 1-page contract, as you said, is to gain a competitive advantage - not because I don't know what the standard one says, which by the way is 12 pages here. On the other hand, I would not expect somebody who doesn't specialize in real estate or law to understand the contract without it being carefully explained.
Continuing on, I can definitely agree with what was said about the presentation of the offer. This is something that will require practice no matter what contract is being used. I am sure the full contract, which I have read over several times studying, can be explained in a matter that would serve to build trust between the seller and buyer. But once again, if a process can be simplified, why not do it? My biggest pet peeve has always been when things are done in an inefficient way. I honestly think it's terrible how legal documents use such ridiculous language to accomplish things which could be just as easily spelled out in plain English. That way, EVERYONE could understand what they are agreeing to, not just lawyers or other highly educated individuals. So in addition to the possible marketing advantage, I suppose part of my desire to use the short contract is the result of wanting to "stick it to the man" and show that contracts don't have to be so complicated and that everybody could and should be able to understand them.
Anyways, my gripe with the standard contract is it comes with a lot of terms that I don't want to agree to. I'm basically going to 'X' out most of the paragraphs anyways. Like for example, the inspection paragraph in this contract has written into it that there is a 10 day inspection period where the buyer may cancel the contract based on the inspections. I want to allow myself the right to inspect, but I don't want to have a 10 day contingency. Therefore, I'm going to have to cross this paragraph out and put in my own with the terms I want. I'm really surprised they didn't leave blanks on these kinds of things so that the contingency period can be any number of days you want. And then of course, this paragraph is followed by a HUGE paragraph about mortgage contingency, which of course won't be applicable dealing with cash buyers. So right there I've just crossed out an entire page. I think it's silly that every single time I sit down with a homeowner, I am crossing out what I don't want and adding in what I do want. Why not just make the changes permanently written in and print it that way?
Lastly, I do have an important question, and this is an area where I see my attorney's concern. In Illinois, it is written into the contract that the seller's attorney will pull title and prepare the closing. When I told my attorney how I wanted to receive payment via an assignment fee at closing, he told me that the seller's attorney will not know to include the assignment fee on the closing statement, or even know the deal was assigned at all. There is no mention in the contract about an assignment fee, so how would the seller's attorney know what to put? Do I need to contact them and send them a copy of the assignment of contract? Should I rewrite the clause so that the buyer's attorney will pull title (at the seller's expense) and prepare the closing documents? I could even play this off like I'm doing the seller a favor. Like saying oh don't worry about dealing with your attorney or getting title insurance, I'll take care of it for you since I already have a team in place to do it. I can just give you the bill instead and that way you don't have to worry about a thing. And as long as title comes in clear or gets cleared, you will be refunded for the insurance at closing. Since I already factored closing costs when I made my offer, they're really still paying for it ;)
I like this discussion and I hope that someone who does us a 1 page contract regularly will chime in and share how they think it has affected their dealings. Any legal problems? More agreeable sellers?
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
That was just my impression EJ, that there was a lack of confidence to go the long, more correct route rather than taking the easy way out in fewer words. If my response was offensive to you, it was not meant in that light.
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
16y
EJ, in a previous, non RE business, I got fed up with the long contract drafted by my lawyer and decided to shorten it. I basically kept the same thing but made the font size very small and made it into two columns and played around with Microsoft Word until it fit on one page - pretty much with no margins. It worked really well for me and made it seem like a very simple contract. Perhaps you can try that.
I also think that you should carefully evaluate the competitive advantage idea. It may be nice to be able to show someone that you have a short contract that is easy to read. But it can also be beneficial to be able to tell someone that yours is the standard RE purchase agreement used by everyone else. You will have to make the call on which one is the better approach for your business model.
Finally, Charles is right that most of the provisions in the standard contract are there to cover various situations that can occur. But I do see a lot of waste in contracts to protect realtors, etc. and I am sure you can get rid of that stuff if you are not using a realtor. The AZ contract, to me, seems heavily in favor of the buyer. If you are a buyer, I would suspect that you may like a lot of that stuff.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
Might be a good idea in some places, but some states require a certain font size and margin for contracts and most recorder offices and states have reirements for the size of margins and font size for the documents to be recorded, admittedly this makes almost any RE document that might be filed at least two pager, you must also have room for the recording stamp and the notary and the legal description. While sale contracts are not normally filed, notices of options and related docs can't be squeezed too much. For uniformity and the effect of the presentation, having all your docs look similar is a plus. If you buyer/seller needs to get out a magnifying glass, that would not be a good thing. IMO
Real Estate Investor · Chicago, IL · Member since 2010 · 9 posts · 1 vote
16y
Great information here guys. I learned quite a bit reading through this thread. Thanks a lot. Could someone post an example of a viable 1 page purchase contract? I'm still new to all of this...
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
16y
Also keep in mind that legally you CAN'T use that state contract for your deals. That contract is most likely copyrighted, and use of copyright is likely only granted to licensed agents in the state.
