Legal Contracts

A legal contract as defined in the dictionary

1) n. an agreement with specific terms between two or more persons or entities in which there is a promise to do something in return for a valuable benefit known as consideration. Since the law of contracts is at the heart of most real estate business dealings, it is one of the three or four most significant areas of legal concern and can involve variations on circumstances and complexities.

Many of us are guilty of signing documents before reading, mainly because for that moment we trust the person we are dealing with, or we don’t have time to read all that paperwork. In  a real estate transaction it is important that you read and understand all that you are agreeing to.

I recently had a client contact me to sell their home. At the time they had a tenant in place with the use of a property management company. As a professional real estate agent I always advise my client’s to contact the property management company and advised them of their intent to sell, also to set up a time for me to view the home. I also ask  if the tenant was interested in purchasing the property.

I do this for several reasons:

1) Professional courtesy

2) It gives the seller and the PM Company time to review their contract, so both are aware of what they agreed to when and if the owner decided to sell.

3) Viewing the property with the tenant allows me time to discuss and coordinate the listing.

4) If the tenant is willing and able to purchase we can make the transition with no disruption in their lives.

The property management company scheduled a viewing, and ask the tenant if they were interested in purchasing. To our surprise they were! But they failed to review or discuss with the owner their current contract.

I listed the property and the tenant had their agent write an offer, everyone was happy.

There were specific things I wanted to happen when the owner spoke with the property manager.

1),  I wanted the seller to recap the contract that they had with the PM company and the lease that that had in place with the tenant.

2), I wanted the PM company to be fully aware of the intentions of the home owner.

Everything was on schedule to meet sales contract close date. BOOM! two weeks before closing the owner gets a call from the PM Company advising them that expect to be paid their 6% of the sale. In essence they advised the owner that they will be paying a 12% commission for the sale of their home. My client of course was flawed and had no idea what they were talking about. The PM Company reminded my client of the contract they had in place stating a clause in the contract that read:

“If the owner sells the property to the tenant or to any member of the tenants family they will pay the PM Company 6% commission”

Under the date of the contract there was also a clause that read:

“This contract will automatically renew can only be canceled with a 30 day written notice”

I negotiated with the PM Company and reduced the owner cost from 6% to 1.5%. My client was happy for the reduction, but was still upset with the money they lost having to pay an additional 1.5% in commission.

Contract are legal documents and need to be read in their entirety. It is important that you read and understand all documents that you sign. If you do not understand the contract seek out professional help (attorney) before signing.