An investor (who I will call “Phil”) recently contacted me with a situation that arises from his successful bid at an estate auction for a single-family home. Similar to most estate auctions, the auction participants had approximately one hour only to look through the property prior to the commencement of the auction. As you can imagine, this didn’t allow for a great deal of time to inspect the property, its systems, the grounds, etc.
Upon winning the auction, Phil was handed a two-page, pre-printed agreement of sale by the auctioneer with the material terms (price, deposit monies, date of settlement) hand-written into the blanks on each page. Having gotten caught up in the frenetic pace of the auction, Phil didn’t carefully scrutinize all of the terms of the Agreement of Sale. In his mind, he already was aware of the fact that he was purchasing the property “as is”, so what else did he need to worry about?
Fast-forward about ten days following the auction…Phil received a letter in the mail from the township Public Works Department. The letter advised that a representative of the department recently observed the need for 9 sidewalk blocks and 1 section of curbing to be replaced in front of the property—the current condition of the sidewalk/curb was a code violation. Phil became instantly enraged realizing that the required repairs would probably cost about $3,000.00. But, Phil had a thought…he was not yet the owner of the property, so he couldn’t possibly be responsible for the repair work, right?
So, Phil pulled out the Agreement of Sale that the auctioneer had him sign and he found the following paragraph:
“Seller represents that as of the date of the approval of this Agreement, no notice of any municipal, county or township authority has been served upon Seller or anyone in Seller’s behalf, including notices relating to violations of housing, building, safety or fire ordinances which remain uncorrected except as noted hereafter, and the Buyer agrees to assume all responsibility and will pay all costs for any work required to be done by any such authority for which a notice may be served between the date of approval of this Agreement and final settlement…” (Emphasis added).
Upon reading the language of the contract, Phil realized two things. First, this language was different than what Phil had seen in other agreements of sale. Secondly, Phil was clearly on the hook since the township notice was sent almost two weeks after the auction, which falls into the time period between approval of the agreement of sale by the Seller and final settlement.
How did Phil make such a mistake? He relied on what he had seen and known from the many investment properties he had purchased in the past. Most of the deals Phil had been involved in utilized the standard Pennsylvania Agreement of Sale, which requires the Seller to advise the Buyer of any notices of violations that are received prior to settlement AND the Buyer is given the option to void the contract if the Seller refuses to make the required repairs or issue credits.
The Agreement of Sale utilized by the auction company contained different language. The responsibility for violations falls to the Buyer for any notices that are received prior to settlement and the Buyer does NOT have the option to void the contract. This is a very significant distinction.
Unfortunately, the fast-pace environment that accompanies most auctions got the best of Phil. He didn’t take the time to slowly and carefully read through the Agreement of Sale and he missed some very important details of the transaction.
The lesson learned is simple: Take your time. Each deal is different. Don’t rely on what you have seen or read in the past. Don’t let third-parties rush you when it comes to signing on the bottom line…take a deep breath, slow things down and read through the contract before you sign!