ROLE OF YOUR ATTORNEY-PRE-CONTRACT
BY
MICHAEL J. LOMBARDO, ESQ.
The one document in real estate transactions that sets the parameters of the rights
and obligations of the seller and purchaser is the contract. An attorney can, and often does, play an
important role in negotiating and finalizing contracts and agreements in real
estate transactions, whether representing a purchaser or seller. However, it is not only the contract between
the seller and purchaser that your attorney should be reviewing. Other
contracts or agreements, such as the listing agreement and Property Condition
Disclosure Statement, should be reviewed and discussed with an attorney before
being finalized.
Some
of the issues an attorney should be examining and discussing include the following:
1. Listing Agreement. A listing agreement should be reviewed by an
attorney before it is signed. Some
issues which need to be addressed in a listing agreement include:
a. Can
the seller negotiate directly with an interested person?
b. Commissions
and Other Fees.
i. Does
the seller have to pay a commission if the property is sold to someone who expressed an interest before the property was
listed?
ii. When
is the commission due when a buyer is found?
iii. What is owed to the broker if the seller
decides to remove the property from the market?
iv. Does
the seller have to pay any fees to the broker other than a commission?
2. Property
Condition Disclosure Statement (“PCDS”). The requirement to provide a PCDS depends on
the type of property involved (see the article on the Property
Condition Disclosure Statements for more information). If the PCDS is required to be provided by the
seller, the seller's attorney should examine the PCDS before it is finalized
and submitted to the purchaser. The seller's attorney may be able to make
recommendations on how the form should be completed. The purchaser's
attorney should examine the PCDS for potential issues that the
purchaser may want addressed in the contract.
3. Contract. The attorney, no matter which party is
represented, should examine the contract and may offer some suggested
changes. Therefore, it is important for
an attorney to have an understanding of the transaction, and what is expected
by both parties. A number of issues could be important to either the seller or
purchaser, or both, which require special provisions to be added to, or in
modification of, any contract, including:
a. Rent
Adjustments. If a tenant owes
back rent, how does it get collected? Must the tenant be evicted before closing?
b. Seller
Financing. Will the seller be
holding a mortgage for part of the purchase price? If so,
i. Must
the purchaser provide financial statements for the seller’s approval, and if
so, when? What documents is the
purchaser required to provide, and what determines if they are satisfactory?
ii. Are
the terms and form of the mortgage to be different than the standard Bar
Association Form, and if so, when will they be negotiated?
ii. Is
the seller’s mortgage going to be subordinate to a bank mortgage? If so, what are the consequences?
c. Pre-Closing
Contingencies. Are there any
special conditions which if not satisfied enable either the seller or purchaser
would wish to cancel the contract (e.g. sell or purchase another
property)? If so, are these adequately
spelled out in the contract?
d. Closing
date. Either party may have
special circumstances requiring close attention to the closing date stated in
the contract (e.g. the seller already has a contract to buy another property
and must close the sale first).
e. Condition Of Property and Pre-Closing Work.
i. Did
the parties agree that the purchaser will accept the property in a condition
other than that provided for in the standard contract?
ii. If the contract provides for work to be
done before closing, is it clear as to what work needs to be done, who has to
do the work, and who will bear the cost? How is the seller protected if the purchaser does not pay for the work,
and the sale does not close?
iii. What can the purchaser do if the
purchaser intends to modify the use of the property but discovers before
closing it cannot be done legally or cost effectively?
f. Property
Used In A Business. Was the property previously used in a
business by the seller? There are
special tax problems which need to be addressed.
Next-Role of
Attorney In Contract Administration.
.
CAUTION: THIS ARTICLE IS INTENDED TO PRESENT GENERAL
INFORMATION AND IS NOT INTENDED TO BE A SUBSTITUTE FOR CONSULTATION WITH LEGAL
COUNSEL.
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Last Update: March 28, 2011