So, using the contract -- or even copying paragraphs directly from it -- would likely be a violation of copyright. Not sure if the closing attorneys would have issue with it, but something to keep in mind.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
Originally posted by J Scott:
Also keep in mind that legally you CAN'T use that state contract for your deals. That contract is most likely copyrighted, and use of copyright is likely only granted to licensed agents in the state.
So, using the contract -- or even copying paragraphs directly from it -- would likely be a violation of copyright. Not sure if the closing attorneys would have issue with it, but something to keep in mind.
You're right, but in reality in this state, people use the Board of Realtor Contracts. At the bottom the forms say Board of Realtor blah blah...people just cut off the bottom the contract. The Board does not push the issue since doing so actually puts them in a bad light and what will they gain from it? Not much, maybe an order for that seeler not to use their form again, not much of a monetary loss there to complain about, so they don't.
Get a copy of those contracts and structure your own using the basic covenants as a guide.
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
16y
You are raising some interesting concerns in your posts. I tend to agree with using the standard one if possible simply because it puts the sellers at ease.
If you do use a non-standard one make sure you cover fees, choice of law, binding arbitration and the loser paying for attorney's fees plus 15%, and outs for you in the event the seller is getting something over on you.
Our standard contract is 3 pages. It is shorter than the TREC contract with extraneous crapola to protect agents and it is longer than 1 page because it needs to be.
I am happy to send you a copy if you PM me. You have to promise not to sue me and that you will use an attorney to look it over though!
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
Trying to condense a real estate contract on one page, with room for a heading and signature lines, possibly with notary requirements, is beyond stupid. Just can't buy your justification in doing so and the only logical reason to do so to make it quick and easy is that you didn't want to take the time to go through a good contract.
As Bryan pointed out, I don't really like to type. I'm not going to go into every possible detail in my posts to appease those who want to pick, make smart a$$ comments or challange me at every turn. If you don't value my suggestions or comments, please don't read them, that's what I do with a very few posters.
Sometimes I make posts that are really meant for the BP community, not just someone in the thread. If you think I made a mistake, please point it out, I have made mistakes, I will reconsider my posts to that point of view, I promise, and I'll admit them or restate my position. If I don't say anything at all, I may have missed it or I might chose to ignore silly or posts that are not constructive.
What I really find amusing is someone who finds fault with me in the forums and then PMs me for advice, LOL
A one page real estate purchase contract, IMO, is one of the most niave and reckless ideas I have seen on any real estate investor site. It's about the sin, not the sinner!
Wholesaler · Amarillo, TX · Member since 2008 · 1k+ posts · 659 votes
16y
Well I have used a simple one page contract on about 300 deals on the buy and sell side, so that would be about 600 times. I have brought suit on it once but did not actually go to court. My attorney, though he didn't necessarliy like it, was perfectly confident in it's validity and enforceability.
To be completely honest, I use a one page contract because I am stupid and naive, and I can't understand anything else. :wink:
Sorry, Bill, I couldn't resist. No really it's absolutley a competitive advantage. I lost a deal once because the seller wanted an attorney to look over Texas' standared 8 page contract. I want something simple that addresses the issues that are applicable for my buying/selling strategy and I want the seller to be able to read, understand, and sign it in a couple minutes.
I also completely disagree that the standard jargon filled 8 page contract puts anyone at ease but a realtor. My experience is that the 8 pager increases inexperienced sellers anxiety and concerns.
Yes, a one page contract does not address every possible thing that might go wrong or that might need to be addressed, but I have only had one issue with it and changing it to correct for that issue was simple. Thinking about it, I don't believe the standard 8 pager would have helped with my issue anyway.
In reference to recording your contract, unless you are going to get the seller to sign in front of a notary, you won't be able to record it anyway. And going to all that trouble is misdirected. If an issue arises the easier method is just to file a lien against the property, which you could get notarized yourself. The lien will shut down a title agent from giving title insurance.
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
16y
I'm very surprised! Very bad advice in my opinion. Contracts are not recorded! Implying that all you do is file a lien, is misguided as well. Filing a improper or fraudulent lien has consequesnces in all states, you do not file a lien, you file a notice of legal action pending, lis pendis.
I'm not even going into this one page contract idea further. The trade off of putting yourself at risk and using a one page contract that is certianly going to be ambiguous and incomplete to establish basic legal requirements for a marketing advantage .......is.....is.....wait, I have to find the right word........it's.......I don't think there a one descriptive word in the english language that accurately describes such a notion......all I can think of is ....it's NUTS! LOL :)
Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes
16y
I think it is nuts to call all short contract nuts. :)
What is a contract? It is a legally enforceable agreement between parties that specifies each other's obligations under a specific set of circumstances.
There are a lot of different situations that can arise in any transaction and lawyers often include provisions in the contract to specify how each party has to act under each such situation. This makes sense for most people and that is why we have a standard contract in most states used for the purchase of property.
But if someone has used his business judgment to decide that he is better off without some of the protections offered by a standard contract because he can get more deals done that way, why would that be nuts? It is a cost vs benefit analysis that should be done by the business person in the context of his business.
We should also remember that even the standard contracts are not going to have provisions that cover every possibility. At some level, all contracts have an internal cost-benefit calculation about when to stop the drafting and start the signing.